Several states are throwing their support behind scammed student-loan borrowers hoping for relief.
Led by Xavier Becerra, the attorney general of California, eight states including, Massachusetts, New York and Illinois, filed an amicus brief Wednesday in a closely-watched class-action lawsuit challenging Betsy DeVos-led Department of Education’s approach to calculating relief for federal student-loan borrowers who say they’ve been scammed by their schools.
An amicus brief, also known as a friend-of-the-court brief, allows entities with an interest in the litigation to weigh in with what they believe to be relevant information about the case.
At issue in the case is whether the agency can legally provide only a partial discharge of federal student-loans a group of borrowers acquired to attend Corinthian Colleges, a for-profit college chain that collapsed in 2015 amid claims the school misled students about job placement and graduation rates. During the Obama administration these borrowers received a full discharge of their loans.
In the brief, the states’ attorneys general argue that these borrowers are entitled to full relief under the law, known as borrower defense, which aims to make federal student-loan borrowers whole who have been defrauded by their schools.
“Amici States have a strong interest in safeguarding the economic well-being of their residents who the Department has already determined are qualified for complete cancellation of their federal student loans because they were defrauded into attending various educational programs offered by Corinthian,” the state attorneys general write in the brief.
The brief highlights tension between states and the federal government
The brief highlights the tension between states and the federal government that’s emerged over the past several months as the federal government scaled back its oversight of the for-profit college and student lending industries during the Trump administration.
Earlier this year, DeVos wrote a memo indicating student loan companies’ relationship with her agency should shield them from state consumer protection laws. As the Department has worked to re-write rules surrounding for-profit colleges, many state attorneys general, including those in the brief, have challenged those efforts both through legal means and in the public domain.
States “used to be a partner with the Department of Education in trying to protect and provide relief to students and now they’re really opponents with the Department of Education,” said Abby Shafroth, a staff attorney at the National Consumer Law Center.
A focus of the brief is states’ role in helping the Department determine which Corinthian students might be eligible for relief under the law and the steps they took to make borrowers aware of that relief. Under the borrower defense law as it was written in the 1990s, a borrower can assert a claim for relief if they can prove their school violated state law.
In 2015, the Department in a joint investigation with California, where Corinthian was based, determined that the school violated California state law by misrepresenting its programs to students. Based on that finding, the Department developed a simple form eligible borrowers could use to request discharge of their loans.
States allege Corinthian violated their laws
Other states, including Massachusetts and Illinois, provided the Department with thousands of pages of evidence that Corinthian violated the law in their state, according to the brief. What’s more, state attorneys general offices took pains to find residents who might be eligible for relief.
The states hired a company to the tune of at least $290,000 to coordinate contacting borrowers, according to the brief. They also created their own bespoke outreach efforts. For example, in Massachusetts, the attorney general’s office held 19 workshops across the state to help students fill out the claim form. They also called, emailed and mailed letters to borrowers who were likely qualified for relief.
The states “spent significant resources trying to ensure that people who were eligible for loan cancellation because of Corinthian fraud would get it,” said Eileen Connor, the director of Harvard Law School’s Project on Predatory Student Lending, one of the organizations representing the borrowers. “It’s just really outrageous that the Department really capriciously turned away from that.”
The policy being challenged in the suit would allow for borrowers determined by the Department to have received some benefit from their education — based on whether the average earnings of their Corinthian program is 50% or more of the earnings of a typical graduate in a comparable program — to receive only a partial discharge of their loans.
Earlier this year, the judge in the case ordered the Department to stop collecting on the loans in question in the case and found issue with the method used by the Department to determine whether a borrower was only entitled to partial relief.
In the brief, the states argue that the Department already determined these Corinthian borrowers were entitled to full relief under the law. The state attorneys general also note the “irreparable harm” that borrowers still forced to repay part of their loans would face. They detail how Corinthian’s recruitment efforts preyed on vulnerable students, including even the homeless, saddled them with high levels of debt for degrees that provided little in the labor market, making all but impossible for them to repay the loans.
“The heartbreaking financial devastation to Corinthian’s victims cannot be overstated,” the attorneys general wrote in the brief. “Given the dire financial situation in which many of Corinthian’s victims already find themselves, the added monthly expense of paying back invalid federal student loans will simply be too much to bear, leading to financial devastation.”
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