Student Defense Op-Ed With NC Attorney General Josh Stein in American Prospect
This article appeared in the American Prospect on May 31, 2020. The original article is available here.
Unsanitized: States and Consumer Advocates Battling for Student Borrowers
The following is a guest edition of Unsanitized from Josh Stein, the attorney general of North Carolina, and Dan Zibel, vice president and chief counsel of Student Defense, who argued the Lawson-Ross case before the 11th U.S. Circuit Court of Appeals.
The COVID-19 pandemic, like other health and economic crises, will undoubtedly encourage student loan companies, shady debt relief firms, and for-profit colleges looking to take advantage of student borrowers. Fortunately, a recent federal appeals court ruling gives states and students a way to fight back when the federal government fails to protect them.
In Lawson-Ross v. Great Lakes, student borrowers claimed the company servicing their loans, Great Lakes, had broken Florida law by advising them that they were on track to qualify for a federal loan forgiveness program when, in fact, they were ineligible due to the type of loan they had.
In the lawsuit, the borrowers claim that Great Lakes held themselves out as a resource that would provide advice and help the borrowers understand their loan repayment options. But rather than providing sound advice, the borrowers assert that Great Lakes customer service representatives routinely provided incorrect information regarding eligibility for the federal Public Service Loan Forgiveness (PSLF) program. Moreover, the borrowers claim that Great Lakes incentivized its call service representatives to have short conversations with borrowers, instead of taking the time necessary to make sure that borrowers were on the most appropriate path to repayment.
Bad advice and information from servicers has prevented thousands of borrowers across the country from getting the relief they deserve. One of these former students was the lead plaintiff, Amanda Lawson-Ross. After years of hard work to earn a Ph.D. in psychology, she entered public service by working for the University of Florida as a counselor and clinical professor.
Lawson-Ross made her loan payment every month for four years, thinking the rest of her debt would be forgiven under the PSLF program, which forgives a student’s remaining debt after they devote ten years to public service. But after checking and double-checking that she was doing everything right, a Great Lakes customer service representative told her that she actually had the wrong kind of loan and wouldn’t qualify for forgiveness.
What happened to Lawson-Ross is outrageous, but also tragically common. As of last year, the U.S. Department of Education denied more than 99 percent of PSLF applications. In North Carolina alone, as of January, only 32 out of the nearly 3,700 borrowers who have applied for the PSLF program have received it. In many cases, students have been disqualified from PSLF due to bad advice or errors by their loan servicers.
In the Lawson-Ross suit, Great Lakes argued—with support from the Trump administration in the form of a legal interpretation published in the Federal Register—that federal law blocks student loan servicers from being sued under state law for these types of claims. However, the 11th U.S. Circuit Court of Appeals ruled in April that when a loan servicer makes affirmatively false or misleading statements, the servicer can be held accountable under state law. This means that not only will courthouse doors remain open to borrowers to make claims against the servicers, but borrowers will have the opportunity to prove their case to a jury, and if successful, be compensated for their losses.
The ruling gives hope to borrowers like Rebecca, a social studies teacher from western North Carolina. For years, Rebecca diligently repaid her student loan, even setting up an automatic payment directly from her back account. As she told the North Carolina Attorney General’s Office, “They sent me a bill, I paid it.” Rebecca later discovered that many of her payments did not count toward the 120 monthly payments required for her to qualify for PSLF. Only full monthly payments count toward forgiveness, but rather than withdrawing a full monthly payment as she had instructed, Rebecca’s servicer unilaterally decreased her monthly automatic payment by just 2 cents, which put her payments just under the threshold for loan forgiveness. Rebecca’s servicer also deferred her payments for four months without her permission, robbing her of four more qualifying payments. Rebecca only cleared this up after years of fighting Great Lakes herself and then finally consulting an attorney.
The Department of Education encourages borrowers with questions to reach out to their servicers for answers. As people navigate the challenges posed by the COVID-19 crisis, it is more important now than ever that student borrowers be able to rely on their servicers and be able to take action when their servicers screw up, or worse.
The federal CARES Act provides some assistance for student borrowers, including a six-month payment pause for qualifying borrowers. With millions of student loan borrowers now calling their loan servicers asking questions about how the CARES Act affects their loans, good information can be the difference between staying on track and falling hopelessly behind. Yet, too often the loan servicers have every incentive to put their financial needs ahead of borrowers’ best interests. Servicers are paid a flat fee per loan in their portfolio, leading to chronic underinvestment in customer service. This dynamic leads the loan servicers to shunt students into less affordable plans or botch simple paperwork rather than take the time to get consumers into the right plans that best match their individual situations.
Every month, the North Carolina Attorney General’s Office fields dozens of complaints from students, and that figure may rise dramatically in the coming months because of the economic disaster brought on by COVID-19. And North Carolina is not alone. At least a half dozen states, including California, Illinois, Massachusetts, and Pennsylvania, have brought cases against student loan servicers for misleading student loan borrowers. In most of these cases, the servicers have raised the same flawed argument that the court struck down in the Lawson-Ross case.
For student borrowers out there feeling hopeless, the Lawson-Ross ruling is a reminder that they have rights and protections available to them. For the companies misleading students, the court’s ruling should be a wake-up call: Where the federal government refuses to enforce consumer protection laws, states and consumer advocates are not only ready, but empowered to take action.