2nd Circuit upholds public service loan relief settlement

Courts Appellate Second Circuit Student Lending PSLF Class Action Settlement Student Loan Servicer

On September 7, the U.S. Court of Appeals for the Second Circuit affirmed a class action settlement reached between a student loan servicer and borrowers who claimed the servicer failed to inform them of a loan forgiveness program for public service employees. As previously covered by InfoBytes, the settlement required the servicer—who denied any allegations of wrongful conduct and damages—to put in place enhancements to identify borrowers who may qualify for Public Service Loan Forgiveness (PSLF) and “distribute comprehensive and accurate information about how to qualify, which are meaningful business practice enhancements.” The servicer was also required to fund a $2.25 million non-profit program to provide counseling to borrowers at all stages of the repayment process. The settlement also approved service awards for the named plaintiffs. In affirming the settlement, the appellate court rejected arguments raised by objectors who claimed, among other things, that the cy pres award would not benefit the class and “that the settlement improperly released monetary claims.”

“The cy pres award funds Public Service Promise and thereby assists all class members in navigating PSLF and determining whether they have a viable individual monetary claim against [the servicer],” the panel wrote, acknowledging that other circuit courts have recognized that class members can indirectly benefit from defendants paying appropriate third parties. “[T]he reforms will also benefit the remaining class members who, for example, are no longer with [the servicer] or who no longer have student loans, by providing them accurate information about the PSLF and helping them determine whether they have viable individual claims for damages,” the 2nd Circuit said.