A federal judge scrapped a settlement Tuesday over the Trump administration’s slow processing of loan forgiveness for borrowers who have accused their colleges of fraud, ruling that Education Secretary Betsy DeVos undermined the deal.
U.S. District Judge William Alsup said in a sharply worded decision that DeVos undercut the settlement by denying large swaths of the claims without sufficient explanation.
The class-action settlement, which was reached earlier this year and received preliminary approval from the court, was meant to force the Education Department to move faster on final decisions for roughly 160,000 of the backlogged requests for loan forgiveness, known as “borrower defense” claims. Some of the claims have languished at the department for years.
Alsup said he is alarmed that DeVos has in recent months responded by swiftly rejecting tens of thousands of the applications through “perfunctory” denial notices. Of the applications in question in the class-action lawsuit, DeVos has denied 74,000 applications and granted 4,400 applications, which the judge noted was a denial rate of 94 percent.
Ruling justification: Alsup called the denial notices “potentially unlawful” and said he was considering blocking DeVos from issuing any further denial notices as the lawsuit proceeds.
The judge, who President Bill Clinton appointed for the Northern District of California, also took the unusual step of authorizing the depositions of up to five Education Department officials to probe the Trump administration’s decision to deny the claims and its months-long delays in processing them. He wrote that DeVos “at this time” would not be required to personally sit for a deposition but said it is a possibility in the future.
In many cases, the department used form letters in its recent string of denials, stating that student loan borrowers had provided insufficient evidence, without any further explanation.
As a result, borrowers face a process that “rings disturbingly Kafkaesque,” Alsup wrote in describing the system as oppressive. The Education Department said borrowers could appeal the denials by explaining why they believed the department incorrectly decided their claim, but it never provided any meaningful explanation for how it came to those conclusions, he said.
Key context: The now-scrapped settlement, which was reached in April and earned Alsup's preliminary approval in May, would have required DeVos to wade through some 160,000 applications and make final decisions within 18 months. At the time, both the Education Department and attorneys for the students said they thought it was a reasonable approach.
But in recent months, the Education Department's rash of denials led many of the students to object to the settlement. A court hearing conducted virtually earlier this month was attended by 650 participants, including hundreds of students, many of whom described their concerns with the settlement in light of DeVos’ denials.
“Students came together to speak up for themselves and show the court the massive scope of the trauma they have endured at the hands of the Department of Education, and the courts are listening,” said Eileen Connor, legal director at Harvard Law School’s Project on Predatory Student Lending, which represents the students in the class action lawsuit along with legal group Housing & Economic Rights Advocates. “We look forward to the next stage of litigation in which we depose Department of Education officials to explain their actions under oath.”
DeVos' record: An Education Department spokesperson did not immediately have a comment on the decision.
DeVos’ handling of the “borrower defense to repayment” program has repeatedly been rebuked by federal judges and has been among her most politically contentious higher education policies over the past four years.
The secretary argues that the Obama administration’s approach to addressing student loan fraud claims was too lenient and expensive for taxpayers. She has sought to curtail loan forgiveness for defrauded students — an effort that has enraged her Democratic critics.
When DeVos took office, she moved to delay the implementation of the Obama-era standards for loan forgiveness. But she was thwarted by a judge who ruled that she had illegally postponed the regulations.
DeVos in 2019 rewrote the standards and tightened the rules. But more than a dozen Republicans in Congress joined with Democrats in passing legislation to block her policy over concerns that it was too difficult for defrauded students to obtain relief. President Donald Trump sided with his education secretary and vetoed the legislation, which cleared the way for DeVos’ rule to take effect in July.