DeVos Fined $100,000 for Failure to Forgive Student Debt

(Bloomberg) -- U.S. Secretary of Education Betsy DeVos was hit with a $100,000 fine for violating a judge’s order to stop debt collection efforts against former students at bankrupt Corinthian Colleges Inc.

Despite the order, the department went as far as seizing the students’ tax refunds and wages.

U.S. Magistrate Judge Sallie Kim in San Francisco issued the fine Thursday, after finding DeVos in contempt of court. Kim ordered the $100,000 to go to a fund held by the students’ lawyers to help the more than 16,000 borrowers who she said suffered damages from the violation. Both sides must submit a plan for administering the fund by Nov. 15.

The judge’s rebuke comes hours after DeVos’s point person on overhauling the student loan system abruptly resigned and publicly called for mass debt forgiveness.

“There is no question that defendants violated the” court order, Kim wrote in her ruling. She said the violation hurt individual borrowers.

The language the judge used in her written order Thursday was more reserved than what she said in court earlier this month. At an Oct. 7 hearing, Kim said she was “astounded” by the agency’s conduct, saying it was “gross negligence,” at best, and “an intentional flouting” of her order, at worst.

The Education Department didn’t immediately respond to a request for comment.

“The contempt finding and sanctions here are appropriate and well-deserved,” said Eileen Connor, a lawyer for the students. “The department and its leaders need to do better by students.”

Corinthian, once among the largest for-profit college chains in the country, faced a flood of government investigations and lawsuits alleging systemic fraud before filing for bankruptcy protection from creditors in 2015.

In the aftermath, the federal government declared that as many as 335,000 former students could erase their loans by checking a box and signing their names on a simple form, under penalty of perjury. Doing so, the former students were told, would void their debt and prompt a refund on past payments.

In 2017, a group of former Corinthian students sued the Education Department and DeVos claiming the government stopped granting the loan discharges. The case was brought as a class action on behalf of about 80,000 students.

A report the department filed last month to show its compliance with the judge’s order to cease debt collections instead explained that the agency has seized tax refunds and wages from at least 1,808 students.

The cases are Manriquez v. DeVos, 17-cv-07210, and California v. U.S. Department of Education, 17-cv-07106, U.S. District Court, Northern District of California (San Francisco).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider, Peter Blumberg

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