Circuit Judge Wary of DeVos’ Student Loan Debt Formula

SAN FRANCISCO (CN) - A Ninth Circuit judge suggested Friday that the Trump administration's Education Department used a flawed formula to make defrauded students pay back at least some loan debt to the federal government.

"It certainly seems at least plausible to say what was being compared here were apples and oranges, and the number that was being used as the comparator was being taken out of context entirely," U.S. Circuit Judge Marsha Berzon said during Friday's hearing.

Berzon was responding to a Justice Department lawyer's argument that the method used to determine how much defrauded students should pay back in loan debt was both fair and practical.

Education Secretary Betsy DeVos is appealing a May 2018 court order forcing her to stop collecting loan payments from students who were misled about post-graduation job prospects by the now-defunct, for-profit Corinthian Colleges.

In December 2017, the Education Department announced it would reverse an Obama-era rule that gave full debt forgiveness to students deceived by Corinthian Colleges, a private 100-campus institution that collapsed in April 2015 after multiple state and federal investigations exposed its fraudulent marketing practices.

On Friday, a lawyer representing a nationwide class of more than 100,000 student borrowers argued the department's new "Average Earnings" rule used an unfair formula to rescind the government's previous offer of full debt relief.

Attorney Joshua Rovenger, of the Legal Services Center of Harvard Law School, said the department only used earnings data from 2014, when some students were still in school, and compared it to average earnings of graduates from other colleges, including those who now work minimum-wage jobs with their degrees and certificates.

Additionally, Rovenger argued, the department failed to account for graduates who work in fields that have nothing to do with their areas of study.

Justice Department lawyer Joshua Salzman countered that the use of existing data to assign value to each program was the most practical way to ensure borrowers only get compensated for "actual harm suffered." The department maintains that cancelling all of the students' loan debt would divert resources from important educational programs.

"What the plaintiffs are asking for is an assumption that everyone got zero value," Salzman told the circuit judges.

Despite the lawyers' focus on the fairness of the formula, U.S. Magistrate Judge Sallie Kim blocked the “Average Earnings” rule for a different reason – because the Education Department obtained the earnings data by sharing borrowers’ personal information with the Social Security Administration in violation of the Privacy Act.            

Challenging that finding, Salzman argued Friday that the "end product" of the data exchange is more important than how the data was obtained. Salzman insisted the result was "aggregate earnings data," not individualized, personally identifiable information.

That argument didn't go over well with Berzon, who pointed out that personally identifiable information was shared with the Social Security Administration in the first place.

When Salzman explained how "end-product" data was used "to determine how much relief individual borrowers should get based on the program," Berzon interrupted.

"There you go! Individual borrowers! It ended up with individual borrowers," Berzon exclaimed.

But Salzman insisted exemptions in the Privacy Act allow the government to use citizens' private data for "routine uses" and "programmatic purposes."

Rovenger countered that the Privacy Act also requires the government to notify people when it shares their private information, and the department's "general disclosures" on loan applications and borrower defense claim applications were insufficient.

"We urge this court to continue protecting these students and affirm the injunction," Rovenger said in his final pitch to the panel.

U.S. Circuit Judge Richard Paez and U.S. District Judge Gary Feinerman, sitting by designation from the Northern District of Illinois, joined Berzon on the panel.

The panel did not indicate when it would issue a ruling.

After granting the plaintiffs' request for an injunction last year, Magistrate Judge Kim declined to revive the prior Obama administration policy that would completely wipe out the students' loan debt. In October, Kim granted the borrowers' motion for class certification, allowing a nationwide class of approximately 110,000 students to team up in their lawsuit against the Education Department.

Follow @NicholasIovino

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit