This legal victory for student loan borrowers could have huge implications
Student loan borrowers scored yet another victory against a student loan agent for unfair and deceptive practices. And the impact of this decision could be considerable.
For your information, the federal student loans program is a massive, complex and heavily bureaucratized system. There are many student loan repayment programs and student loan cancellation programs available to borrowers, but their requirements are often very specific. The government hires companies – called student loan managers – to manage its sprawling federal student loan portfolio on its behalf. But these repairers don’t always do the right thing.
Some of the more well-known student loan service companies, such as FedLoan Service and Navigate, have been accused of widespread unfair and deceptive practices such as deliberately encouraging borrowers to abstain instead of telling them about the income-tested repayment, or not fully informing them of the important eligibility requirements for student loan waiver programs.
One of the particularly difficult aspects of the student loan system is that if a federal student loan borrower is subjected to some kind of misconduct or misrepresentation on the part of their loan officer and is harmed as a result, it can be difficult to successfully take legal action. . Indeed, to prosecute a federal contractor for breach of his obligations, federal law must To allow for a lawsuit to be brought through what is sometimes referred to as a “private right of action”.
The Higher Education Act – which is the extremely complex set of laws that governs most of the student loan system – does not provide any private right of action that would allow individual student loan borrowers to sue their loan officer for violations, even if the server violates the higher education law itself.
A lot States, however, have State laws that prohibit any type of consumer finance company from engaging in unfair or deceptive business practices. These laws, unlike the law on higher education, do contain a private right of action that allows individuals to take legal action. But when student loan borrowers continue their federal loan officers under these State Consumer protection laws, repairers argued that federal law trumps state law. In other words, they argue that since federal law does not provide any private right of action for violations of higher education law, state law cannot provide a right of action either. private. This concept is called “preemption” – the idea that federal law supersedes, or preempt, state law.
At the end of last year, the 7th Circuit Court of Appeal issued a landmark decision in Nelson v. Big lakes. The court ruled that claims against federal student loan services under state law for misrepresentation about federal loan programs are not necessarily preempted by federal law. In other words, student loan borrowers could sue their agents under state law and potentially prevail.
A decision made earlier this month by the 11th Circuit confirms this central decision. In Lawson-Ross v. Big lakes, borrowers sued Great Lakes Higher Education – a United States Department of Education student loan manager – for misrepresenting borrowers about the Public Service Loan Forgiveness Program (PSLF) . The student loan borrowers alleged that Great Lakes misrepresented them and other borrowers that they were on track to have their student loans canceled under the PSLF, when in made their loans were ineligible.
The 11th Circuit ruled that the Higher Education Act does not prejudge legal actions against Great Lakes for its false claims about borrowers’ eligibility for Public Service Loan Remission (PSLF). The court noted: “The borrowers alleged that when Great Lakes chose to provide them with information it was not required to disclose – regarding their eligibility for the PSLF program – it gave false information… Great Lakes and other service providers. [should] speak honestly when choosing to speak about a borrower’s qualification for the PSLF program or any other matter on which agents are under no obligation to disclose.
The decision has certain limits. First, the tribunal limited its decision to affirmative misrepresentation or active efforts by a student loan officer to deceive borrowers about their rights, options or obligations. Other forms of misrepresentation, such as omissions or simply not informing borrowers of all of their options, could still be preempted by federal law. This reflects the Nelson decision. Second, the ruling is only binding in the 11th Circuit jurisdiction, which includes Alabama, Florida and Georgia.
However, the ruling signifies a growing movement in federal courts to allow legal claims based on state law against federal student loan officers. With positive decisions from two different circuits, more federal courts can invoke a binding precedent allowing these types of lawsuits to continue. Momentum is building in favor of student loan borrowers.
The claimants were represented on appeal by the National Student Legal Defense Network. The case will be referred to the Federal District Court for further processing.