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Feds Push to Collect From Defrauded Corinthian Students

A Justice Department lawyer on Monday defended cutting loan debt relief for some 100,000 students defrauded by Corinthian Colleges, arguing the Department of Education never promised to wipe out all of their debt. 

SAN FRANCISCO (CN) – A Justice Department lawyer on Monday defended cutting loan debt relief for some 100,000 students defrauded by Corinthian Colleges, arguing the Department of Education never promised to wipe out all of their debt.

"There were never affirmative representations by the department that everyone who filed claims would get 100 percent loan relief," Justice Department lawyer Karen Bloom said in court Monday.

Bloom urged U.S. Magistrate Judge Sallie Kim to reject a motion for a nationwide preliminary injunction to force the government to fully compensate defrauded Corinthian students without delay.

Lead plaintiff Martin Manriquez sued Education Secretary Besty DeVos on Dec. 20, 2017, the same day the department announced it would reverse an Obama-era rule that gave full-debt forgiveness to students misled by for-profit colleges about post-graduation job prospects.

The department unveiled a new formula that uses social security data to compare former students' wages to the average earnings of graduates in each area of study. Each borrower is then entitled to a percentage of debt relief based on how much money they earn.

But attorneys for a proposed class of borrowers say the department's Average Earnings rule should be struck down because it impermissibly revokes benefits for borrowers, some of whom already applied for and expected full debt relief. The plaintiffs also claim the department failed to reasonably explain its change in policy and that it uses social security data in a way that invades borrowers' privacy.

"These individuals went to Corinthian to learn a new professional skill and get ahead, and they were given an education that was worthless," plaintiffs' attorney Joshua Rovenger said in court Monday.

The Department of Education says the policy was changed to ensure borrowers are only compensated for "actual harm suffered." It says privacy law exemptions allow it to use social security data for "programmatic disclosures" and "routine uses."

Without an injunction, Rovenger said many borrowers will be forced to default on loans, declare bankruptcy, become ineligible for new student loans and housing, and be forced to delay getting married and having children due to debt and credit problems.

Judge Kim asked the Justice Department lawyers about one named plaintiff, Jennifer Craig of Los Angeles County, who, according to the lawsuit, must choose between making loan payments or supporting her family of three children and a husband who lost his job in early 2018. Craig enrolled in a medical billing and coding program but has not found a job in that field due to a lack of adequate training, according to the complaint.

"The question that needs to be focused on is to what extent is the department causing economic harm on top of the economic harm already inflicted by Corinthian," Justice Department lawyer Robert Merritt III said.

Merritt argued the plaintiffs failed to specify concrete and imminent harm, such as a loss of medical coverage, that would justify granting a preliminary injunction.

Both sides squabbled over whether the judge may consider harms that would be suffered by members of the proposed class, rather than only harms suffered by four named plaintiffs.

Rovenger argued that Craig has suffered the same types of financial harm as the larger proposed class.

But Kim appeared unconvinced.

"I don't have enough evidence to show whether the named plaintiffs are representative of the class," she said.

After an hour of debate, Kim took the arguments under advisement. She said she will issue a ruling by June 4, when the Justice Department will be back in court for a hearing on its motion to dismiss a separate lawsuit over student debt relief changes filed by the state of California.

Corinthian Colleges declared bankruptcy and collapsed in April 2015 after investigations by the Department of Education and numerous state attorneys general revealed fraud at more than 100 college campuses.

Last year, the Education Department under DeVos' leadership reversed another Obama-era rule that required for-profit colleges to disclose post-graduation employment data to show whether the schools actually prepare students for gainful employment in their fields of study.

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