Over 45,000 Students Forced to Repay Loans by Mistake, DeVos Says

SAN FRANCISCO (CN) – U.S. Education Secretary Betsy DeVos forced more than 45,000 defrauded students to repay loans in violation of a court order – far more than the 16,000 originally estimated, the department revealed in a court filing Tuesday.

Education Secretary Betsy DeVos listens during a Cabinet meeting at the White House on July 16, 2019. (AP Photo/Alex Brandon, File)

“Students and taxpayers should be infuriated by the Department of Education’s complete disregard for student borrowers,” said Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School, which represents student borrowers in a class action against DeVos.

DeVos was held in contempt of court and fined $100,000 in October after the department acknowledged management blunders led thousands of borrowers to wrongly receive notices that payments were due.

In a compliance report filed Tuesday, the department said more than 11,500 students who wrongly received notices made payments, and 550 students had their tax refunds seized or wages garnished due to nonpayment. Another 5,000 were reported to credit rating agencies for failing to make payments, and 94 students are still waiting on refunds for voluntary payments and involuntary collections.

According to the Project on Predatory Student Lending, 75% of students subjected to involuntary collections had to borrow money at high interest rates to cover expenses, such as food, rent, child care and transportation. Some had their electric service cut off while others reported repeated late fees of $25 to $100 for utility bills as a result of involuntary collections.

The project found some borrowers were evicted due to inability to pay rent, and one individual was fired from her job after her car was repossessed because she could not make payments.

Merrill called the collections blunder “galling” and “unlawful.”

The department said its original undercount of affected students was due to “isolated issues,” primarily miscommunication with its loan servicers and discrepancies related to consolidated loans and missing social security numbers.

The department’s Federal Student Aid office “will remediate the remaining identified impacts to class members as quickly as possible, while continuing the ongoing process of re-verifying and revalidating all information regarding the class in order to correctly identify all class members and all compliance failures,” the department stated in a 14-page compliance report.

U.S. Magistrate Judge Sallie Kim granted an injunction in May 2018 halting collection on more than 70,000 loans belonging to former students of Corinthian Colleges.

The Education Department on Tuesday updated the number of class members, or former Corinthian Colleges students who submitted borrower defense applications, to 78,737 as of Nov. 5. Because about 1,200 borrower defense applications are submitted each week, the department says the size of the class is “always in flux and can only be measured at a discrete point in time.”

A Department of Education spokesman said the agency takes its responsibility to student borrowers and obligations to the court seriously. He said the department put a new team in charge of overseeing borrower defense-related issues and launched an ongoing “top-to-bottom review” to ensure past mistake are not repeated.

“We have acknowledged that, unfortunately, the loan servicers made mistakes in keeping impacted students in the proper forbearance status as we wait for a final decision from the courts. At Secretary DeVos’ direction, [Federal Student Aid] took action to fix any harm done to students and made internal changes to help prevent against future errors,” the spokesman said.

Corinthian Colleges declared bankruptcy and collapsed in April 2015 after investigations by the Department of Education and numerous state attorneys general. The for-profit institution was accused of misleading students about the value of its educational programs and their ability to get higher-paying jobs after graduation.

“Corinthian filed for bankruptcy and avoided its debts, but the students it cheated were left thousands of dollars in debt for an education they never received,” the Project on Predatory Student Lending said in a statement.

Reversing an Obama-era policy that gave full debt forgiveness to Corinthian Colleges students, DeVos unveiled a new formula in December 2017 that assigned a value to each educational program based on graduates’ average earnings. Students from each program were to pay back a portion of their loan debt based on that formula.

Lead plaintiff Martin Calvillo Manriquez sued the Department of Education over that new repayment formula in December 2017.

Despite arguments that the department used an unfair method to make the students repay loans, Kim blocked the “Average Earnings” rule for a different reason – because the Education Department obtained earnings data by sharing borrowers’ personal information with the Social Security Administration in violation of the Privacy Act of 1974.

An appeal challenging Kim’s injunction is still pending in the Ninth Circuit.

 

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