Former Corinthian Colleges students had their privacy rights violated in struggle over student loan debt cancellations, federal judge rules. However, the interim ruling raised the possibility that the Department of Education could ultimately prevail in financial fight.
Thousands of former Corinthian Colleges students have won a preliminary victory in their court battle to cancel millions of dollars in federal loan debt for their studies at the scandal-scarred, for-profit schools.
A judge late Friday temporarily barred the U.S. Department of Education from continuing to collect loan debts from the students based on allegations the agency violated the federal Privacy Act.
"Given their financial situations, any additional dollar they are required to repay takes away from basic need for food and shelter," wrote Kim.
Her ruling cited the plight of several former students, including Jennifer Craig, who borrowed $9,010 in 2014 to enroll in a medical insurance and billing program. Craig completed the program but discovered that Corinthian had not provided the practical experience required to land a job in her field.
"Craig and her husband have a very limited income or no income," the judge wrote. "They appear to live, by any definition, in poverty."
The judge's interim decision marks at least a temporary legal setback for the Trump administration and Education Secretary Betsy DeVos. However, Kim's decision offered a route for the Department of Education to address the alleged privacy violation and resume student loan collections from former Corinthian students.
"This is an important ruling," said Toby Merrill, the director of the Project on Predatory Student Lending, one of the agencies that filed the lawsuit. "The notion that students got anything other than negative value from Corinthian has been roundly disproved by student experience and the judgment of employers and the legitimate higher education sector.
The Department of Education said it would "carefully review the court's decision as we assess next steps."
The legal fight focuses on Corinthian, a former Santa Ana, Calif.-based company that primarily offered certificate and associate degree programs nationwide through its Everest, Heald, and WyoTech colleges. During 2009 and 2010, Corinthian operated more than 100 campuses in 25 states, enrolled more than 110,00 students and collected $1.7 billion in federal student aid, court filings show.
Corinthian ended operations and closed its remaining campuses in 2015. The shutdown came after the Department of Education concluded that the company's Heald College system had misled students and the federal government about job hiring rates for graduates.
The department placed a hold on Corinthian's access to student loans, essentially choking off much of the company's funding. Education officials later said they would impose a $30 million fine on the company.
The Consumer Financial Protection Bureau separately obtained a more than $531 million default judgment against Corinthian in late 2015. By then, however, the company had been liquidated in bankruptcy court proceedings.
Thousands of Corinthian students, many unable to find jobs in their fields of study, asked the Department of Education to forgive their student loan debts in response to the company's misrepresentations.
During the Obama administration, the federal agency created a procedure that granted full loan discharges to nearly 25,000 Corinthian borrowers who attested that they either had attended one of the company's colleges that closed in 2015 or believed they had been defrauded by one of the schools.
However, the Corinthian loan forgiveness program changed last year under the Trump administration. After reviewing student loan borrower claims and other records, the department determined 51 Corinthian programs had met guidelines for instruction that leads to gainful employment, while six had failed.
As a result, education officials in December established a new procedure that would vary the loan forgiveness percentage for former Corinthian students and similar borrowers. The system is based on the programs the students attended and whether they subsequently were able to earn as much as peers in programs that satisfied the gainful employment guidelines.
"This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified," DeVos said.
The change "left over 110,000 former Corinthian borrowers who have applied for loan discharge in limbo," attorneys for the students argued in an amended class-action complaint filed in March.
Kim's ruling said the Department of Education violated the students' privacy by sharing their names, birth dates and Social Security numbers with the Social Security Administration, and then using additional SSA information to calculate what percentage of the loans should be forgiven.
"Saving money does not justify a violation of the law — the Privacy Act," the judge wrote.
Kim also ruled that the students have also shown compelling evidence that they have lost economic opportunities that can't be recovered.
But the judge ruled against the students on other arguments raised by their lawyers. DeVos may have authority to cancel some but not all of the students' debts if the Department of Education followed proper procedure, the ruling suggested. The department said it was "encouraged" by that part of the ruling.
Additionally, Kim said she was uncomfortable that there was no evidence in the case thus far to show the exact process the Department of Education used to erase debts of former Corinthian students during the Obama administration.
She set a June 4 hearing on that issue as legal arguments in the case continue.