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DeVos to Face 160,000-Person Class Action on Student Loans

Oct. 31, 2019, 4:17 PM

Nearly 160,000 former for-profit college students seeking loan forgiveness may pursue their claims against the Department of Education and Secretary Betsy DeVos as a class, the Northern District of California held.

Over 210,000 borrower defense claims are currently pending and the department has failed to act on a single application since June 2018, Judge William Alsup of the U.S. District Court for the Northern District of California said.

The uniform policy of inaction affects all class members similarly, the court said.

It found the delay “especially striking” considering that the department decided 28,000 applications between July 2016 and January 2017.

The agency argued the case isn’t right for class treatment because the students filed applications at different times and they must be decided on individual facts.

But the students aren’t seeking a specific decision on each application, just an order to restart the decision-making process to eventually get a decision, the court said Oct. 30.

The Higher Education Act, department regulations, and students’ loan contracts allow students to cancel their federal student loans if their school engages in misconduct, which is known as the borrower defense.

Department officials blamed the delay on a pending lawsuit that challenged its plan to use a specific formula to determine if a borrower should receive full or partial loan forgiveness. A federal judge said in May 2018 the formula improperly used federal data collected for other purposes.

The students went to schools including ITT Technical Institute, Corinthian Colleges, DeVry University, and the Art Institutes, a number of which have recently closed.

They say the schools lied to them by promising high-paying jobs and fulfilling careers. “The schools actually delivered worthless products that left students with thousands of dollars in debt, damaged credit, and depleted access to further student aid,” the complaint alleges.

Housing & Economic Rights Advocates and Legal Services Center of Harvard Law School represent the borrowers.

The case is Sweet v. Devos, 2019 BL 416955, N.D. Cal., No. 19-3674, 10/30/19.

To contact the reporter on this story: Perry Cooper in Washington at pcooper@bloomberglaw.com

To contact the editors responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com