Consumer groups are expected to file a federal lawsuit today challenging U.S. Education Secretary Betsy DeVos's so-called partial relief rule, in which more students get only a part of their student debt forgiven if they have been defrauded by their institutions.
The rule DeVos announced in December was a significant departure from the Obama administration's approach, which had been to grant full relief to borrowers, including thousands of former Corinthian Colleges students who sought to discharge their student loans after the collapse of the for-profit chain in 2015.
But under the new formula, discharge amounts are based on the typical earnings of a graduate who attended a specific program compared to the typical earnings for graduates who attended comparable postsecondary programs using so-called gainful-employment data collected by the department. Borrowers who attended a program where earnings were 49 percent or less than those of graduates from a comparable program would receive a full discharge. Above that, partial relief would be granted on a sliding scale.
But in the suit to be filed in the U.S. District Court for the District of Columbia, the Public Citizen Litigation Group and the Project on Predatory Student Lending argue that the formula is statistically flawed.
“These students were lied to and cheated by predatory schools, and every dollar of federal student loan money was based on those lies. They have a legal right to cancel every dollar of those loans -- not a percentage based on a formula cooked up by the Department of Education,” said Toby Merrill, director of the Project on Predatory Student Lending.
The suit claims that its lead plaintiff, Sammia Pratt, was induced by a Corinthian-owned institution in Florida to take out tens of thousands of dollars in federal loans. The college also did not provide the job placement and career services it promised, according to the suit. However, under the new formula, the Education Department determined she was only entitled to have 10 percent of her debt forgiven.
In 2018 a federal judge ordered that collections on the debt of former Corinthian students be suspended because it violated the Privacy Act.