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Federal judge slams DeVos and Education Department for violating order and weighs sanctions

Education Secretary Betsy DeVos was criticized by a federal judge in a case involving student loan collection. (Alex Wong/Getty Images)
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A federal judge blasted Education Secretary Betsy DeVos for flagrantly violating an order to stop collecting loan payments from former Corinthian Colleges students, an infringement that could result in fines or other sanctions.

In a court filing Tuesday, Magistrate Judge Sallie Kim of the U.S. District Court in San Francisco said she was “deeply disturbed” by the Education Department’s “lack of compliance with the injunction … and the sheer scale of violations.” Kim said the court will consider whether a finding of contempt or monetary sanctions — or both — is warranted.

DeVos violated a court order to stop collecting on the debts of Corinthian College students. Now, they want her held in contempt.

The Education Department revealed in a September court filing that more than 16,000 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. Attorneys for the borrowers asked the judge to hold DeVos in contempt last week.

During a hearing Monday, Kim said: “I’m not sending anyone to jail yet, but it’s good to know I have that ability. I’m most concerned with helping the people who were harmed by this — this problem that the government created."

The judge expressed concern about the haphazard way the Education Department tried to execute her order. The agency 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.

“There wasn’t a lot of action,” Kim said Monday. “Sending a couple of emails seems really minor in terms of making sure that there’s compliance with an order of this magnitude.”

The federal judge has asked attorneys on both sides to submit their arguments on possible sanctions over the next two weeks. She has also asked the Education Department to provide updates on its efforts to remedy the situation.

Justice Department attorneys representing DeVos and the Education Department argued in a court filing last week that sanctions are unwarranted because there was a “good faith” effort to comply with the order.

The Education Department did not immediately respond to requests for comment.

Judge rejects DeVos’s interpretation of order to halt partial student debt relief plan

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 closure of Corinthian, a chain felled by charges of fraud and predatory lending, ushered in a flood of claims at the Education Department.

The case stems from DeVos’s decision in December 2017 to provide debt relief to former Corinthian students by comparing the average earnings of students in similar vocational programs. That earnings information was collected under the gainful-employment regulation, which penalizes career-training programs for producing too many graduates with more debt than they can repay.

The Project on Predatory Student Lending at Harvard University and the Housing and Economic Rights Advocates group filed an injunction in March 2018 to stop the practice. They argue that the Education Department has no right to use the data, which is supplied by the Social Security Administration, for any purpose other than to evaluate vocational programs. The attorneys also say denying full relief to Corinthian students is illegal.

Kim agreed that the Trump administration violated privacy laws by using Social Security Administration data to calculate loan forgiveness but refrained from declaring the partial relief plan illegal.

She banned the Education Department from using the earnings data to grant partial student debt relief to Corinthian students and halted collection on their loans. Kim had also put a hold on the case until the court could determine the proper course of action, but she lifted that stay this week, allowing the case to proceed.