On October 22, a proposed class of over 7,000 former college students filed a lawsuit against Education Secretary Betsy DeVos and the Department of Education (“DOE”) in the United States District Court for the District of Massachusetts, citing the department’s “enduring refusal to discharge the federal student loans” for students. The plaintiffs, and others allegedly similarly situated, assert DeVos and the DOE violated the Administrative Procedure Act by refusing to cancel the federal student loans and continuing to collect on them, despite the former students having a “borrower defense” which voids their loans.
Everest Institute, described by the plaintiffs as an “abusive for-profit school,” operated in Massachusetts by Corinthian Colleges Inc., a nationwide chain that went bankrupt and closed in 2015. Critics charge that Corinthian Colleges made false representations about job placement rates, and upon graduation students were burdened with student loan debts they could not afford to pay back.
In 2014, the Massachusetts Attorney General investigated Everest for consumer fraud. A year later, the AG submitted a borrower defense application to the DOE for students with federal student loan who attended Everest. This “defense” refers to an assertion that a borrower’s federal student loan is void or unenforceable because of school misconduct and provided a basis for the AG to request that the DOE find all such federal loans unenforceable and immediately discharge them. Ultimately, in 2016, the Commonwealth of Massachusetts obtained a final judgment against Corinthian ordering restitution in the amount equal to all funds Corinthian acquired from graduates who enrolled between July 1, 2006 and June 30, 2014 – over $67,000,000.
Plaintiffs, individually and on behalf of the class they seek to represent, allege they are entitled to have their federal student loans completely cancelled and a refund of sums already collected. Plaintiffs contend that as a matter of Massachusetts law, each Everest student is entitled to restitution “sufficient to put them back into the position they were in before they attended Everest.” Therefore, plaintiffs seek a declaration that each borrower has established a complete defense to the repayment of their federal student loans.
A response to plaintiffs’ filing by DeVos and the DOE is forthcoming.