David Berman, CLS ’21
Over the past few years, state and private plaintiffs alike brought lawsuits alleging that federal student loan servicers misled borrowers in violation of state consumer protection laws.[1] These lawsuits now confront the problem of federal preemption: the Higher Education Act of 1965 (“HEA”) forbids states from layering disclosure requirements on “[l]oans made, insured, or guaranteed pursuant to a program authorized by title VI of the Higher Education Act.”[2] Because student borrowers in these cases have taken loans originated or guaranteed by the Department of Education (“DOE”), preemption by the HEA looms.
For plaintiffs, the stakes of federal preemption are high. The HEA does not offer a private right of action,[3] and the DOE has resisted the Consumer Financial Protection Bureau’s efforts to hold student loan servicers accountable.[4] Foreclosing state law remedies would limit student borrowers’ ability to recover at all.[5]
Nelson v. Great Lakes Educational Loan Services, Inc.,[6] a recent ruling by the Seventh Circuit, provides some clarity and hope to student borrowers seeking a remedy under state law. The plaintiff, Nicole Nelson, claims that her student loan servicer, Great Lakes Educational Loan Services (“Great Lakes”), held itself out as employing student loan “experts,” and encouraged its struggling borrowers to reach out for assistance.[7] Nelson called her student loan servicer, but claims that she was steered towards the most profitable options for Great Lakes, to her detriment.[8] Nelson brought suit alleging that Great Lakes violated the Illinois Consumer Fraud and Deceptive Business Practices Act, as well as Illinois common law.[9]
The Seventh Circuit found that the HEA does not expressly preempt Nelson’s state law claims because Great Lakes made inaccurate, voluntary statements. The Court distinguished between those statements compelled by the HEA, and those that are not. State law cannot interfere with HEA-required disclosure, so a case brought under a theory of fraudulent non-disclosure, implying any duty to provide additional information, is expressly preempted.[10] Nelson’s claims, however, relate to affirmative misrepresentation falling outside of the HEA’s requirements.[11] The Seventh Circuit panel agreed that § 1098g does not extend to misrepresentation in counseling, “where Great Lakes could have avoided liability under state law by remaining silent (or telling the truth) on certain topics.”[12] The Seventh Circuit also quickly dispensed with claims of conflict preemption[13] and field preemption,[14] before remanding for further proceedings.
Nelson has broad implications for future student loan litigation. Plaintiffs and amici cited the case in briefs to the Third Circuit[15] and oral arguments before the Eleventh Circuit,[16] both of which are actively considering whether the HEA preempts state law claims. A district court cited the case favorably in allowing private plaintiffs to proceed with state law claims.[17] Nelson is not a panacea for plaintiffs: the decision still preempts nondisclosure.[18] Even though the dust has yet to settle on this issue,[19] borrowers have reason to hope that they can hold student servicers accountable with state and common law claims.
[1] See, e.g., Complaint, New York v. Pa. Higher Educ. Assistance Agency, No. 19-cv-9155 (S.D.N.Y. Oct. 3, 2019); Complaint, Hyland v. Navient Corp., No. 17-2-01115-1 (S.D.N.Y. Oct. 3, 2018); Complaint, Mississippi v. Navient Corp., No. G2108-98203 (Miss. Ch. Ct., July 17, 2018); Complaint, California v. Navient Corp, No. CGC-18-567732, (Cal. Super. Ct., Jun. 29, 2018); Complaint, Massachusetts v. Pa. Higher Educ. Assistance Agency, No. 1784-CV-026282 (Ma. Sup. Ct. Feb. 28, 2018); Complaint, Pennsylvania v. Navient Corp., No. 17-CV-01814 (M.D. Pa. Oct. 5, 2017); Complaint, Illinois v. Navient Corp., No. 2017CH00761 (Ill. Cir. Ct. Jan. 18, 2017); Complaint, Washington v. Navient Corp., No. 17-2-01115-1 (Wash. Super. Ct. Jan. 18, 2017).
[2] 20 U.S.C. § 1098g.
[3] Thomas M. Cooley Law Sch. v. Am. Bar Ass’n, 459 F.3d 705, 710 (6th Cir. 2006).
[4] Eric Levitz, Trump’s Student Debt Policies are Mind-bogglingly Corrupt, N.Y. Mag. Intelligencer (Aug. 28, 2018), http://nymag.com/intelligencer/2018/08/cfpbs-student-loan-watchdog-resigns-in-protest-of-trump.html; Andrew Kreighbaum, Education Dept. Ends Partnership with CFPB, Inside Higher Ed (Sept. 5, 2017) https://www.insidehighered.com/news/2017/09/05/education-dept-rebukes-cfpb-overreach-kills-information-sharing-agreement.
[5] Brief for Ctr. for Responsible Lending and U.S. Pub. Interest Research Grp, Inc. as Amici Curae in Support of Appellant Nicole D. Nelson, Urging Reversal at 24, Nelson v. Great Lakes Educ. Loan Services, Inc., 928 F.3d 639 (7th Cir. July 2, 2018) (No. 18-1531).
[6] 928 F.3d 639 (7th Cir. 2019).
[7] Complaint at 8, Nelson v. Great Lakes Educ. Loan Services, Inc., 928 F.3d 639 (7th Cir. Feb. 21, 2017) (No. 18-1531).
[8] Id. at 13. (claiming that alternative options “would have likely allowed Plaintiff a $0.00 or extremely low monthly payment. . .”)
[9] Id. at 2-3.
[10] Nelson, 928 F.3d at 649.
[11] Id.
[12] Id. at 650.
[13] Id. at 651.
[14] Id. at 652.
[15] Brief for Appellee at 40, Pennsylvania v. Navient Corp., (No. 19-2116), 2019 WL 4013792 (3d Cir. Aug. 22, 2019); Brief for States of New York et al. as Amici Curae Supporting Appellee at 22, Pennsylvania v. Navient Corp., (No. 19-2116), 2019 WL 4139130 (3d Cir. Aug. 29, 2019); Brief for Amicus Curae the Am. Fed. of Teachers in Support of Plaintiff-Appellee and Urging Affirmance at 22, Pennsylvania v. Navient Corp., (No. 19-2116), 2019 WL 4139129 (3d Cir. Aug. 29, 2019).
[16] Oral Argument at 2:04, Lawson-Ross v. Great Lakes Educ. Loan Services, Inc., No. 18-14490 (11th Cir. Sept. 10, 2019), http://www.ca11.uscourts.gov/oral-argument-recordings?title=&field_oar_case_name_value=lawson-ross&field_oral_argument_date_value%5Bvalue%5D%5Byear%5D=&field_oral_argument_date_value%5Bvalue%5D%5Bmonth%5D=.
[17] Hyland v. Navient Corp., No. 18cv9031 (DLC), 2019 WL 2918238 at *6 (S.D.N.Y. July 8, 2019).
[18] Adam Minsky, This Big Court Decision May Help Student Loan Borrowers, Forbes (Oct. 22, 2019), https://www.forbes.com/sites/adamminsky/2019/10/22/this-big-court-decision-may-help-student-loan-borrowers/#694149003188.
[19] Andrew Keshner, Student-Loan Servicer Can’t Use Federal Law to Avoid Lawsuit Over Alleged Bad Advice, MarketWatch (July 2, 2019), https://www.marketwatch.com/story/student-loan-servicer-cant-use-federal-law-to-avoid-lawsuit-over-alleged-bad-advice-2019-07-02 (“Professor David Rubenstein of the Washburn University School of Law said the ruling could bring the clash of state and federal laws on student loans one step closer to the Supreme Court.”)