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US faces lawsuits over beauty school student loans

* Wilfred Academy students sued for inappropriate loans

* The United States is said to collect loans that should be paid off

* The lawsuit is relaunched against the US Department of Education

NEW YORK, May 12 (Reuters) – A US appeals court in New York has reopened legal action aimed at preventing the government from recovering student loans at a chain of nationwide beauty schools because he knew that the now defunct company routinely falsified student eligibility for these loans.

Thursday’s 3-0 decision from the 2nd US Court of Appeals in New York City could allow distressed borrowers to pressure the US Department of Education to cancel government guaranteed student loans federal government that should never have been granted.

It’s a victory for thousands of former students who said Wilfred American Educational Corp victimized them by obtaining loans to attend its some 60 for-profit business schools, commonly known as Wilfred Academy. The last one closed in 1994.

Neither the Education Ministry nor the plaintiffs’ lawyers immediately responded to requests for comment.

The plaintiffs said Wilfred was targeting immigrants and low-income people for poorly certified enrollment and loan eligibility for borrowers who did not have a high school diploma and did not pass tests for show that they could “benefit” from registration.

They said this enabled Wilfred to receive $ 405 million in federal student aid during the 1980s and resulted in more than 61,300 loans made to Wilfred students from 1986 to 1994.

In 1996, long after Wilfred was convicted of financial aid fraud, the Department of Education concluded that the misconduct was widespread and that many student loans needed to be canceled.

But the plaintiffs said the agency continued to collect the loans, in part by seizing income tax refunds from former students, garnishing their salaries and destroying their credit.

In January 2015, U.S. District Judge Robert Sweet dismissed the lawsuit. He said that despite “the reality and the credibility of the grievors’ grievances,” the Department of Education acted at its discretion.

But in Thursday’s ruling, circuit judge Gerard Lynch said discretion is not ‘unbridled’ and the law requires the agency to temporarily halt collections and notify borrowers that they may be eligible. for discharges when problems arise.

He also said that although the loans of the named plaintiffs were canceled, the case was not moot as a “large number” of other borrowers with outstanding loans could still fall victim.

The appeals court sent the case back to Sweet, in part to decide whether the case should go to class action.

The case is Salazar et al v. King, 2nd United States Court of Appeals, No. 15-832. (Reporting by Jonathan Stempel in New York; Editing by Alan Crosby)

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