A class action lawsuit by four student loan borrowers will proceed against Nelnet, Inc.
A 30-page Order issued by Chief Judge John M. Gerrard, U.S. District Court, Lincoln Nebraska, found that the student borrowers’ Complaint will go forward to class action certification and liability determinations. Nelnet is the largest processor of student loans in the United States, and is headquartered at Lincoln.
The borrowers who won the ruling are Andrew Johansson of Illinois, Heather Porter of Missouri, Jon Pearce of Texas, and Linda Stanley of Colorado. They are represented by lawyers David Domina, Omaha NE and Dan Edelman, Cassandra Miller and Anthony Fiorentino, Chicago IL
The case involves only certain kinds of student loans, not all of them. Specifically, student loans under federal income-driven repayment plans are at issue in the case. These loans are known as IDR loans. The four plaintiffs contend that Nelnet and its subsidiaries should be treated as a single entity, and their separate status disregarded. The Court agreed.
The lawsuit alleges that Nelnet breached a contract it holds with the U.S. Department of Education requiring that loans be administered in accordance with federal regulations. The Plaintiffs claim Nelnet violated the regulations and that they are entitled to enforce them in a civil suit. The Court noted that there is no federal program for enforcement of the Regulations; this infers that Congress intended enforcement to be by student borrowers.
The Court concluded that federal interests would be promoted by enforcement of federal regulations. It found that the federal government would be burdened or subjected to variant state law interpretations if U.S. Department of Education undertook enforcement, and that private citizens, namely student borrowers, are the parties harmed so they have an interest in enforcement.
The student borrowers also contend that Nelnet breached promissory notes they signed with the Department of Education to obtain finance their educations. While the notes are held by the federal government, their administration is contracted to Nelnet by the Department of Education. The Court agreed with the Plaintiffs that Nelnet’s servicing contract with the Government “assigns’ the servicing responsibility to the servicing company. The Court concluded that the Plaintiffs alleged specific detail about Nelnet failures to service their student loans. If proven at trial, this evidence must be considered by the jury when the case is tried.
Johannsson and the other borrowers are also allowed to pursue their claims that Nelnet supplied false information and negligently misrepresented material facts to students regarding their loans. The lawsuit charges that Nelnet misrepresented forbearance options, the status of their annual renewal applications, and documents required for approval of income-driven repayment applications. These applications were submitted to modify payment terms under federal regulations.
As the Court observed, the borrower-Plaintiffs expressly alleged that actions of Nelnet forced them into hardship forbearance, caused the delays in processing their claims, resulted in substantial additional interest, and prevented them from qualifying for loan forgiveness under federal programs. The Court found Nelnet’s arguments against the negligent misrepresentation claim are without merit.
One Plaintiff, from Michigan, was not permitted to proceed with her case because her loan is held by a different owner from the others.
“This decision is a major step forward,” Dave Domina said of the ruling. “We have a ways to go. This is a welcomed and important milestone”.
Read more about the Nelnet Class Action Lawsuit.