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8th Circuit blocks Biden’s student loan relief plan while in effect
On July 18, the Eighth Circuit for the U.S. Court of Appeals granted the State of Missouri’s emergency motion for an administrative stay to prevent President Biden’s student loan relief plan from taking effect. The White House released a fact sheet in August 2023 on the President’s SAVE Plan. According to the complaint filed by Missouri and six other states, President Biden’s final rule implementing the SAVE Plan, which would have gone into effect on July 1, allegedly attempted to cancel millions of dollars of student loans improperly. The State of Missouri had taken issue with the President’s plan to “evade the limits Congress set out in [the Higher Education Act] for the [income-based repayment] program” by allegedly hiking the exempt-income threshold from 150 to 225 percent, slashing the payment obligation from 15 to 5 percent for undergraduates, and forgiving loans after as few as ten years instead of 25. The administrative stay will be in place until the 8th Circuit rules on the appellants’ motion for an injunction.
SAVE Plan partially blocked by 2 federal judges
Recently, two district court judges partially blocked President Biden’s student debt relief program, known as the Saving on a Valuable Education (SAVE) plan. The judges from Missouri and Kansas ruled that the program lacks clear authorization from Congress as required under the Higher Education Act. Judge John Ross of Missouri issued a preliminary injunction to prevent the Department of Education from forgiving loans under the program. Similarly, Judge Daniel Crabtree of Kansas prohibited the plan from fully launching on July 1. The judges’ decisions came after state attorneys general filed lawsuits, arguing that the SAVE Plan presents a “major question” of economic and political significance, which demands explicit congressional approval. Despite the government’s claim that the Higher Education Act authorizes the plan, both judges found the arguments insufficiently persuasive to demonstrate clear congressional authorization.
Court grants $12 million final judgment but denies prejudgment interest in RICO class action
On June 18, the U.S. District Court for the Southern District of California entered an order granting plaintiffs’ motion for entry of final judgment against a large for-profit educational institution that has since gone bankrupt. According to the 2020 complaint, plaintiffs were left with debt for what they claimed to be a worthless education. After the school’s bankruptcy in 2016, plaintiffs alleged that they continue to be victimized by defendants’ student loan operation. Plaintiffs filed the motion following a jury trial where defendants were found liable under the Racketeer Influenced and Corrupt Organizations Act (RICO). The jury awarded plaintiffs $4 million in compensatory damages, which was trebled to $12 million under the RICO statute.
In addition to the judgment, plaintiffs applied for an additional $4 million in prejudgment interest. In denying the application for prejudgment interest, the court declined to award the discretionary interest based on allegations that defendants “repeatedly attempted to pick off the class representatives for the very purpose of eliminating this action, or at the very least, delaying it.” The court recognized that defendants’ tactics may have delayed the litigation but did not find them to be unreasonable or unfair to a degree that would warrant prejudgment interest, noting that the plaintiffs’ own post-trial motions contributed to the delay in judgment.
The court entered final judgment against the defendants in the amount of $12 million, with attorneys’ fees and costs to be determined later.
CFPB sues student loan servicer over discharged student loan collections
On May 31, the CFPB announced its lawsuit against a Pennsylvania-based student loan servicer (the defendant) for allegedly collecting on discharged loans. According to the complaint, the defendant lacked policies and procedures for identifying serviced loans that were discharged by bankruptcy courts. The CFPB alleged that the defendant continued to collect on discharged non-qualified education loans by making misrepresentations to consumers through repayment schedule letters and billing statements. Furthermore, the Bureau alleged that the defendant’s failure to establish policies for private student loans that were discharged resulted in its furnishing inaccurate information to consumer reporting agencies. The Bureau added that even if consumers did not continue to pay on their discharged loans, they were not reasonably able to avoid the defendant’s collection attempts and the credit information it furnished. The CFPB also claimed that consumers were unable to protect their interests because they could not choose their loan servicer and had no control over its collection practices. The defendant’s actions were in violation of the CFPA based on several violation of Regulation V. The defendant allegedly violated the FCRA, too. The Bureau sought injunctive relief, consumer redress, a civil money penalty, and other relief.
6th Circuit affirms district court’s decision to discard case for lack of standing
On May 17, the U.S. Court of Appeals for the Sixth Circuit affirmed a lower court’s sua sponte dismissal for lack of subject-matter jurisdiction. This case was brought by two nonprofit organizations seeking to halt the Department of Education’s (DOE) plan to provide participants in the Public Service Loan Forgiveness (PSLF) program with a one-time account adjustment that would allow time spent in excessive forbearance status to count toward debt forgiveness under the program, as announced in April 2022 and July 2023. Plaintiffs alleged standing on the basis that they “have previously employed, and currently employ, borrowers who participate, may become eligible to participate, or have previously participated in the statutory PSLF program” and “expect to recruit other such employees in the future.” Notably, and not long after filing their complaint in the lower court, plaintiffs filed an ex parte motion for a temporary restraining order and preliminary injunction, seeking to prevent the Department of Education from discharging any debt through the long-term forbearance aspect of the adjustment. Before defendants could respond, however, the U.S. District Court for the Eastern District of Michigan dismissed plaintiffs’ complaint sua sponte without prejudice.
On appeal, plaintiffs argued that they were not required to link the proposed adjustment to a specific tangible loss and that the adjustment injured them by reducing their expected benefits under a loan forgiveness program. The Sixth Circuit disagreed. It found plaintiffs failed to allege standing due to an injury resulting “from the [student loan] adjustment based on competitor standing and deprivation of a procedural right” and affirmed the dismissal for lack of subject-matter jurisdiction.
CFPB orders debt relief servicer to pay $400,000 for charging advanced fees
On May 20, the CFPB released its consent order and stipulation against a debt relief provider for alleged deceptive acts and practices in violation of the CFPA and for alleged deceptive telemarketing practices and collection of advance fees in violation of the Telemarketing Sales Rule (TSR). The CFPB alleged the violations began in January 2016 and ordered a civil money penalty of $400,000. Specifically, the CFPB found the company harmed 5,970 consumers with student loans in the amount of a total of $974,590 in at least three ways: (1) by charging advance fees of $99 to $199 for debt relief services in violation of the TSR, regardless of success in loan relief; (2) by misrepresenting that the fees would be applied to student loans when they were not often used to pay off the student loans; and (3) by misleading consumers that would consolidate student loans, lower monthly payments, and achieve loan forgiveness – especially when the company did not fulfill any of these claims in many instances.
The Bureau nullified all agreements relating to the company’s debt relief services between a consumer and the debt relief company. The Bureau also ordered the company to cease fee collections or attempts and permanently restrained the company from advertising or marketing its debt relief services or receiving any consideration from holding an ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting others in the advertising, marketing, promoting, offering for sale, or selling debt relief services. If the company failed to disclose any material asset or if any sworn statements contain any material representation or omission, the Bureau will require an additional $5 million fine. The company neither admitted nor denied these findings.
Student loan servicer to pay DFPI $27, 500 for untimely response to information request
On April 24, the California DFPI entered into a consent order with a federal student loan servicer (respondent) that allegedly failed to provide the DFPI with timely access to requested borrower data. In late April of 2022, the U.S. Department of Education announced a one-time revision of income-driven repayments to address past inaccuracies. To take advantage of this adjustment, the Department of Education required borrowers to submit a loan consolidation application by April 30, 2024. The DFPI requested information from respondent on student loan borrowers for the purpose of completing outreach to impacted borrowers ahead of the loan consolidation application deadline. Respondent provided this information 17 days after the deadline set by the DFPI.
To resolve DFPI’s allegations, respondent agreed to pay a penalty in the amount of $27,500.
State AGs sue to block Biden's SAVE Plan for student loan forgiveness
On April 1, 10 state attorneys general filed a lawsuit in the U.S. District Court for the District of Kansas against President Biden, the Secretary of Education, and the Department of Education seeking to block the enactment of the SAVE Plan. As previously covered by InfoBytes, the SAVE Plan was an income-driven repayment plan, intended to calculate payments based on a borrower’s income and family size, rather than the loan balance, and forgave balances after several years since repayment. According to the complaint, the government released a rule for the new SAVE Plan intended to eliminate at least $156 billion in student debt as the second step in a three-part loan forgiveness initiative. The first step involved an attempt to cancel $430 billion in student loans under the HEROES Act, which the U.S. Supreme Court ruled unconstitutional in Biden v. Nebraska.
The SAVE Plan assumed $430 billion in loans would be forgiven beforehand, but after the Supreme Court's decision, the defendants allegedly did not revise the cost estimate in anticipation of overturning the case. This oversight led to a significant underestimation of the SAVE Plan's true cost; plaintiffs alleged.
Plaintiffs further claimed that the SAVE Plan was written before the Supreme Court's ruling in Biden v. Nebraska and thus included outdated statements of confidence in the defendants' authority to pursue debt relief. The rule would take effect on July 1, but defendants allegedly have already started forgiving loans for some individuals before this date. The complaint alleged that on February 21, the Department of Education forgave the debt of 153,000 borrowers, which the state attorneys general claimed violated Biden v. Nebraska.
Plaintiffs brought claims under the Administrative Procedure Act, contending that the Department of Education exceeded its authority under the Higher Education Act of 1965 by issuing the rule and that the rule would be arbitrary and capricious since defendants failed to account for the full cost of the rule.
FTC bans student loan “scammers” from debt relief industry
On February 6, the FTC announced two orders (here and here) that will ban a group of student loan debt relief “scammers” (defendants) from the debt relief industry. As previously covered by InfoBytes, defendants allegedly misled consumers by charging them for services that are free through the Department of Education, claiming consumers needed to pay fees or make payments to access federal student loan forgiveness. As a consequence, the FTC filed a temporary restraining order resulting in an asset freeze, among other things.
As a result of the FTC’s action, and subject to court approval, defendants are banned from operating in the debt relief industry, as well as prohibited from making false statements about financial products or services and from using deceptive tactics to gather consumers’ financial information. Moreover, the proposed orders include a monetary judgment of $7.4 million, with a significant portion suspended due to financial constraints. Defendants must surrender personal and business assets, and if any of them materially misrepresent their finances, the entire monetary judgment will become immediately payable.
Student loan servicer fined $1.8 million by Massachusetts Attorney General
On January 11, the Massachusetts Attorney General (AG) announced a $1.8 million settlement with a student loan servicer, to resolve allegations that the company did not properly communicate Income-Driven Repayment (IDR) plan renewals to borrowers. According to the settlement, IDR plans are a “helpful tool for managing unaffordable federal student loan debt and avoiding the consequences of default… [and respondent] is required to follow specific procedures intended to ensure that borrowers are able to successfully navigate the enrollment and annual recertification processes required for IDR.” The AG alleged that the respondent violated state law by sending written notices that did not meet regulatory requirements and failed to send required notices.
Under the terms of the settlement, respondent will (i) pay $1.8 million; (ii) include certain disclosures in renewal notice correspondence to borrowers; (iii) comply with requirements for FFELP loans owned by the DOE and enrolled in certain repayment plans; (iv) clearly disclosure to certain borrowers that failure to timely provide certain information about income or family size will result in increased monthly payments; and (v) retain copies of each written communication that it sends to borrowers regarding their IDR plans. The student loan servicer enters into this agreement for settlement purposes only (without admission).