But the department moved slowly to establish a formal process for discharging the students’ debts, and by the time Mr. Obama left office, only 12,000 Corinthian students had their ledgers wiped clean. Tens of thousands more awaited relief.
Instead of fully eliminating those students’ debts, however, Ms. DeVos instituted a new system for borrower defense claims that granted little to no debt forgiveness if those students were found to have earned a livable wage. The Project on Predatory Student Lending filed a lawsuit challenging that system.
Last year, Magistrate Judge Kim found the system illegal, ruling that the Education Department had violated borrowers’ privacy by obtaining and misusing their earnings data from the Social Security Administration. She issued an injunction ordering the department to stop using the data and collecting the debts of Corinthian students. The department appealed the decision to the United States Court of Appeals for the Ninth Circuit and is waiting for a ruling.
But the department, through the outside student loan servicers that it pays to handle borrowers’ accounts, kept pursuing the debts and even garnished some students’ tax refunds and wages. The department’s loan servicers sent at least 16,000 Corinthian borrowers bills for payments they did not actually owe. The students’ lawyers asked the court to halt those collections and punish the department for its actions.
In a response to scathing criticism from Senator Elizabeth Warren over her handling of the debt collection, Ms. DeVos wrote on Twitter this month: “Loan servicers made an error on a small # of loans. We know & we’re fixing it.”
Magistrate Judge Kim made it clear this month that she believed the department had acted badly. “I’m astounded, really,” she said during a fiery hearing. “I feel like there have to be some consequences for the violation of my order 16,000 times.”
In her ruling on Thursday, Magistrate Judge Kim wrote that the department had made “only minimal efforts to comply” with her order, and that it had “harmed individual borrowers who were forced to repay loans.” She also ordered the Education Department to file monthly status reports detailing its compliance.