The New York Legal Assistance Group (NYLAG) has filed a Class Action Complaint in the United States District Court in Manhattan against Arne Duncan, in his official capacity as the Secretary of the United States Department of Education (USED), on behalf of thousands of students who were victimized by the Wilfred American Education Corporation (Wilfred), a national chain of for-profit trade schools that engaged in widespread fraud and went out of business in the early 1990s. The complaint alleges that USED is violating federal law by actively enforcing the loan obligations of former Wilfred students without taking reasonable steps to ascertain whether the students’ eligibility for loans was falsely certified by Wilfred and by failing to discharge the loans of eligible borrowers.

Wilfred schools were the subject of several federal investigations in the 1980s and 1990s, and its principals were subsequently convicted of federal financial aid fraud.  In 1992, the U.S. Higher Education Act was amended in response to widespread fraud on the part of Wilfred and other for-profit schools hungry for federal student loan dollars. The amendment permits a false certification discharge that forgives and reimburses student loans disbursed after January 1, 1986, when it is proven that a school falsely certified a student’s eligibility for loans.  This includes what is known as the ability-to-benefit (ATB) discharge for students who did not have a high school diploma or G.E.D. and were not given or did not pass an approved ATB test, but were still certified by a school as eligible for federal student loans.

The complaint alleges that since the early-1980s, USED has known that Wilfred was engaged in widespread fraudulent activity, which included falsely certifying thousands of students as eligible to obtain federal financial aid.  The USED Office of Inspector General (OIG) investigated the practices of approximately 50 Wilfred schools across the country and found a consistent pattern of gross violations.  A report issued in 1996 cited a pattern of systemic fraud over many years and recommended that all Wilfred ATB discharges should be granted because of the widespread violations by Wilfred schools.  Despite this finding, thousands of individuals eligible for and entitled to a discharge carry the burden of their Wilfred debts to this day.

“Many of the victims of the Wilfred scam, often immigrants and female heads of households, are now in their fifties and sixties, underemployed, and still struggling to repay their Wilfred loans. Their Wilfred debt has haunted them, destroyed their credit and rendered them ineligible for further financial aid or other types of loans,” said Jennifer Magida, a Senior Staff Attorney at NYLAG.  “Although USED has been acutely aware of Wilfred’s rampant violations of statutory and regulatory requirements for years, it continues to enforce the Wilfred loan obligations, taking the tax refunds and garnishing the wages of thousands of former students who were victims of Wilfred’s fraud.”

The complaint seeks an injunction mandating that USED suspend collection on all federally guaranteed Wilfred loans, implement a process to ascertain the identity of all borrowers eligible for the discharge, discharge the loans of all such borrowers, and grant discharges to all students who submit applications that meet the eligibility requirements.

“The federal government knowingly turned a blind eye while Wilfred and other for-profit schools preyed on vulnerable students and deprived taxpayers of millions of dollars in ill-gotten federal loans,” said Yisroel Schulman, NYLAG’s Attorney-in Charge. “Decades later, former students remain trapped by significant debt. It is past time for these loans to be forgiven.”

If you attended a Wilfred school, or an American Business Institute or a Washington School for Secretaries’ school after January 1, 1986, contact NYLAG’s For-Profit School Project at (212) 946-0354 or [email protected].  For more information about the Project, go to:  https://nylag.org/units/special-litigation-unit/for-profit-schools-project.