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Debt Relief for Defrauded Student Loan Borrower Who Attended Career Institute

After struggling for three decades with repayment and a lawsuit filed by Legal Aid Foundation of Los Angeles (Escobedo v. Betsy DeVos, U.S. District Court, Central District. of Cal., Case No. CV 17-07586), student loan borrower Sonia Escobedo finally received full forgiveness of the federal student loans that were fraudulently obtained by Career Institute in Long Beach, a for-profit school she never attended. The court dismissed the lawsuit on March 14, 2018 after the Department of Education finally discharged her student debt earlier in the year.

In 1988, Ms. Escobedo visited the Career Institute in Long Beach to inquire about its computer training program.  At the time, she was only 17 years old and had not finished high school.  Although Ms. Escobedo never enrolled in the school, the Career Institute fraudulently obtained $5,000 in federal student loans and falsely certified her eligibility for financial aid.  It also failed to test her “ability to benefit” from the computer training program, a requirement enacted by Congress to protect vulnerable non-high school graduates from for-profit school fraud.

Ms. Escobedo did not discover that loans had been taken out in her name until a collection agency contacted her.  After this, Ms. Escobedo learned that she was eligible for a discharge of her student loan and submitted an application to the Department. Despite the fact that it had no evidence controverting Ms. Escobedo’s sworn statements, the Department used its informal “corroborating evidence” standard to deny Ms. Escobedo’s application.  It inferred that Ms. Escobedo’s statements were false and that the Career Institute had not engaged in fraud because it could not find prior government determinations that the school had violated federal regulations. The U.S. Department of Education then seized Ms. Escobedo’s entire 2016 federal income tax refund, which she counted on to support her two grandchildren as their sole caretaker.

LAFLA appealed the discharge denial on Ms. Escobedo’s behalf, citing evidence it obtained from the Department that the Career Institute had closed in 1991 while under apparent investigation for “embezzlement of public money, fraud and bribery by recipients of federal funds, fraud and false statements, and student financial aid fraud.” The Department denied the appeal, ignoring the new information submitted by LAFLA as well as the fact that the Department had destroyed all evidence obtained during its investigation, which might have helped Ms. Escobedo to meet the corroborating evidence standard.  By this time, her student debt had ballooned to $24,000.

In October 2017, LAFLA filed a federal court lawsuit on behalf of Ms. Escobedo challenging the Department’s denial of her request for loan forgiveness and the corroborating evidence standard. After the lawsuit was filed, the Department reversed it prior denial, discharged Ms. Escobedo’s loans and refunded her $8,000.  As a result, the lawsuit was dismissed and the Department has prevented federal court review of its unjust corroborating evidence standard.

“While we are happy that Ms. Escobedo’s loans have finally been discharged, the Department is free to continue imposing its impossibly high evidentiary burden to prevent borrowers like Ms. Escobedo from obtaining debt relief.  It is outrageous that the Department will back off of this unfair barrier only after borrowers who are fortunate to find attorneys file lawsuits,” stated Robyn Smith, Senior Attorney at LAFLA.  “This unjust policy means that the majority of former students who were similarly defrauded over the past three decades, of which there are likely thousands, will never be able to access the debt relief mandated by the Higher Education Act.”

If you believe you may have been similarly defrauded, please call Legal Aid Foundation of Los Angeles at 800-399-4528.