NEW YORK (Reuters) – A U.S. appeals court in New York revived a lawsuit seeking to stop the government from collecting on loans made to students of a nationwide beauty school chain, since it knew the now-defunct company routinely falsified student eligibility for those loans.
Thursday’s 3-0 decision by the 2nd U.S. Circuit Court of Appeals in New York may make it easier for struggling borrowers to press the U.S. Department of Education to discharge federally guaranteed student loans that should never have been made.
It is a victory for thousands of borrowers who said Wilfred American Educational Corp victimized them into obtaining loans to attend its roughly 60 for-profit trade schools, popularly known as the Wilfred Academy. The last closed in 1994.
Toby Merrill, director of Harvard Law School’s Project on Predatory Student Lending, said low-income borrowers like many of the plaintiffs are “primary targets of predatory schools,” and often unable to vindicate their rights.
“This has been an enormous problem in for-profit trade schools,” Merrill, who filed a brief supporting the plaintiffs, said in an interview. “The decision shows that the Department of Education can’t sit on those rights.”
Neither the agency nor lawyers for the plaintiffs immediately responded to requests for comment.
The plaintiffs said Wilfred targeted immigrants and lower-income people for enrollment and improperly certified loan eligibility for borrowers who lacked high school diplomas and had not taken tests to show they could “benefit” from enrolling.