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Lawsuit Challenges Long-Term Department of Education Policy Used to Deny Debt Relief to Students Harmed by For-profit Schools

Yesterday, the Legal Aid Foundation of Los Angeles filed a lawsuit in federal court against Betsy DeVos in her official capacity as the Secretary of the U.S. Department of Education. The complaint alleges that for over 20 years the Department has used an informal evidence policy to improperly deny debt forgiveness to borrowers whose schools falsely certified their financial aid eligibility.

In 1988, after plaintiff Sonia Escobedo visited the Career Institute in Long Beach to inquire about its computer training program, the school fraudulently obtained over $5,000 of federal student loans in her name and without her knowledge, even though she did not attend a single day of class. At the time, Ms. Escobedo was only 17 years old and had not finished high school.  Despite this, the Career Institute falsely certified her eligibility for federal financial aid because it failed to test her “ability to benefit” from the computer training program, as required by federal law.  Based on this failure, Ms. Escobedo applied for a false certification discharge of her student loans.

In 2016, the Department denied Ms. Escobedo’s discharge application based on its informal “corroborating evidence” policy.  Under this policy, because the Department claimed that it could not find any corroborating oversight agency findings that the Career Institute engaged in ability-to-benefit testing fraud, it inferred that Ms. Escobedo’s uncontroverted and sworn application was false.   The Complaint alleges that the Department has used this policy to deny relief to defrauded students since 1995, in direct violation of the Higher Education Act provision requiring the discharge of student loans for borrowers whose schools falsely certified their financial aid eligibility.

In denying Ms. Escobedo’s discharge application, the Department also ignored evidence that the Career Institute closed in 1991 while under apparent investigation for embezzlement and financial aid fraud. The Department now claims that it destroyed all records related to this investigation.

Ms. Escobedo’s defaulted student debt has now ballooned to more than $24,000. “The Department neglected its oversight responsibilities and turned a blind eye to the Career Institute’s fraud in 1988.  Now it is refusing to forgive debt fraudulently obtained in her name by a school she never attended, while threatening to seize income tax refunds that Ms. Escobedo relies on to support herself and her two grandchildren,”  said Robyn Smith, a Senior Attorney at the Legal Aid Foundation of Los Angeles. “For over 20 years, the Department has used the harsh corroborating evidence policy, in direct violation of the Higher Education Act, to deny false certification discharges to possibly thousands of defrauded students, including Ms. Escobedo.  Justice for these students is long overdue.”

Ms. Escobedo seeks a reversal of the Department’s denial of her discharge application.  She also seeks a declaration that the Department’s corroborating evidence policy is arbitrary, capricious, an abuse of discretion, contrary to law, and otherwise not in accordance with the Higher Education Act.  A copy of the complaint is available here.

Students who attended the Career Institute and believe they may have been similarly defrauded, may call the Legal Aid Foundation at 800-399-4528.