Judge Rejects Settlement, Fast-Tracks Student Debt Relief Class Action

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

SAN FRANCISCO (CN) — Finding strong indications of “bad faith” in the way Education Secretary Betsy DeVos denied 94% of student debt relief claims in recent months, a federal judge rejected a proposed settlement Monday night and fast-tracked a lawsuit over long delays in deciding borrower defense claims.

“After justifying 18 months of delay largely on the backbreaking effort required to review individual applications, distill common evidence, and ‘reach considered results,’ the secretary has charged out of the gate, issuing perfunctory denial notices utterly devoid of meaningful explanation at a blistering pace,” U.S. District Judge William Alsup wrote in a 17-page ruling.

DeVos had agreed in April to process a backlog of 170,000 pending debt relief applications filed by students who claim they were defrauded by for-profit schools, but in September the Education Department was accused of using “boilerplate language” to deny virtually all debt relief claims.

At an Oct. 1 hearing, 14 members of a 170,000-person class told Alsup they did not trust the Education Department to fairly decide their claims, many telling the judge they received denial notices with a few words of explanation, such as “insufficient evidence,” “failure to state a claim,” or “other.”

“This form denial puts borrowers in worse positions than they started,” Judge Alsup wrote. “They may have a ‘decision’ (though that is hotly contested), but they have neither a meaningful explanation nor (as discussed above) any meaningful opportunity to appeal or request the secretary’s reconsideration. The form denial, frankly, hangs borrowers out to dry.”

Alsup cited a denial letter issued to a class member Yvette Colon who attended Sanford Brown College to become a licensed sonographer. She claimed the school lied about its accreditation status. Colon received a restitution check after the New York attorney general sued the school for fraud, but the Education Department denied Colon’s claim, citing “insufficient evidence” as the reason.

The judge found strong indications of pretext in that denial.

“Why did a student who already qualified for relief based on her school’s misconduct under state law not now qualify for relief based on a claim ‘that would give rise to a cause of action against the school under applicable state law,’” Alsup asked.

Lawyers for the plaintiff class had asked Alsup to enforce the terms of the settlement, which he preliminarily approved in May, by requiring the Education Department to issue “final decisions” that include detailed explanations of the facts reviewed and decision made.

The Education Department argued that its denial notices comply with the law and that its decisions on individual debt relief claims are not reviewable by the court or part of the class action, which challenged delays in decision-making, not the decision-making process itself.

DeVos also insisted through lawyers that she never would have agreed to clear more than 168,000 debt relief claims in 18 months “if that meant issuing the type of personalized, detailed decisions plaintiffs now suggest are required.”

Judge Alsup declined to force either side’s interpretation of “final decision” in the settlement on the other. He said any decision would be appealed and cause further delay for debt-burdened students, some of whom have been waiting four years or longer for a decision.

“We will not saddle the class with the risk of moving forward with a disputed settlement that may fall out from underneath their feet on appeal,” Alsup wrote.

The judge ordered the Education Department to provide expedited discovery on its use of boilerplate denial letters by Dec. 24, and he directed the plaintiff class to file a motion for summary judgment by Jan. 7.

DeVos will not be questioned in a deposition at this time, Alsup said, based on Ninth Circuit precedent holding that heads of government agencies are not normally subject to deposition.

“Extraordinary circumstances, however — for example, if the secretary has unique first-hand knowledge or necessary information cannot be obtained through other, less intrusive means — may justify such a deposition at a later date,” the judge added.

Alsup also ordered the Education Department to show cause why it should not be prohibited from using boilerplate language to deny debt relief claims. The plaintiff class and Education Department must respond to the order to show cause by Oct. 30.

Plaintiffs’ attorney Eileen Connor, of the Project on Predatory Student Lending at Harvard Law School, welcomed the judge’s decision in an emailed statement Tuesday.

“The class members in this case have suffered harm at every turn, but in this court order they are finally seeing a change in the tides after years of waiting for justice,” Connor said. “We look forward to the next stage of litigation in which we depose Department of Education officials to explain their actions under oath.”

Reached by email, Education Department spokeswoman Angela Morabito defended the agency’s process for reviewing borrower defense applications and disputed claims that most requests for debt relief were denied.

“It’s important to understand that no claim is ‘denied,’” Morabito said. “Many are simply ineligible because the claimant wasn’t enrolled in a eligible program at an eligible date. Others claims don’t demonstrate financial harm.”

Morabito said the department is following a publicly available process for resolving claims as quickly as possible so eligible students harmed by deceptive practices can “get the relief they deserve.” But, she said, not all students qualify for such relief.

“Just because a claim was filed does not make it valid and eligible for taxpayer-funded relief,” Morabito said.

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