Court Approves Settlement with USED on Behalf of Student Borrowers
On August 9, the United States District Court for the Southern District of New York approved a settlement agreement between the US Department of Education (USED) and thousands of former students of a nationwide beauty school chain that engaged in widespread fraud and went out of business in the early 1990s. As reported in the New York Times, the settlement requires USED to notify these students that they may be able to get their loans canceled, bringing the possibility of millions of dollars of financial relief for the students.
NYLAG brought the class action, now called Salazar et al v. DeVos, in 2014, after USED refused to suspend collections on the loans and notify borrowers that they had the right to seek a discharge of their loans – despite having the evidence to know that most Wilfred students had been defrauded. More recently, NYLAG has collaborated with the Legal Services Center of Harvard Law School on the case.
The settlement, which benefits a class of borrowers who took out federal loans to go to Wilfred, stipulates that USED will notify those borrowers that they may be eligible to have their loans cancelled and their payments returned. USED has estimated that over 61,300 federally guaranteed student loans were made to Wilfred School attendees. The department has also estimated that 60% of these borrowers were falsely certified by Wilfred as having the ability to benefit from Wilfred’s program, and should therefore be eligible to have their loans discharged.
The settlement provides virtually all relief that plaintiffs are presently seeking – prompt notification to borrowers of their discharge rights, suspension of collections on certain loans while borrowers send their applications, and a speedy track to adjudicating applications and refunding money.
“This is a victory for low-income students who were duped into signing up for a worthless education and 20 to 30 years later are still saddled with thousands of dollars in debt. They have all suffered from the continued existence of their Wilfred loans. It is gratifying to see them at long last receive the protections that the government is obligated to provide,” said Jane Greengold Stevens, Director of NYLAG’s Special Litigation Unit.
Most of the students defaulted on their loans, and over time the debts have risen astronomically as interest and penalties added up. Almost none of the former students with whom NYLAG has met have been able to find anything but the most low-level jobs, if that. They were not able to get jobs in beauty salons, or even sit for state licensing tests. They have been subjected to repeated offset of their income tax refunds and garnishment of their wages.
Evelyn Rivera’s story is all too typical. She enrolled at American Business Institute in Manhattan (owned by the Wilfred Corporation and included in the settlement) in 1987 at the age of 18. She had no high school diploma and no GED, but the school did not give her a test to determine whether she had the “ability to benefit” from the program. (Instead, the school falsely certified her as eligible for a federally guaranteed student loan, and she took out $2,000 in loans — but received no education in return.) In 2006, Rivera went back to school and earned her GED and associates degree. However, she was never able to continue her education to get a bachelor’s degree because of her outstanding Wilfred loan. NYLAG helped her get her loan discharged, but only after her student loan debt had risen to around $50,000 and her income taxes had been withheld multiple times.
NYLAG has been able to help scores of former Wilfred students like Rivera have their loans cancelled and be reimbursed for their payments. But they are the lucky few who found their way to help. The vast majority of the students have been unaware that relief from these debts was even possible.
Thanks to the settlement agreement, it will now be possible for thousands more who remain trapped by significant debt to finally get the justice they deserve.
If you attended Wilfred Academy, American Business Institute, or Washington School of Secretaries and obtained a federally guaranteed student loan, in whole or in part after January 1, 1986, contact NYLAG at (212) 659-6162 or [email protected]. There is a good chance that you may be able to get your student loan cancelled and your payments returned.