This could start an avalanche of lawsuits.

Michael Stratford reports at Inside Higher Ed.

Suing Student Loan Servicers

Student loan borrowers and others will be able to sue a national student loan corporation after a federal appeals court said Wednesday that the corporation’s affiliation with a state government does not shield it from lawsuits.

The U.S. Court of Appeals for the Fourth Circuit ruled that the Pennsylvania Higher Education Assistance Agency, or PHEAA, is not an “arm of the state,” and therefore is not immune from lawsuits.

Consumer advocates praised the decision as a win for student loan borrowers because they would be allowed to hold PHEAA accountable for its actions in court.

PHEAA, which also operates under the names American Education Services and FedLoan Servicing, manages the student loan accounts for millions of borrowers across the country. The agency reported in 2014 that it serviced a total of $287 billion worth of loans. It is also one of the U.S. Department of Education’s four major servicers, managing the accounts of more than eight million federal borrowers as of this past summer.

The court ruled that even though PHEAA was established by Pennsylvania, it is not an “arm of the state” because it is financially independent of the state, generates its own commercial revenue, and makes its own fiscal and policy decisions.
Keith New, a spokesman for PHEAA, said the agency is reviewing the decision and declined to comment further.