UPDATE, Nov. 6, 2019: The U.S. Department of Education is pulling back a motion filed Nov. 1 asking a court to reconsider a $100,000 fine levied against it and Secretary Betsy DeVos last month for continuing to collect on loans owed by former students of the now-defunct Corinthian Colleges.
At the time of its request, the department said it had taken steps to address the court's concern but wasn't able to notify the court before it handed down the sanctions. The department said it had been "in the final stages of finalizing" its declaration of compliance.
Attorneys for the department claimed it "achieved full compliance" with the earlier order to stop collecting on the loans and had "remediated the harm to affected borrowers" by refunding them for "all amounts improperly paid." They also said the court didn't determine the actual losses incurred by the affected borrowers when setting the fine.
However, attorneys wrote in court documents filed on Nov. 5 that later the same day that it submitted the request to reverse the fine, the department filed a required compliance report with the court that indicated an additional 14,000 borrowers could have been affected by attempts to collect on the loans.
"While the Department continues the process of reviewing and confirming its data, Defendants cannot fairly represent that they are in 'full compliance' with the Court's preliminary injunction and have remediated the harm to all affected borrowers," attorneys wrote, noting that they might refile the motion once they review whether the additional borrowers were affected.
They contend the department's claim of compliance was accurate "with respect to known harm" as of Oct. 24, the date the court handed down its sanctions.
The Nov. 1 filing doesn't directly address the order that DeVos was being held in contempt of court, though the attorneys suggest such a sanction would be issued in order to get a person or group to comply with an order.
- A federal judge is holding U.S. Education Secretary Betsy DeVos in contempt of court for continuing to collect on loans owed by former Corinthian Colleges students, according to court filings on Oct. 24.
- U.S. Magistrate Judge Sallie Kim wrote that the department showed "only minimal efforts" to comply with an earlier preliminary injunction to stop collecting on the loans.
- In addition to imposing a $100,000 fine to be paid to the lawyers of the plaintiffs in the class action, Kim also said the court could impose additional sanctions if the department doesn't come into compliance. However, the department has said it was in compliance with the preliminary injunction at the time the sanctions were issued.
In September, the Ed Department admitted in court filings that it had attempted to collect on the loans of more than 16,000 Corinthian borrowers — despite Kim halting those collections in May.
Nearly 3,300 of those borrowers made one or more payments in response to those notices. At the time the department shared that information with the court, it had not fully identified the borrowers, made them aware of the error or refunded them, according to Oct. 24 court filings.
In court filings in early October, Kim said she was "deeply disturbed" with the department's "lack of compliance … and the sheer scale of violations of the injunction." She asked the department to submit what measures it would take to prevent violating the order in the future.
The department responded in a brief filed Oct. 15, saying it has "been working diligently and in good faith" to remedy the situation and plans to review areas of its processes, revamp communications with borrowers and update the court monthly. It cautioned that fines requested by the plaintiffs would "divert more" resources away from coming into compliance.
Corinthian's closure in 2015 kicked off a downward spiral for the for-profit college sector, precipitated by regulations that sought to disqualify colleges that misled students about job prospects from accessing Title IV funding.
DeVos and the department are also in the spotlight over the collapse of Dream Center Education Holdings. The nonprofit purchased a set of for-profit colleges in 2017, including Argosy University and some of the Art Institutes, but the deal was troubled almost from the start.
Documents released last month show the department gave nearly $11 million in loans and grants to students at two of the schools even though officials were aware that the schools were not eligible, The Washington Post reported.
Dream Center and two other for-profit college systems closed in rapid succession starting late last year, drawing attention to flaws in mechanisms used to spot financial distress that could lead institutions to close effectively overnight. Forthcoming regulations and ideas put forth by lawmakers seek to change that approach but vary in their level of scrutiny.
In response to a request for comment last month on the fine and contempt order, the Ed Department directed Education Dive to a tweet from the department's account sharing a video from Mark Brown, chief operating officer of the department's Federal Student Aid (FSA) office. In the video, Brown calls the situation "an instance in which we did not meet our own standard."
He said the department's loan servicers "mistakenly billed" approximately 16,000 students and parents after the court ordered FSA to direct them to stop. Ninety-nine percent of the borrowers who made payments when they didn't need to have been refunded, he said, and they expect the remaining ones would be refunded by the end of the week.