Department of Education Sued for Denying Student Loan Cancellation

The Department of Education has been served with a lawsuit that says it denied student loan forgiveness for those who paid for-profit colleges despite never graduating from high school.
Some for-profit schools illegally obtained federal funds in the name of students who had not received high school diplomas, and the students were then scammed out of money, according to the suit.
While the Department of Education has provided loan forgiveness for millions of Americans, the Legal Aid Foundation of Los Angeles, which filed the suit, says these students were left out of the loan cancellation plans without due process of law or considering the evidence from these borrowers.
“When it comes to higher education and financial aid, the issues we normally encounter that result in loan cancellation requests are those with a loan provider that has issued the student a high-interest loan with a complicated repayment path that sets off a red flag,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“However, in this case, it’s targeted at schools that allegedly took advantage of students who didn’t have the credentials required for entry and to receive financial aid and allowed them to proceed with the loan process regardless,” he said.
The lawsuit was filed in federal court specifically against Miguel Cardona, the secretary of education, on behalf of low-income borrowers who never earned their high school diplomas and then had colleges falsely certify their eligibility for financial aid.
The plaintiff, Evelyn Lara, enrolled in an ultrasound tech program at Coast Career College (later referred to as “the Career Institute” in the suit), a for-profit college in Long Beach, California.
Lara was clear with the school’s recruiters that she had only completed 10th grade, but the college was still able to secure more than $17,500 in federal student loans. Lara was instructed to complete an ability-to-benefit (ATB) test with answers illegally provided by the school, according to the lawsuit.
A Senate investigation previously discovered widespread abuse of ATB tests by for-profit colleges, and Congress called on the Education Department to discharge loans affected by ATB fraud.
Since Lara was involved with the Career Institute, she has not been able to find a secure job and also is being forced to pay the nearly $20,000 in student loans.
Lara applied for a loan discharge in 2023, and while she met all the legal requirements, the Education Department denied her request without sufficient explanation, according to the Legal Aid Foundation of Los Angeles.
Lara appealed, but that ended up being denied. Lara was unable to obtain records from the Career Institute because it closed in 2016.
“Ms. Lara has experienced years of financial hardship for student loans she should not have to repay,” Robyn Smith, a senior attorney at Legal Aid Foundation of Los Angeles, said in a statement.
Smith went on: “The Department’s blatant failure to review her discharge application under the procedures required by law belies its stated commitment to forgiving the loans of borrowers harmed by for-profit school fraud. While it has announced discharges for many harmed borrowers under other federal programs, it continues to impose impossible evidentiary requirements on vulnerable non-high school graduates whose schools falsely certified their financial aid eligibility.”
Those who feel they’ve been similarly defrauded can contact the Legal Aid Foundation of Los Angeles at 800-399-4528 or www.lafla.org.
Newsweek reached out via email to the Department of Education for comment.
Beene said if there is substantial evidence to support the claims, the Legal Aid Foundation of Los Angeles could have a solid case.
“Falsifying documents in order to get financial aid and leaving students holding the loan bag should be treated seriously, even if the amount affected is relatively small compared to the wider student population,” Beene said.