Betsy DeVos Held in Contempt. Department of Education fined $100,000. What’s Going On?

Last week should have been a bad week for Education Secretary, Betsy DeVos, but one wonders if it is possible to create a really meaningful punishment for somebody like Betsy DeVos—a punishment for allowing her staff to neglect their responsibility to protect vulnerable student loan borrowers who were defrauded by Corinthian Colleges.

Although last week it was announced that Betsy DeVos was being fined $100,000 for the Corinthian Colleges loan forgiveness disaster, it turns out that the agency—the Department of Education—is really being fined.  And even if DeVos had been personally fined, she is among the wealthiest members of President Trump’s cabinet, and the fine wouldn’t have made much of a difference given the size of her family’s fortune.

But the students who were defrauded are not so lucky. DeVos is responsible for causing what has to be financial misery for at least 16,000 students and parents who were billed for loan payments which had supposedly been cancelled.  These people were hounded by loan collectors, and some of them had their tax refunds and wages seized by the contractors who handle loan collections for the Department of Education.

For the NY Times, Erica Green and Stacy Cowley report: “Magistrate Judge Sallie Kim of the Federal District Court in San Francisco ordered the Education Department to pay a $100,000 fine. The money will go toward various remedies for students who are owed debt relief after President Barack Obama’s Education Department found they were defrauded by the chain, Corinthian Colleges, which collapsed in 2014. The ruling is a victory for the more than 60,000 students who have been on a financial roller coaster since Corinthian imploded, after state and federal officials found that it lured students through deceptive recruitment practices and falsified job placement rates.”

Green and Cowley further explain the legal history of the case. DeVos has tried to implement a system by which ‘borrowers defense to repayment’ claims would be paid only in cases when borrowers were found to be without a living wage: “Last year, Magistrate Judge Kim found the system illegal, ruling that the Education Department had violated borrowers’ privacy by obtaining and misusing their earnings data from the Social Security Administration.  She issued an injunction ordering the department to stop using the data and collecting the debts of Corinthian students. The department appealed the decision to the United States court of Appeals for the Ninth Circuit and is waiting or a ruling.”

Early in October, Politico’s Michael Stratford reported: U.S. Magistrate Judge Sallie Kim said in a hearing she was ‘extremely disturbed’ and ‘really astounded’ that the department and Secretary Betsy DeVos had sought to collect on the student loans in spite of her May 2018 order to stop doing so. ‘Whether it’s contempt or whether it’s sanctions, I’m going to entertain them,’ Kim said during the hearing… She added: ‘I’m not sending anyone to jail yet but it’s good to know I have that ability. There have to be some consequences for the violation of my order 16,000 times.'”

Last week Judge Kim followed through on her threat to hold the Department of Education accountable. The Washington Post‘s Danielle Douglas-Gabriel explains: “A federal judge on Thursday held Education Secretary Betsy DeVos in contempt for violating an order to stop collecting loan payments from former Corinthian Colleges students… In September, the federal agency revealed in a court filing that former Corinthian students ‘were incorrectly informed at one time or another… that they had payments due on their federal student loans’ after Kim put a hold on collections in May 2018.  Although the agency has since stopped pursuing nearly 15,000 of those borrowers, it is still working to resolve the problem with the remaining borrowers.  About 1,808 people lost wages or tax refunds as a result of the department’s actions.”

Douglas-Gabriel adds that apparently the Department’s instructions to the contractors who handle collections lacked clarity: “The Education Department has said it sent emails to the loan-servicing companies it pays to manage the federal student loan portfolio, directing them to postpone the payments of Corinthian students and halt collection of their debts.  But the agency did not send specific instructions to the companies to postpone the payments indefinitely. Two department officials have since been disciplined, while the agency reprimanded loan servicers for their failings.”

Perhaps the Department of Education’s failure to cancel the debt collection from students at Corinthian Colleges is related to dogged efforts by DeVos’s department to rewrite the Obama era rule that should have protected the students.  In a report in early September, Douglas-Gabriel explained the history of the ‘borrowers defense to repayment’ rule, under which  the debts of students enrolled at Corinthian Colleges were forgiven:  “A 1995 law known as “borrower defense to repayment” gives the Education Department authority to cancel the federal debt of students whose colleges misled them about graduation or job placement rates to get them to enroll. The Obama administration updated the regulation to shift more of the cost of forgiveness onto schools, after the closure of for-profit giant Corinthian Colleges ushered in a flood of claims. The Trump administration Friday (August 30, 2019) finalized its rewrite of the Obama-era rules, after two years of trying to delay and then scuttle the regulations. Those efforts have spawned lawsuits, with the courts forcing the Trump administration to implement the 2016 rules and process a backlog of applications for debt relief. Still, more than 180,000 borrowers await answers.”

Douglas-Gabriel describes the new rules, as updated by DeVos’s Department in late August, 2019: “The Trump administration is asking students to jump through more hoops…. Borrowers will have to show their school engaged in actions or made statements ‘with knowledge of its false, misleading, or deceptive nature or with a reckless regard for truth.’ Even if students convince the department that they were defrauded, they must still prove financial harm before loans are canceled… Borrowers will have less time to apply for relief—three years from graduation or withdrawal from college… The new rules also kill an Obama provision that barred colleges from requiring students to sign agreements during enrollment forcing them into arbitration if there is a dispute.” “The Trump administration estimates the rules will save the federal government $11 billion over 10 years—loan payments that would have gone uncollected under existing rules.”

The new rules won’t formally take effect until July of 2020.

Last week, by holding Betsy DeVos in contempt and fining the Department of Education $100,000, federal Magistrate Judge Sallie Kim tried to stop the U.S. Department of Education from trying to collect repayments from the former students of Corinthian Colleges on their previously cancelled loans. The Department, of course, claims it was all a mistake.  But the NY Times‘ Green and Cowley suggest that the Department’s failure to enforce the law may instead result from inaction while DeVos and her staff wait for the appeals court to rule: “The department has essentially stopped evaluating borrower defense claims—leaving borrowers in limbo, sometimes for years—while it waits for the courts to resolve its appeal.  The agency had 210,000 pending claims awaiting a decision as of June, up from the 106,000 claims it had sitting in its queue a year earlier.”

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