DeVos Says Student Debt Relief Class Action Now Moot

SAN FRANCISCO (CN) – A Justice Department lawyer urged a federal judge Thursday to strike down a class action over long delays in processing student debt relief applications as moot, even as 171,000 borrowers remain “in limbo” with no decision from the U.S. Education Department.

Justice Department lawyer R. Charles Merritt told the judge that the rollout of a new formula for processing borrower defense claims effectively resolves a class action over prolonged waits of up to four years or more.

Education Secretary Betsy DeVos. (AP Photo/Pablo Martinez Monsivais)

Lead plaintiff Theresa Sweet sued Education Secretary Betsy DeVos in June last year, claiming the department’s “pause” in processing borrower defense claims became a “policy of inaction and obfuscation” preventing defrauded students from obtaining debt relief as required by law. The plaintiffs say the long delays have damaged their credit and permanently stifled their ability to accumulate wealth.

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. After Trump’s inauguration in January 2017, the Education Department announced it was taking a “pause” in processing those claims in order to “re-evaluate” the Obama-era policies.

DeVos unveiled a new blueprint for the program on Dec. 10. The revamped methodology offers sliding-scale debt relief based on a complex formula which compares the median salary of graduates from fraudulent for-profit colleges with the median salaries of graduates from similar schools.

At a hearing on dueling motions for summary judgment, Merritt insisted that because the department has resumed processing borrower defense claims, the lawsuit is no longer relevant or necessary. The department has processed 25,000 applications since Dec. 10, finding 5,000 borrowers eligible for at least partial debt relief and denying another 20,000.

Representing a certified class of 171,000 student borrowers, attorney Kyra Taylor argued that despite processing a small percentage of borrowers’ claims, the department has offered no evidence showing it can resolve all other pending applications in a reasonable time frame.

“All the people waiting are doing so because of the department’s choice to stop issuing final decisions,” Taylor said. “There’s no evidence that the department will ever deal with the backlog.”

Taylor is with the Project on Predatory Student Lending at Harvard Law School.

Noting that policies often change when new presidents take office, U.S. District Judge William Alsup asked why a federal agency shouldn’t be allowed to press pause and re-evaluate rules put in place by a prior administration.

“While the department does have discretion to re-evaluate its policies, they don’t have the ability to shut down something Congress directed them to do,” Taylor replied.

Taylor also accused Secretary DeVos of bad faith, citing her public statements at a 2017 Republican conference in Michigan where she said the borrower defense program was “harmful” because a student could merely “raise his or her hand to be instantly entitled to so-called free money.”

The plaintiffs also argue DeVos stacked the department with high-ranking officials who worked for or had connections to the for-profit college industry, including Julian Schmoke, a former dean at DeVry University who was appointed supervisor in the department’s Enforcement Division, and Education Undersecretary Diane Auer Jones, former senior vice president of the for-profit Career Education Corporation.

Taylor further noted that a federal judge found DeVos had illegally delayed implementation of Obama-era borrower defense rules in 2018.

Merritt strongly disputed those assertions of bad faith, citing declarations submitted by Education Department officials detailing their extensive efforts to review existing procedures and develop new rules and formulas to provide debt relief “in a clear, consistent and fair manner.”

Merritt also urged the judge not to consider DeVos’ prior public statements as evidence of bad faith.

“It’s certainly not enough to point to stray statements in the press by the secretary,” Merritt said.

The department has processed more than 50,000 claims over the last 18 months and has recently increased its pace to processing about 1,000 claims per week, Merritt said. The Justice Department lawyer blamed a staffing shortage as one key reason claims were not processed more quickly in the past. He said the department recently hired 12 permanent and 32 short-term attorneys to help process claims.

Alsup asked the Education Department to submit a report on how many new claims are filed each month versus how many are resolved each month so he can surmise if the backlog is swelling or shrinking.

The Education Department reported earlier this month that of the 171,000 borrower defense claims still pending, more than 18,800 were submitted over three years ago.

Alsup said he already wrote a draft version of his ruling on the cross-motions for summary judgment but added he will delay issuing his ruling until March 20 to give both sides time to make progress on settlement talks.

In a separate class action brought by former students of Corinthian Colleges, DeVos was fined $100,000 last year for forcing thousands of students to repay loans in violation of an injunction The plaintiffs in that case have asked for the fine to be increased based on new evidence that the department forced more than 45,000 class members to repay loans, far more than the 16,000 originally estimated.

A hearing on the motion for reconsideration of the contempt fine is scheduled for April 6 in San Francisco.

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