NAICU Washington Update

Federal Judge Halts Partial Debt Relief Plan for Defrauded Students

June 05, 2018

A federal judge in the Northern District of California, Sallie Kim, temporarily blocked the U.S. Department of Education’s proposed plan for partial debt relief for students defrauded by for-profit colleges. Next up for the court is to address how the case will proceed and determine a path forward for an acceptable approach to debt relief for defrauded students. In the meantime, the Department must resume full debt relief for those students affected by the sudden closure of the Corinthian Colleges.   
The partial debt relief plan had been proposed by the Department of Education in December 2017. Previously, the Obama Administration had granted full relief to borrowers affected by the closures. Under the Trump Administration’s plan, borrowers would have been granted a discharged amount based on the average earnings of the members of their specific program, measured against the earnings of graduates of comparable programs. Depending on the ratio of average earnings, students could be relieved of anywhere between 10-100% of their debt by the federal government.
In making her ruling, Judge Kim cited violations of the 1974 Privacy Act as the main determinant for temporarily halting the partial relief course of action. Because the Department and the Social Security Administration were improperly sharing information about student earnings, the judge determined that the partial relief plan could not stand. Judge Kim left the door open for the agencies to create a legally workable solution, but maintained that the sturdy guardrails erected by the 1974 Privacy Act must be respected when sharing information across federal agencies.

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