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How A Legal Organization is Defending Defrauded Student Borrowers

As the Education Department discharges debt for many students misled by for-profit schools, The Project on Predatory Student Lending is fighting for the rights of students defrauded of their tuition money and an overhaul of the broken borrower defense system.

Defrauded students are hopeful that Education Secretary Miguel Cardona will be more proactive in relieving their debt than former Education Secretary Betsy Devos. In March Cardona announced that the Education Department would rescind its prior partial relief policy, instituted under DeVos, that denied full debt cancellation to defrauded students through borrower defense. Cardona estimated that it would cancel $1 billion in fraudulent student loan debt for 72,000 borrowers. (Joshua Roberts/Getty Images)

When Theresa Sweet enrolled at the Brooks Institute of Photography, she felt hopeful. Recruiters told her that graduates averaged an income of $60,000 to $70,000 per year with the degree she would earn. “I wanted to make a living doing something that I enjoyed,” Sweet, 46, said.

But when she prepared to enter the job market after graduation, in 2006, career counselors from Brooks had little to offer, and she discovered that they had lied to her about job placement statistics, post-graduate income, and the true cost of the program itself. All the while, they had pressured her to maximize her student debt, part of a pattern of misconduct by Brooks’ parent company, Career Education Corporation.

In the end, cheated by her school, she was left with a combined $120,000 in federal and private student loans. When she could not repay what lenders demanded, that number compounded over time to $470,000. Her credit was ruined. Her financial situation ended one long-term relationship. For a time, she lived in a hotel, since no landlord would rent to her. “I basically discovered how predatory and awful this whole system was,” Sweet said. “It was years of hell.”

In 2016, Sweet filed a claim under “borrower defense to repayment,” a federal rule that allows defrauded students to appeal for debt relief. But the Education Department under then-Secretary Betsy DeVos made a policy of ignoring such claims. That's when she was introduced to the Project on Predatory Student Lending (PPSL), a nonprofit group of litigators at Harvard Law School’s Legal Services Center that advocates to protect the rights of defrauded student borrowers, recover money owed, and discharge fraudulent debt. The organization began in 2012 in an effort to pressure the Obama Education Department for a fair borrower defense process and was integral in the passage of the administration’s 2016 regulations to protect students from predatory institutions, establishing a process that previously had not existed. PPSL made Sweet the lead plaintiff in Sweet v. Cardona, a case representing a class of over 200,000 students seeking debt relief following abuse by their schools.

I basically discovered how predatory and awful this whole system was. It was years of hell.
Theresa Sweet defrauded student

Defrauded students like Sweet have been hopeful that now-Secretary Miguel Cardona will be more proactive in relieving their debt, and in March he announced that the Education Department would rescind its prior partial relief policy, instituted under DeVos, that denied full debt cancellation to defrauded students through borrower defense. Cardona estimated that it would cancel $1 billion in fraudulent student loan debt for 72,000 borrowers.

PPSL helped win this outcome by putting pressure on the Education Department in court. It first got the partial relief rule prohibited by a federal court in Calvillo Manriquez v. DeVos, and challenged it again in Pratt v. DeVos when the secretary devised a new formula to deny relief to student borrowers. Cardona’s recent move sounds a death knell for the partial relief policy, which PPSL considers illegal.

But the move applies only to students whose applications for debt relief were already accepted by the previous administration. For Sweet and many thousands of others whose borrower defense applications have been ignored or denied, a fair review and prospective debt relief remains elusive. “It’s not forward looking,” Toby Merrill, director of PPSL, said. “It's not for a new group of people whose claims haven't already been adjudicated.”

'Assembly-Line' Process to Deny Relief

Advocates for defrauded students say that the Education Department must overhaul the broken borrower defense system, and PPSL has continued to file litigation aimed at exposing what it sees as a sham process. Earlier this year, the organization filed an updated complaint in Sweet v. Cardona, formerly Sweet v. DeVos. New evidence presented during the discovery portion of that proceeding revealed that the Education Department had engaged, during the previous administration, in an “assembly-line” process designed to deny borrowers debt relief without considering their claims. Documents showed that, during DeVos’s final year in office, the agency denied almost 130,000 claims using a system that pressured employees to rush through application in minutes, reject applications based on sham procedural rules, and deny fair relief even to applicants whose schools the agency had previously found to be committing misconduct. Officially, that system remains in place.

“What our litigation is trying to do is to enforce the rights of borrowers,” Merrill said. “My hope is that we force the government and, in some cases, the industry to recognize their rights.”

PPSL litigation on borrower defense is not confined to Sweet v. Cardona. In 2020, working with the state attorney general of Massachusetts, the organization brought Vara v. Cardona on behalf of over 7,000 former Corinthian Colleges students in the state. The judge in that case ordered the Education Department to cancel their federal student loans, a rebuke to DeVos's inaction and the first time a federal court has made such a decision on a borrower defense claim. “It was a tremendous victory for students who have been waiting for so long, and who I think would still be waiting were it not for the lawsuit in the court,” Merrill said.

Experts agree that these legal victories are important. They make defrauded borrowers whole and help move policy makers to act in favor of other borrowers still awaiting a decision. “The lawsuits brought by the Harvard project and others on behalf of students have been absolutely essential to trying to get toward real relief for defrauded students, and also to provide students with hope,” said David Halperin, a lawyer and advocate who runs the website Republic Report, which focuses on issues of higher education reform.

Stronger Oversight Needed

But litigation alone cannot stem the tide of abuses from predatory for-profit institutions. Halperin said it will take stronger oversight from the federal government. “The problem is that the government opened the spigots of federal aid to for-profit institutions without sufficient regulation to make sure that they behaved ethically, didn't deceive and abuse their students, and didn't underspend on education,” he said. “It becomes hard to tame that monster, because once the schools and companies have money, they can hire lobbyists and lawyers to threaten and pressure and organize to prevent regulations.”

Advocates for higher education reform at the Institute for College Access and Success (TICAS) said that in addition to taking care of students who were lied to and cheated by their colleges, the federal government must enact basic consumer protections that stop colleges from using deceptive tactics to get students to enroll and take out loans to begin with. “Good enforcement and real penalties are important,” said Beth Stein, a senior advisor at TICAS. “But making sure that we aren't sending millions of dollars in financial aid to schools that overcharge their students for programs that do not lead to better jobs and better earnings is also a critical piece of holding colleges accountable.”

That, she noted, is what the gainful employment rule did, leading to lower tuitions, more scholarships, and voluntary closure of low-quality programs. “It worked before and it can work again,” Stein said.

Tip of the Iceberg

In the meantime, PPSL is seeking justice for more students. In March, the organization wrote a letter to Cardona, urging him to discharge the debts of former students of institutions like Corinthian Colleges and ITT Technical Institute that engaged in widespread misconduct. The organization also recently signed onto a letter to Cardona from TICAS, signed by 22 consumer protection organizations, that echoes these demands.

129,000

Number of borrower defense claims left unresolved as of December 2020. More than 99% of these are related to for-profit or covert for-profit colleges.

These letters reflect the reality that, while over 300,000 students have filed borrower defense claims since 2015, far too many have been ignored. As of December 2020, around 129,000 claims remained unresolved, with more than 99 percent of those claims related to for-profit or covert for-profit colleges. Countless others do not know that they can file at all. And federal student loans are just the tip of the iceberg, said Merrill. Many students of predatory schools, like Sweet, have taken out private loans far exceeding their federal ones. They have lost not only money but time, opportunities, and related costs like those for housing, transportation, and childcare. “So many people have been cheated by their schools,” Merrill said. “There's so much unjust and unlawful debt being collected.”

That includes the debt owed by the plaintiffs of Sweet v. Cardona. Merrill said the case represents the fundamental unfairness and abuse of the system — the way that students have suffered not only at the hands of their schools but also the Education Department.

For her part, Sweet is no longer suffering in silence. In years past, she didn’t tell her family or friends about the horrible bind she faced. “There’s so much shame and fear associated with being a victim of education fraud,” she said.

But now she’s a vocal advocate for reform to the higher education system. Today, she works as a nursing assistant, but because of her outstanding loan, she has not been able to enter a program that would allow her to earn her nursing degree. Justice, she said, would mean being able to move on with her life — to have her money refunded and her ability to borrow reinstated. She would like other former students of unlawful for-profit schools to be able to do the same.

It would also mean instituting federal protections against abusive behaviors by for-profit colleges, so that future students will not face the harms that she has faced. “I want laws in place so that this doesn’t happen again,” she said.

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