Should the Education Department Hear Class Actions when Colleges Collapse?

By: Professor Adam Zimmerman

This op-ed originally appeared on RegBlog.

Last month, ITT Educational Services—one of the nation’s largest for-profit colleges—announced that it was shutting its doors in the wake of several state and federal fraud investigations. The closure comes as the U.S. Department of Education cracks down on shady colleges that lure unwitting students with false promises of money and jobs. But behind the controversy over “predator schools” lies a more vexing problem: how the government will handle thousands of claims by ITT’s former students seeking federal loan forgiveness.

Federal law has long entitled students to federal loan forgiveness when they are left in the lurch by colleges that commit fraud or go bankrupt. The principle behind this rule is that students are doubly punished when they rack up crippling debt in schools that can never provide them with a marketable degree. But after the closure of Corinthian Colleges, a for-profit educational institution that collapsed two years ago under similar circumstances to those involving ITT, the backlog of claims brought by students seeking debt relief from the Education Department swelled to over 25,000. If another 30,000 ITT students go down the same road, it could be years before the Department decides whether these students are entitled to relief under federal law. As important, no existing process ensures that students with similar claims will be treated in the same way and that independent experts will make these determinations.

The Education Department recently proposed an innovative new rule to streamline student claims for loan forgiveness. Rather than hear cases one by one, the Education Department would offer a “group process” modeled on class action rules in federal court for students who attend the same college with the same kinds of claims. Schools could also be required to pay off loan balances for approved claims under this rule.

We applaud the Department’s efforts to create a more efficient, effective, and fair process for student borrowers. We recently completed a major study for the federal government surveying the use of mass adjudication by administrative programs in areas as diverse as employment discrimination, mass torts, and health care. Based on our findings, the Administrative Conference of the United States—a government body that issues guidance for all federal agencies—adopted our recommendations in June.

We found that even though federal agencies hear nearly twice as many cases as our federal courts, they almost never use class actions or other similar techniques to hear large groups of claims. But the few agencies that have used these tools often have found that they can conserve resources and improve consistency, while expanding access to justice.

For example, the Equal Employment Opportunity Commission (EEOC) has long used class actions in its own hearings to resolve “pattern or practice” claims of discrimination by federal employees. The EEOC says that the process is indispensable in light of the volume of claims it hears each year and the potential for inconsistent judgments. In the same way, grouping together students who share common claims could help the Education Department avoid repetitive hearings, ensure consistent outcomes for claims involving the same school, and provide individual student borrowers with greater access to relief than would addressing these claims by individual, case-by-case adjudication.

But because group proceedings may impact tens of thousands of student borrowers, these proceedings should be handled with care. Currently, few of the Department’s proposed rules describe how students would participate in these hearings, who would hear them, and finally, how the Education Department would keep track of the outcomes.

We recommend some ways for the Education Department to address these concerns. For one, the Department should permit individual student borrowers, their legal representatives, or state attorneys general to petition the Department to commence a group proceeding and provide students with an opportunity to be heard. The Department should also use experienced and independent hearing officials to decide group claims, by borrowing them, if necessary, from other agencies. Finally, the Department should create a publicly accessible database of cases that would allow the Department, academics, and interested members of Congress to identify common issues and better supervise our federal loan programs.

We are pleased that the Education Department is considering a process to adjudicate claims for groups of students unfairly saddled with debt. These kinds of tools have helped federal agencies adjudicate tens of thousands of cases more efficiently, consistently, and fairly. We hope that the Department will make the most of its proposed new process by creating greater opportunities for student participation, relying on neutral, expert hearing officers, and by developing a transparent system so that students, taxpayers, and policymakers can evaluate the results.