“There is no question that the defendants violated the preliminary injunction. There is also no question that defendants’ violations harmed individual borrowers,” Kim wrote in her ruling Thursday. “Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply.”
The judge has ordered the department to provide monthly status reports on its efforts to follow her order and rectify the harm it inflicted upon borrowers. Failure to comply with this latest order could result in additional sanctions.
The Education Department said it was disappointed in the court’s ruling.
In September, the federal agency revealed in a court filing that 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.
The Education Department has 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.
Two department officials have since been disciplined, while the agency reprimanded loan servicers for their failings, according to people familiar with the matter who were not authorized to speak publicly.
In a video posted to Twitter on Thursday, Mark A. Brown, chief operating officer in the department’s student aid office, said the agency takes “full responsibility” for its actions.
“We know we must do better,” Brown said. “… We’re all accountable for the quality of our work and the impact of our actions.”
He said the department has refunded 99 percent of affected customers and expects the remaining will be made whole by the end of the week.
At a hearing on the matter this month, 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.”
Attorneys for the borrowers proposed an array of sanctions, including fining DeVos $500 per day until the Education Department is fully compliant with the original court order.
Toby Merrill, director at the Project on Predatory Student Lending, a legal-aid group representing the students, said the “rare and powerful action to hold the Secretary of Education in contempt of court shows the extreme harm” of DeVos’s actions.
“Thousands of students illegally had their tax refunds seized and wages garnished, and the Department still can’t identify all of the affected students nor refunded the money,” Merrill said. “The judge is sending a loud and clear message: Students have rights under the law and DeVos’ illegal and reckless violation of their rights will not be tolerated.”
In an attempt to stop the court from imposing sanctions, Justice Department attorneys representing DeVos and the Education Department argued in a court filing last week that the agency “has been working diligently and in good faith to correct the errors.”
The “errors at issue here were not the result of any willful or intentional conduct on the part of the Department, but, as the Court has recognized, gross negligence, including negligent oversight of the Department’s servicers,” Justice Department attorneys wrote.
DeVos also pointed fingers at loan servicers in a Twitter spat with Sen. Elizabeth Warren (D-Mass.), who blasted the education secretary for “refusing to follow the law and stop punishing scammed students.”
DeVos responded: “Loan servicers made an error on a small [number] of loans. We know and we’re fixing it.”
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 sought 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 month, allowing the case to proceed.