December, 2017
Washington -- Coming off ten years of lawsuits against student loan lenders in which our overall record is 7-1-1, it's time to give credit where credit is due: mostly to the law firm of Wiley Rein (and, through 2010, the TELG law group). Tens of millions of dollars of repayments of false lender claims have come back to the U.S. Treasury. Students and families themselves now have new opportunities to challenge lenders and servicers for their errors, when often before they had no recourse. And sunshine has broken through to show how the shadowy side of the student loan system really works.
Think of the legal victories:
• Settlements with seven lenders, which not only got many millions back for taxpayers, but sent a strong message that false claims have consequences. False claims can be attempted, but at lenders' peril. The false claims between 2002 and 2006 in these cases obviously played a role in the decision by Congress in 2010 to kill the expensive, bank-based student loan system, FFEL. That freed up savings of over $30 billion for students, over subsequent years, in the form of additional grants, not loans. Think of it, $30 billion for financially needy students!
• A victory at the U.S. Supreme Court level, to confirm a 4th Circuit decision that a tax-exempt lender could not hide behind the doctine of sovereign immunity to deny student loan borrowers their day in court if they had been wronged by the lender. This will be of great assistance to aggrieved borrowers for many years to come. To get this victory, Wiley Rein had to win three separate appeals in the 4th Circuit and have the decision pass muster at the U.S. Supreme Court. This was an incredible achievement that will help borrowers as the sadly mishandled Public Service Loan Forgiveness progam is sorted out.*
• Getting a lender to a jury trial, where finally the sun shed its light on how the lender viewed its federal regulator, the U.S. Department of Education. "Pathetic" and "weak-minded" was the lender view. The lender even called a decison by Secretary Margaret Spellings, to restate Department regulations governing subsidies, a "joke." To get mountains of such evidence into the public realm was indeed one of the main goals of a jury trial. Wiley Rein did this through painstaking discovery over months and years, even while knowing (all too well, as it turned out) that discovery evidence might not make any difference to a jury, which was confronted by the fact that the Department of Education paid the false claims for years without question.** Pursuing truth through discovery for the sake of sunshine was a courageous and selfless act by Wiley Rein on behalf of its client, deserving of the highest acclaim.
• Bringing to light unseemly practices among certain lenders. One trial witness was confronted with the fact that she had set up a consulting company to show a for-profit lender how it could reap huge additional subsidies from the Department of Education, for a two percent share of the extra take for her company. The lender eventually had to pay back a portion of the false claims involved in the scheme, but the consultant walked away with her percentage nevertheless, with no consequences. Citizens and taxpayers, take note of how your tax dollars are spent.
The list could go on and on, and with appropriate curiosity shown by historians, journalists, public policy experts, and ordinary citizens, it will. The final lawsuit is over; Wiley Rein has done extraordinary, incredibly praiseworthy work.
Now: Is there anything to be learned from the ten years of these legal battles? Let's hope so, and let's get to it.
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* Not that any aggrieved borrower should or should not actually sue. That the possibility of a successful suit exists should have a salutary effect on servicer performance. After Oberg III was decided by the 4th Circuit and the Supreme Court denied a writ of certiorari on the case in January, 2017, all tax-exempt lenders and servicers that relied on sovereign immunity to turn away borrower suits were put on notice that such a defense might henceforth not work.
** Making it difficult if not impossible to demonstrate to a jury that the lender was without a reasonable basis for its claims, because the Department was paying them, even though the Department later ruled the claims false after audits by the Inspector General. A jury, conversely, could have found that the claims were reckless, given that the lender never sought opinion of counsel, never asked the Department for its approval, and in fact hid its false claims scheme from the Department, as shown by Wiley Rein through discovery. But this jury did not.
