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Lawsuits & Litigation

Appeals Court Will Let Student Loan Borrower Pursue Company That ‘Forgot’ Repayment Options

— July 4, 2019

Great Lakes Educational Loan Services pushed Nicole Nelson into forbearance and deferment, never telling her she could qualify for income-based repayment plans.

A student loan servicer may be held liable for touting its expertise and ability to help consumers manage repayment, all while coercing borrowers into plans that benefit lenders.

The lawsuit, writes The Washington Post, was given a breath of fresh air by the U.S. Circuit Court of Appeals for the 7th Circuit. Filed by Nicole Nelson, the complaint accuses Great Lakes Educational Loan Services of violating Illinois consumer fraud laws.

Nelson, in her suit, alleges that Great Lakes advertises expert advising for student loan borrowers—but doesn’t follow through on its promise, instead steering indebted youth into unfavorable plans.

Nelson use herself as an example—she financed her college education with federal loans, beginning repayment in 2009. But her income took a sharp drop several years later, when she accepted another offer.

A Great Lakes representative told Nelson her best option was forbearance, which allows borrowers to temporarily stop making payments while interesting continues to accrue on their unpaid principle. Several months later, writes, another adviser recommended Nelson defer her loans—preventing interest from accruing, but not addressing the woman’s outstanding debt.

At no point, claims Nelson, did anyone at Great Lakes tell her about income-contingent plans, an option mandated by federal law.

Image via (CCA0BY-0.0)/Public domain


Nelson alleges that income-based repayment plans are less lucrative for servicers like Great Lakes, which sometimes fail to mention them altogether.

A lower court had initially sided with Great Lakes, which argued that Nelson’s claims are pre-empted by federal law. The Higher Education Act, notes the Post, exempts federal loans from state disclosure laws.

The court thus reasoned that Great Lakes was only accused of omitting certain information, or that most beneficial to borrowers. Nonetheless, the 7th Circuit issued a contradictory opinion, referring to the loan servicer’s marketing.

“When a loan servicer holds itself out to a borrower as having experts who work for her, tells her that she does not need to look elsewhere for advice, and tells her that its experts know what options are best for her, those statements, when untrue, cannot be treated by courts as mere failures to disclose information,” U.S. Circuit Court Judge David F. Hamilton wrote.

“Those are affirmative misrepresentations, not failures to disclose,” Hamilton added. “Great Lakes chose to make them. A borrower who reasonably relied on them to her detriment is not barred from bringing state-law consumer protection and tort claims against the loan servicer.”

The suit, which was filed as a class action, could encompass others who were misled by Great Lakes advisers, as well as their counterparts in other companies.

“Many of Nelson’s specific claims allege that Great Lakes misled her and other class members by making affirmative misrepresentations—about its expertise and devotion to borrowers’ best interests, and in recommending forbearance as the best option for borrowers in financial trouble,” says the 24-page opinion.

The Washington Post opines that the case could influence an ongoing struggle between the federal government and consumer advocates. Since taking office, Education Secretary Betsy DeVos has directed bureaucrats to undo or ignore certain protections for student loan borrowers.

Hamilton did note that Great Lakes’ problem had less to do with attempting to skirt federal law than outright deceit.

“Nelson’s claims of affirmative misrepresentation do not necessarily imply any additional disclosure requirements at all,” Hamilton added. “She is complaining about at least some deceptive statements that Great Lakes chose to make voluntarily, not because federal law required them. Great Lakes could have avoided these claims by remaining silent.”


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