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VOL. 43 | NO. 43 | Friday, October 25, 2019

DeVos held in contempt of court in loan forgiveness dispute

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WASHINGTON (AP) — Education Secretary Betsy DeVos was held in contempt of court after a federal judge said she violated an earlier order to stop collecting loans from former students of a defunct for-profit college chain.

U.S. Magistrate Judge Sallie Kim issued the ruling Thursday in San Francisco, saying DeVos and the department made "only minimal efforts" to comply with a 2018 court order. Kim also fined the Education Department $100,000 and required the agency to make monthly reports to prove it is complying with the order.

The dispute stems from a lawsuit filed by thousands of former Corinthian Colleges students who say they were defrauded by the chain before it collapsed in 2015. The suit says the students are owed full forgiveness of their federal student loans under a rule created by the Obama administration, and it challenges DeVos' 2017 decision to provide only partial relief based on borrowers' incomes.

In a May 2018 decision, Kim ruled that the partial-relief formula was unlawful. She ordered the department to stop using the formula and to stop collecting student loans from former Corinthian students.

But in a September court filing, the department acknowledged that it incorrectly sent loan bills to more than 16,000 former Corinthian students, prompting more than 3,000 to send payments. The department also garnished wages or tax refunds from 1,800 borrowers and provided credit agencies with negative reports about 800 borrowers.

The judge wrote that there was "no question" the department and DeVos violated the May 2018 injunction. She said the defendants had "not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply with the preliminary injunction."

The Education Department did not respond to requests for comment.

Lawyers for the former Corinthian students called the ruling a "rare and powerful action" that provides consequences for the "extreme harm" DeVos caused.

DeVos "repeatedly and brazenly violated the law to collect for-profit college students' debts and deny their rights, and today she has been held accountable," said Toby Merrill, director of the Project on Predatory Student Lending, which helped file the suit. "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 her ruling, the judge said the department sent just a single, three-sentence email with instructions to loan servicers, along with an "equally cursory" email to certain borrowers. There were no meetings or phone calls, Kim wrote, and little effort to make sure loan servicers received the emails.

The judge threatened to impose further sanctions if the department fails to follow her order, saying she would appoint a court official to serve as "special master" to help enforce the injunction.

The $100,000 fine will repay students for expenses they incurred to raise the issue to the court. The fine is to be paid by the department, not by DeVos personally.

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