A federal appeals court has handed a significant victory to former students of 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.

On May 12, the U.S. Court of Appeals for the Second Circuit revived a class action suit brought by NYLAG in 2014 alleging that the U.S. Department of Education (USED) is violating federal law by actively enforcing the loan obligations of former Wilfred students without taking reasonable steps to ascertain whether the students’ eligibility for loans was falsely certified by Wilfred, and by failing to discharge the loans of eligible borrowers. USED is responsible for attempting to collect federally guaranteed educational loan debts, including by charging interest, fees and penalties, garnishing wages or reporting the debts to consumer collection agencies.

The NYLAG complaint alleges that USED has known for decades that Wilfred was engaged in widespread fraudulent activity, which included falsely certifying thousands of students as eligible to obtain federal financial aid despite the fact that they did not have the requisite high school diploma or the “ability to benefit” (ATB) from Wilfred’s programs. 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.

In January, 2015, Southern District Judge Robert W. Sweet granted USED’s motion to dismiss the complaint and denied as moot the plaintiffs’ motion for class certification. NYLAG filed an appeal in May of 2015.

Many of the victims of the Wilfred scam, often immigrants and female heads of households, are now in their fifties and sixties, underemployed, and still struggling to repay their Wilfred loans. Their student debt has destroyed their credit and rendered them ineligible for further financial aid. Plaintiff Ana Salazar, for example, was recruited to attend Wilfred in the late 1980s. Wilfred falsely certified her eligibility for student loans. Ms. Salazar borrowed thousands of dollars to pay Wilfred received no meaningful training, could not get a job in a relevant field, and spent decades in default.

In its decision the Second Circuit held that plaintiffs are entitled to judicial review to try to get the USED to meet its obligations to students. In doing so, the court rejected USED’s claims that its “discretion” insulated it from having to justify its actions.  The ruling reinstated the putative class action suit that Judge Sweet had dismissed on USED’s motion. The Second Circuit remanded the case for further proceedings in the district court.

“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,” said Jane Greengold Stevens, Director of NYLAG’s Special Litigation Unit.