Government blames contractors partly for non-compliance with court orders.
On Monday, a federal judge said Education Secretary Betsy DeVos could face jail time based on the department’s violations of a court order to stop collecting loans from former students of a now-bankrupt for-profit college.
"I'm not sending anyone to jail yet, but it's good to know I have that ability,” said U.S. Magistrate Judge Sallie Kim, before the Northern District of California Federal Court. She removed a pause that had been placed on a 2017 class action lawsuit filed by the Project on Predatory Student Lending and the Housing and Economic Rights Advocates on behalf of about 80,000 former Corinthian College students.
The class action suit alleged the department is unlawfully denying the former students debt relief under the Corinthian Job Placement Rate Rule, which was established in 2015 following multiple investigations into the college’s fraudulent activity. This included a lawsuit by then-California Attorney General Kamala Harris, who is now a U.S. senator and Democratic presidential candidate. Kim ruled in June 2018, that the department must “halt any collection activity on the relevant loan” and “provide forbearance to any such borrower.” The Trump administration appealed the preliminary ruling in July 2018 and the case has been on pause since the appeal.
However, in a September filing, the department admitted that over 16,000 former students were incorrectly told they had payments due on their federal student loans and about 1,800 were subject to wage garnishment and tax refund offset since May 2018.
The Education Department was “surprised to learn the extent of the non-compliance issues,” said Charles Merritt, the Justice Department attorney representing DeVos and the department, according to Politico. It “definitely has become aware of the need to have better oversight of its servicers going forward,” he said. The department put some of the blame on the loan servicing companies it hires, Politico reported.
“The order went out to [the Education Department],” said Natalie Lyons, senior attorney for Housing and Economic Rights Advocates and one of the former students’s attorneys. “It was their responsibility to do what they had to do in order to make sure that these contractors also followed the law.”
Not all student loan accounts are handled by contractors, but the Default Resolution Group and the Debt Management and Collections System help the department “handle its sprawling portfolio of defaulted federal student loans,” wrote Adam Minsky, an attorney focused on helping student loan borrowers, in Forbes.
An Education Department official told Government Executive, “While we do not comment on ongoing litigation, we are working to faithfully comply with the judge’s orders in this case.”
"I'm so concerned about this violation of the order that I think the stay is gone,” Kim said, adding the case will go “full-steam ahead,” Politico reported. Kim ordered the attorneys for the Education Department to file their relevant briefs by Oct. 21.
Since becoming secretary, DeVos, a former lobbyist and chair of the Michigan Republican party, has rolled back many regulations that hold for-profit educational institutions accountable and has been the subject of numerous legal battles.
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