Jail threat for education officials over student debt collection

A federal judge has held out the possibility of jail time for top Trump administration education officials after collectors pursued the debts of students promised tuition fee refunds from a collapsed chain of for-profit colleges.

Magistrate Judge Sallie Kim of the US District Court in San Francisco had ordered the Education Department in May 2018 to stop collecting on the federal loans of former students of the Corinthian College chain.

But the department persisted, deducting wages and seizing tax refunds from some 16,000 former students of the 100-campus Corinthian College network, which closed in 2015 amid numerous investigations and lawsuits alleging fraud.

At a hearing in San Francisco, according to a transcript of the exchange, Judge Kim said she was “astounded” that the US education secretary, Betsy DeVos, and her department had not complied with her earlier order.

“I don’t know if it’s contempt, I don’t know if it’s sanctions,” the judge told lawyers representing the Education Department, according to the transcript provided by the department. “I’m not sending anyone to jail yet, but it’s good to know I have that ability.”

Ms DeVos and her department leadership, which includes former top officials of for-profit colleges, have worked on multiple fronts to reverse the Obama administration’s crackdown on the sector.

The case before Judge Kim stems from a 1995 “borrower defence” law that allows the Education Department to erase the federal loan debt of students whose colleges have misled them about graduation or job placement rates.

The Education Department under Ms DeVos faced more than 20,000 claims from former Corinthian students, and it promised full loan forgiveness to students with earnings less than half that of students who attended similar vocational schools.

That action was challenged in court by the Project on Predatory Student Lending at Harvard University and the Housing and Economic Rights Advocates, which argued that the former Corinthian students were entitled to full debt relief, and that the department’s use of the Social Security Administration to calculate student earnings was illegal.

The Education Department and Ms DeVos were represented at the hearing by Charlie Merritt, a Justice Department attorney, who blamed private servicing agencies outside the department for the failure to comply with the judge’s orders.

“At this point,” Mr Merritt said, “I can say the department was surprised to learn the extent of the non-compliance issues once it…dug into this issue further in response to the last order. It definitely has become aware of the need to have better oversight of its servicers going forward.”

Mr Merritt told the judge that a total of 1,808 borrowers “were subject to involuntary collection efforts” through wage deductions and tax withholdings, and he promised that the Education Department “has requested refunds for all such borrowers”.

Judge Kim said, however, that she would move forward in coming days with both the underlying case and the consideration of a contempt charge against Education Department officials.

Joshua Rovenger, an attorney with the Project on Predatory Student Lending, told the judge that the department should not be allowed to push the blame on to the private loan servicing agencies it hires.

“The department plainly did not take all reasonable steps necessary to oversee the loan servicers,” Mr Rovenger said.

paul.basken@timeshighereducation.com