Court strikes Navient in student loan lawsuit

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A major setback for Navient, a federal court did ruled against the Student Loans Service giants, so a long process can continue.

The lawsuit was filed by Pennsylvania Attorney General Josh Shapiro on behalf of student loan borrowers in that state. The lawsuit alleges that Navient participated in widespread misrepresentation and other unfair or misleading practices in relation to federal student loan repayment and forgiveness programs.

“The verdict is a total victory,” Attorney General Josh Shapiro told the Philadelphia Inquirers.

Background of the lawsuit

The federal student loan program is a complicated and heavily bureaucratized system. There are numerous student loan repayment and student loan programs available to borrowers, but their requirements have specific and often confusing eligibility criteria. The government hires private companies and organizations to service their extensive federal student loan portfolio on their behalf.

Some of the better known student loan service companies, such as FedLoan service and Navient, have been accused of widespread unfair and fraudulent practices, such as: Consciously indulge borrowers rather than informing them of earnings-related repayment or not fully informing them of key eligibility requirements for student loan waiver programs.

One of the particularly challenging aspects of the student loan system is that it can be difficult to file recourse against the provider through a lawsuit if a federal student borrower is misled by their loan service provider. To sue a federal student loan administrator (or other similar actor) for breach of their duties in court, federal law must enable that this lawsuit is filed through what is known as a “private right of action”.

The Higher Education Act – the complex law that regulates most of the student loan system – does not provide a private right of action that would allow individual student borrowers to take action against their loan service provider if the service provider violates the University Act itself.

Lots conditions, but have Status Consumer protection laws that make it illegal for any type of consumer finance company to engage in unfair or fraudulent business practices. In contrast to the Higher Education Act, these laws often contain a private right of action that enables individuals to file a lawsuit.

But when individual borrowers of their student loans federal Credit service providers among these Status Consumer protection laws have argued the service providers that federal law replaces state law. The reasoning essentially comes down to this: Since federal law does not provide for a private right of action in the event of violations of the University Act, state law cannot provide for a private right of action either. This concept is known as the “right of first refusal” – the idea that federal law is superior to state law.

The Navient Lawsuit Judgment on Student Loans

The Pennsylvania Attorney General Josh Shapiro filed a lawsuit in the Third District Court of Appeals declined Navient’s argument that the lawsuit should be dismissed. The court found that many of the lawsuits relating to Navient’s alleged confirmatory misrepresentations against student loan borrowers were not anticipated by federal law. The ruling allows the lawsuit against Navient to continue. “We believe that the simple language of consumer protection law allows the Commonwealth to act simultaneously,” the court wrote in its unanimous decision.

Similar to two recent student loan decisions

Two rulings were recently issued against student loan administrators for similar reasons, and the Third District Court of Appeals cited both cases in its ruling.

At the end of last year, the district’s 7th appellate court issued a landmark decision in Nelson versus Great Lakes. The court ruled that claims against federal student loan service providers under state law for misrepresentation of federal loan programs are not necessarily anticipated by federal law. In other words, student loan borrowers could sue their service providers under state law and potentially prevail.

And another decision by the 11th district confirmed this central decision. in the Lawson-Ross versus Great Lakes, Borrowers sued Great Lakes Higher Education for false information about the Public Service Lending Program (PSLF) to borrowers. Student loan borrowers claimed Great Lakes had confirmed to them and other borrowers that they were on the right track, theirs Student Loans were awarded under the PSLF even though their loans were in fact ineligible. The 11th District ruled that the Higher Education Act did not preempt claims against Great Lakes for its confirmatory misrepresentations about borrowers’ eligibility for Public Service Loans (PSLF).

In the Pennsylvania case, the Third Circuit relied on these two decisions. “We follow our sister circles in stating that the preemption provision of the Education Act anticipates claims based on non-disclosure of information as required by law, but not claims based on confirmatory misrepresentations.”

Limitations of Judgment

The judgments in all three cases have some limitations. First, the courts have limited these judgments to positive Misrepresentation or active efforts by a student loan intermediary to deceive borrowers about their rights, options, or obligations. Other forms of misrepresentation – like omissions or simply not informing borrowers of all of their options – could still be prevented by federal law. Second, the decision is only binding in the jurisdiction of each district court. Finally, the decisions in these cases only allow the lawsuits to continue; No final judgments have been issued against the service providers or in favor of student loan borrowers and no damages have yet been awarded.

That ruling, however, means an increasing move by federal courts to allow state legal claims against federal student loan service providers. With positive decisions from three different circles, more federal courts can rely on binding precedent to allow this type of action to continue. The momentum continues to be built in favor of student loan borrowers.

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