Defrauded Students Demand Independent Review of Debt Relief Claims

Education Secretary Betsy DeVos. (AP Photo/Jacquelyn Martin)

SAN FRANCISCO (CN) — Student borrowers who claim they were defrauded by for-profit schools told a federal judge Thursday they don’t trust Education Secretary Betsy DeVos’ department to fairly decide if they qualify for debt relief under the terms of a proposed settlement.

Fourteen members of a 170,000-person class of students, some of whom have waited over four years for a decision on their debt relief applications, shared their views on a proposed settlement that would require the Education Department to issue final decisions on pending borrower defense applications within 18 months.

“I support the settlement if there’s oversight and independent people reviewing the process,” said Kishan Redding, a student borrower from Los Angeles, during a telephonic hearing Thursday. “I don’t support the settlement if the Department of Education will review applications alone.”

Redding borrowed $80,000 to attend a for-profit school that he claims deceived him about the quality of its educational programs. After waiting four years for a decision on his application, he recently received a denial letter with less than 30 words, which he says failed to adequately explain why his claim was denied.

In April, DeVos agreed to settle a class action claiming her Education Department left more than 160,000 students “in limbo,” damaged their credit and permanently delayed their accumulation of wealth by halting decision-making on borrower defense applications.

Enacted in 2015 by the Obama administration, the borrower defense rule gave students who attended predatory for-profit colleges an avenue to have their loan debt forgiven. The rule was enacted as the government started cracking down on for-profit schools including ITT Technical Institute, Corinthian Colleges and DeVry University, which were investigated for deceiving students about post-graduation job prospects.

U.S. District Judge William Alsup preliminarily approved the proposed settlement in May.

Last month, attorneys for the plaintiff class filed a motion to enforce the terms of the settlement, arguing DeVos was violating the agreement by using “boilerplate language” to issue blanket denials of student debt relief claims.

More than 200 people asked to speak during a hearing on a motion for final settlement approval Thursday, but Judge Alsup said it would be impossible to hear from that many speakers. Instead, the court chose a representative sample to deliver comments.

The resounding theme that emerged from those remarks was resistance to approving the settlement unless the Education Department is required to provide more details on why claims are denied. Many commenters also demanded that an independent, third-party review the applications.

Rachel Greenbaum, who owes more than $100,000 after attending the Brooks Institute of Photography — which settled a class action claiming it defrauded students for $12.2 million in 2012 — said she was hopeful that “justice would finally be served” through this settlement after waiting years for a decision on her borrower defense claim.

“When I found all that came of it was mass denials, I felt furious and hopeless,” Greenbaum said. “My only wish now is that Judge Alsup will enforce the settlement under the true spirit of the settlement. We should be given all the reasons why so we can launch a factual appeal.”

Laura Dadich of St. Paul, Minnesota, incurred $75,000 in debt pursuing an associate’s degree in health care management at the for-profit Katharine Gibbs School. She was told her credits would transfer anywhere and count toward her nursing degree, but she later discovered the school was not nationally accredited.

“I applied for relief, got a denial letter weeks before this hearing,” Dadich said. “The only reason was ‘other.’”

Victoria Linssen of Muncie, Indiana, struggled to hold back tears as she described how a combined $125,000 she owes in private and federal loans from attending the Brooks Institute of Photography has upended her life.

“I lost my job, livelihood, home, car, was out of work four years, was forced to move seven states and 1,800 miles away from my family to get work,” Linssen told the judge.

Linssen said she had heard that Brooks was sued on claims of defrauding students but was told the institution had corrected those problems.

“I was told the previous actions were cleaned up, but they continued to defraud and take new students up until the day they filed for bankruptcy,” Linssen said.

After hearing those comments, Judge Alsup asked why debt relief claims were denied for students who attended schools that were found to have engaged in fraud by the Federal Trade Commission and other state and federal agencies.

Justice Department lawyer R. Charlie Merritt said some students may not have attended those schools during time periods in which the school was found to have engaged in fraud. He added that because this lawsuit challenged the department’s failure to issue decisions on debt relief claims, it would be inappropriate for the court to review individual determinations.

Last week, Alsup proposed a compromise in which the Education Department would agree to issue denial letters that contain at least three paragraphs summarizing the applicant’s main point, stating the reasons for denial, and citing evidence in the record supporting the denial.

On Wednesday, both sides issued a joint statement saying at least one of the parties would not accept those terms.

At the end of Thursday’s hearing, Alsup lamented the time wasted pursuing a settlement deal which appears to be falling apart. He said the parties could have spent this time taking depositions of Secretary DeVos and Education Department employees who wrote denial letters.

“If we do deny [the settlement], we’re going to get back into this case fast,” Alsup said. “We’re going to litigate it like a real lawsuit with depositions, people under oath.”

After a 90-minute hearing, Alsup took the class members’ comments under submission.

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