Judge Orders Department of Education to Stop Collecting Payments From Defrauded Corinthian Colleges Students

A judge’s order that the U.S. Department of Education can't use earnings data to determine partial loan forgiveness and must stop collecting payments from borrowers applies broadly—not just to four students who filed suit.

By , Attorney

A federal law (20 U.S.C. § 1087e(h)) gives the U.S. Department of Education the ability to forgive federal student loans if a school used illegal tactics, like fraud, to convince students to borrow money. This kind of loan forgiveness is called "borrower defense to repayment." Borrowers who qualify get all or part of their outstanding federal student loan debt forgiven.

In December of 2017, the Department of Education set loan forgiveness standards for defrauded students who previously attended Corinthian Colleges (Everest, Heald, or WyoTech). To determine what portion of a borrower's loan should be forgiven, the Department looked at the borrower's income and compared it the income of peers. As part of the process, the Department of Education shared students' personal information—including birth dates and Social Security numbers—with the Social Security Administration (SSA) and then used earnings data from the SSA to calculate what percentage of students' loans to forgive.

Several former Corinthian students subsequently filed a lawsuit (Manriquez v. DeVos, Case No. 17-cv-07210-SK) asking for an injunction to stop the Department from using this process based on privacy grounds. The students (the plaintiffs in the case) argued that the Department of Education had no right to use the SSA data for any purpose other than to evaluate vocational programs. Magistrate Judge Sallie Kim of the U.S. District Court in San Francisco agreed and ordered the Department to stop using SSA information, as well as stop collecting payments from borrowers.

In response, the Department of Education claimed that the judge's order applied only to the named plaintiffs in the case—not all defrauded Corinthian students. So, on June 19, 2018, the judge clarified her ruling by ordering the federal government to halt collection activity against:

  • former Corinthian borrowers who have already received partial loan forgiveness
  • those who are awaiting a decision on their application for loan forgiveness, and
  • Corinthian borrowers who haven't yet submitted an application for loan forgiveness.

This reprieve from payments is likely temporary for some borrowers. The order will remain in place until the Department of Education implements a new methodology for determining loan forgiveness (partial or full) under the borrower defense to repayment rule. Though, the judge also stated that the ruling doesn't prevent the Department from granting full relief to Corinthian students in the meantime. (Learn more about student loan forgiveness if you attended a Corinthian College.)

Effective Date: June 19, 2018