14 Civ. 1230 (S.D.N.Y.)
On February 24, 2014, The Special Litigation Unit filed a Class Action Complaint in the United States District Court in Manhattan against 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 in the case, Salazar v. Duncan (now called Salazar v. DeVos), alleged that USED violated federal law by refusing to notify former Wilfred students that they were eligible to seek discharge of their loans if Wilfred falsely certified them to take out student loans, among other actions.
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 1996 report 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.
On January 16, 2015, Judge Robert W. Sweet granted Defendant’s motion to dismiss the complaint and denied as moot Plaintiffs’ motion for class certification. NYLAG filed an appeal, and on May 12, 2016, the Second Circuit vacated the District Court’s order, handing a significant victory to Plaintiffs. In its decision, the Second Circuit held that Plaintiffs are entitled to their day in court, to try to get the Department to meet its obligations to students. In doing so, the Court rejected the Department’s claims that its “discretion” insulated it from having to justify its actions. This decision opens the courthouse doors to Wilfred students seeking the protections that the Department is obligated to provide them, and the decision’s legal foundation may also open those doors to countless other students who attended predatory schools and who are entitled to the Department’s protection. The Second Circuit remanded the case for further proceedings in the district court.
Following remand, the parties engaged in extensive settlement negotiations. On August 9, the United States District Court for the Southern District of New York approved a settlement agreement between USED and the thousands of former students. 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. 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.
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. There is a good chance that you may be able to get your student loan cancelled and your payments returned.
NYLAG attorneys: Jane Greengold Stevens, Jason Glick, Danielle Tarantolo, Thalia Julme
- Final Order Approving Class Action Settlement
- Final Settlement – So Ordered
- Declaration of Jane Greengold Stevens
- August 9, 2017 – New York Times Article – U.S. to Help Remove Debt Burden for Students Defrauded by For-Profit Chain
- August 15, 2017 – NYLAG News – Court Approves Settlement with USED on Behalf of Student Borrowers
- Second Circuit Decision
- June 10, 2016 – New York Times Article – Woes for ITT, a For-Profit School, Bode Worse for Its Students
- May 16, 2016 – New York Law Journal – Court Revives Suit Against U.S. Over Fraudulent Student Loans
- Final Complaint
- July 28, 2013 – New York Times Article – Beauty School Students Left With Broken Promises and Large Debts
- February 25, 2014 – New York Times Article – Suit Seeks Relief for Trade School Students With Years of Debt but No Career
- Judge Sweet Decision
- Second Circuit Brief
- Second Circuit Reply Brief