Federal Judge Rules Against ED in Lawsuit Challenging ‘Tiered Relief’ System

By Allie Bidwell, NASFAA Senior Reporter

A federal judge on Friday blocked the Department of Education (ED) from using a policy to award partial debt relief to some defrauded borrowers who attended Corinthian Colleges, claiming that the method by which data was collected to determine the amount of relief violated the Privacy Act.

The ruling, issued by Magistrate Judge Sallie Kim, said Education Secretary Betsy DeVos "has a convoluted reading of the Privacy Act, which relies upon an exception to an exception that creates the alleged ability to share data." To obtain the data used in determining the amount of relief for individual borrowers — a plan that was announced in December — ED sent a list of names, dates of birth, and Social Security numbers of borrowers who previously filed attestation forms for Corinthian to the Social Security Administration (SSA). In return, the SSA sent ED the mean and median annual earnings of the students "in aggregate form, without any personal identifying information," according to the court documents.

Kim went on to write that "the clear terms of the Privacy Act lay out exceptions and do not include an exception for sharing of aggregate statistical data." She added that the Privacy Act forbids "use of data to make decisions concerning the 'rights, benefits or privileges of specific individuals.'" Kim explained that the information ED disclosed was used to "make a determination about a specific individual — how much of the borrower's loan that the Department would forgive."

The issue stems from a lawsuit filed in March by a group of former Corinthian students, represented by Harvard's Project on Predatory Student Lending and the Housing and Economic Rights Advocates, who claimed ED's actions to create the tiered relief system violated the Administrative Procedures Act, as well as the Privacy Act, and also violated their due process rights. ED argued in April that because the borrowers "have not shown that they will suffer irreparable injury absent the injunction, nor have they established their entitlement to the extraordinary mandatory injunction they seek," the court should deny their request for full debt relief. The attorneys argued that ED is not bound to give full relief to any borrower defense claim and has the discretion to discharge "all or part" of a loan in a successful claim.

"This is an important ruling for former Corinthian Colleges students. It clearly states that the Department of Education must immediately stop using its lawless partial denial rule," said Toby Merrill, director of the Project on Predatory Student Lending, in a statement. "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.  Based on this ruling, the Department should immediately return to its practice of fully discharging the loans of Corinthian borrowers."

In the ruling, the court did not rule on whether ED's actions violated their due process rights. Kim wrote that the borrowers could not prove definitively that they have a right to full relief or discharge.

"Although they do have a property interest in 'some' relief once they establish their borrower defense, there is no property right to the amount of relief because the Higher Education Act provides discretion to the Secretary to determine the amount of relief," Kim wrote.

The borrowers further argued that they were entitled to full relief, and said that under the Obama administration there existed a "Corinthian Rule" that provided full relief to borrowers who completed attestation forms before 2017. However, the court could not rule on whether the new policy is arbitrary and capricious because there is no formal documentation of the "Corinthian Rule." Kim also noted that DeVos "essentially admits that there was a previous policy, even if informal, for full discharge of debt of borrowers who completed the attestation forms."

"For purposes of this motion, though, the Court is troubled by the fact that there is no document in the record that lists or describes the Department's previous policy," the ruling said. "The missing element that matters most for this motion is whether the Secretary in the previous policy reserved to the Secretary the ability to change the analysis at a later time."

The court also ruled that the "average earnings rule" used in the tiered relief system is not arbitrary and capricious.

"The Secretary's concern is genuine, and the attempt to create a policy to determine whether students obtained value and if so, how much, is also a legitimate exercise of the Secretary's discretion under the Higher Education Act," the ruling said. "The Secretary, in adopting the Average Earnings Rule, provided a rational reason for the Average Earnings Rule and a method – imperfect in many ways and illegal under the Privacy Act – to assess the value of what the borrower actually received as compared to the loans. However, aside from the illegal disclosure of information to the Social Security Administration and use of that data from the Social Security Administration, the Secretary's attempts to devise a more narrowly tailored system for determining the amount of relief is not arbitrary and capricious."

Still, the court granted a preliminary injunction and required ED to stop using the "average earnings rule" as it currently exists, but denied the borrowers' request to return to the "Corinthian Rule," as there was not sufficient documentation to support that policy. ED was also ordered to halt all debt collection efforts until the court "can determine the proper course of action."

There will be an additional briefing on June 4, 2018 to determine a course of action moving forward.


Publication Date: 5/29/2018

Megan C | 5/29/2018 10:59:16 AM

What does this mean for gainful employment, which also uses SSA data for mean and median earnings?

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