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Judge Blocks Collections Against Students Defrauded for Loans

By William Vogeler, Esq. | Last updated on

Jamal Cornelius borrowed more than $25,000 to attend an information technology program, only to end up working at Taco Bell with a debt he couldn't afford to pay.

That's also how he ended up as a plaintiff in Manriquez v. DeVos. Cornelius and others sued to stop the Secretary of Education from collecting against some 60,000 students for loans they say are "worthless."

A federal judge granted them relief by issuing a preliminary injunction in the case. But they say there is no free lunch in America, not even at Taco Bell.

Privacy Act Violation

Magistrate Judge Sallie Kim said the U.S. Department of Education violated students' privacy rights in trying to make them repay loans they incurred at more than 100 campus of Corinthian Colleges. The judge said the department devised a payment plan that wrongfully collected data about the students from the Social Security Administration.

"There is a strong public interest in ensuring that agencies comply with the law in enacting rules and regulations, and here, preventing the use of data in violation of the Privacy Act is a compelling interest," Kim wrote in her opinion.

The problem started last year when Secretary Betsy DeVos announced that the department was reversing an Obama-era rule that gave full debt forgiveness to students who were misled by for-profit colleges about job prospects. The new administration calculated an "Average Earnings" to determine the individual students' ability to pay.

The judge said that was wrong and ordered the department to stop collections. However, she denied the plaintiffs' request to order a roll-back to the Obama rule.

No Roll-Back

Education Department representative Liz Hill told Courthouse News they were "encouraged" the judge recognized the Secretary's discretion in collecting debts.

"In implementing the Department's programs, we are mindful of the Privacy Act's requirements, and we will carefully review the court's decision as we assess next steps," Hill said.

The judge will also be watching.

She ordered the parties to brief the "status quo," and invited them back for a hearing in June to decide whether the department should give full debt relief to the students.

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