Summary:
TheCourt of Appeals affirmed the district court's decision to dismiss Todd Berman's lawsuit against the Pennsylvania Higher Education Assistance Agency (PHEAA) for lack of subject matter jurisdiction, as PHEAA was entitled to derivative sovereign immunity. Berman had sued PHEAA, alleging their misinformation cost him the chance for student loan forgiveness under the Public Service Loan Forgiveness program, especially after he worked for Blue Cross Blue Shield of North Carolina, which PHEAA initially and incorrectly said did not qualify as a public service employer.
The court found that the Department of Education, which had contracted with PHEAA to service loans, authorized PHEAA’s actions, and thus, PHEAA was acting under derivative sovereign immunity. The contract stipulated procedures PHEAA needed to follow in verifying employers for loan forgiveness eligibility, and PHEAA adhered to these, including consulting the Department on ambiguous cases. Furthermore, the Department of Education explicitly directed and later confirmed the actions PHEAA took in Berman’s case. Hence, any error in employer qualification was on part of the Department, not PHEAA. The court suggested Berman could challenge the Department’s decision under the Administrative Procedure Act but not seek damages against it or its agent, PHEAA.
Commentary:
This case should be used as Exhibit A in and SLAP where the bankruptcy court questions whether a student borrower might have been mistreated and lied to by servicers and USED. That this often led to those borrowers often not participate in the various IDR and other relief programs, might, just might (as explicitly recognized by both the CFPB, by USED, and by the Department of Justice,) explain their skepticism.
As this decision would further insulate student loan servicers against their own incompetence, student loan borrowers need to find ways to ensure that failures by those servicers have remedies. This is likely harder for student loan borrowers who do not have any judicial supervision over their loans, but fortunately this is not the situation for those in Chapter 13. With the HEA regulations becoming final and effective on July 1, 2024, that will provide credit towards IDR forgiveness for the time in a Chapter 13, it is not unreasonable to be concerned that these servicers will not comply (or even understand) these obligations. Adding plan provisions which incorporated these regulations could provide authority for the bankruptcy courts to hold servicers and even USED in contempt, including providing for damages.
Paralleled on the obligations against mortgage servicers that were made subject to review by Bankruptcy Rule 3002.1, hopefully not only the E..D.N.C. and M.D.N.C., where I have the greatest involvement, but also the National Bankruptcy Rules Committee, will consider amending the standard Chapter 13 Form Plan to include the following provisions:
- Notice of Number of Months of IDR Credit. After the debtor completes all payments under the plan, the debtor may file and serve on the U.S. Department of Education and [name of student loan servicer, guarantor, or holder] a notice stating that the debtor has completed all plan payments and the number of months credit toward loan forgiveness for each month that the debtor made a payment under the plan to the trustee, as indicated on the Trustee's Final Report. The notice shall also inform U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder] of their obligation to file a Response to the Notice of Final Plan Payment and Number of Months of IDR Credit as described in the following section.
- Response to the Notice of Number of Months of IDR Credit. Within 21 days after service of the above notice under subdivision (f) of this rule, U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder] shall file and serve on the debtor, debtor’s counsel, and the trustee a statement indicating (1) whether it agrees with the number of months of credit towards loan forgiveness in the notice, and (2) whether U.S. Department of Education and/or [name of student loan servicer, guarantor, or holder] has credited the the debtor with that number of months towards loan forgiveness. The response shall itemize the remaining balance owed as of the date of the response and will identify the current [name of student loan servicer, guarantor, or holder], its address, and the amount and next due date of payment. The response shall be filed as a supplement to the holder’s proof of claim and is not subject to Rule 3001(f).
- Determination of Number of Months of IDR Credit. On motion of the debtor filed within 21 days after service of the response described above, the court shall, after notice and hearing, determine the number of months of IDR Credit.
Blog comments