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Trump’s Education Chief in Hot Seat Over Student-Debt Collection

Joel Rosenblatt

(Bloomberg) -- U.S. Secretary of Education Betsy DeVos faces potential sanctions or a finding she’s in contempt of court for continuing to collect on the debt of former students at bankrupt Corinthian Colleges Inc., going so far as seizing their tax refunds and wages.

“I’m not sure if this is contempt or sanctions,” U.S. Magistrate Judge Sallie Kim told lawyers for the Education Department at a hearing Monday in San Francisco. “I’m not sending anyone to jail yet but it’s good to know I have that ability.”

The judge said she was “astounded” that the department violated her June order to stop collecting the debts from students, who had been promised refunds of their tuition.

“At best it is gross negligence, at worst it’s an intentional flouting of my order,” Kim warned lawyers for the department.

Corinthian, once among the largest for-profit college chains in the country, faced a flood of government investigations and lawsuits alleging systemic fraud before filing for bankruptcy protection from creditors in 2015.

Read More: Trump Picked His Perfect Education Secretary in Betsy DeVos

In the aftermath, the federal government declared that as many as 335,000 former students could erase their loans by checking a box and signing their names on a simple form, under penalty of perjury. Doing so, the former students were told, would void their debt and prompt a refund on past payments.

The Education Department “takes responsibility” for the violations of Kim’s order, Charlie Merritt, a lawyer for the agency, told Kim. “We will bring ourselves into full compliance” and make sure the agency “stays that way going forward,” he added.

Kim ordered both sides to file arguments this month to assist in her final ruling on whether DeVos is in contempt.

In 2017, a group of former Corinthian students sued the Education Department and DeVos over claims it had ceased granting the loan discharges. The case was brought as a class action on behalf of about 80,000 students.

A report the department filed last month to show its compliance with the judge’s order to cease debt collections instead explained that the agency has seized tax refunds and wages from at least 1,808 students. Almost two years later, the department still hasn’t identified all the students in the lawsuit who are owed refunds, and has processed refunds for only 10 of them, according to a court filing.

Reacting to the findings, Kim on Monday lifted a pause on the lawsuit against DeVos, ordering it to move “full-steam ahead” in tandem with a related suit filed by California despite the Education Department’s pending appeal of her rulings in the litigation.

“We think contempt is clear on the record presently before the court, and expect that the court will issue that finding, regardless of what sanctions are imposed," said Eileen Connor, legal director at the Project on Predatory Student Lending at Harvard University, which represents the students.

The cases are Manriquez v. DeVos, 17-cv-07210, and California v. U.S. Department of Education, 17-cv-07106, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Peter Blumberg, Peter Jeffrey

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