11th Circuit: Borrowers’ state-law claims not preempted by Higher Education Act

Courts Appellate Eleventh Circuit Debt Collection State Issues Student Lending

On April 10, the U.S. Court of Appeals for the Eleventh Circuit vacated a district court’s dismissal of borrowers’ state law claims against a student loan servicer, holding that the claims were not preempted by the federal Higher Education Act (HEA). The decision results from a lawsuit filed by two federal student loan borrowers who alleged the servicer violated the Florida Consumer Collection Practices Act (FCCPA) and other state laws by making “affirmative misrepresentations to them and to other borrowers that they were on track to have their student loans forgiven based on their public-service employment when, in fact, their loans were ineligible for the forgiveness program.” The borrowers claimed that, after making years of payments, they discovered they were not eligible for the Public Service Loan Forgiveness (PSLF) Program because most of their loans were not federal direct loans. Both borrowers contended that had they not been misinformed, they would have taken the necessary steps to ensure eligibility. The district court dismissed the borrowers’ claims on the grounds that they were expressly preempted under section 1098g of the HEA, which prohibits the application of state-law disclosure requirements to federal student loans.

On appeal, the 11th Circuit determined that the borrowers’ claims were not expressly preempted by the HEA, concluding that the precise language in section 1098g “preempts only state law that imposes disclosure requirements; state law causes of action arising out of affirmative misrepresentations a servicer voluntarily made that did not concern the subject matter of required disclosures imposes no ‘disclosure requirements.’” Among other things, the appellate court noted that the borrowers did not allege that the servicer failed to provide information it was legally obligated to disclose, but rather that the information provided to the borrowers concerning their eligibility for the PSLF program was false. “Holding [the servicer] liable for offering false information would therefore neither impose nor equate to imposing on servicers a duty to disclose information,” the appellate court wrote. In addition to dismissing the servicer’s field preemption argument, the appellate court reasoned that its decision “does no harm to standardization of disclosures for federal student loan programs.” The court vacated the district court’s dismissal, and remanded the case for further proceedings.