Servicer in a Key Student Loan Cancellation Lawsuit Risks a $175 Billion Fine

[turbinetree]

MOHELA, a servicer involved in the case that heard oral arguments on Wednesday, could be liable under California law if it interferes with a borrower’s right to debt forgiveness.

BY DAVID DAYEN OCTOBER 13, 2022

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A federal judge was skeptical of some plaintiff arguments on Wednesday in a case seeking to enjoin the Biden administration’s student debt cancellation program. The case is one of several working their way through the courts, some of which have already been rejected. This case, Nebraska v. Biden et al., is seen as one with the largest possibility of success.

However, one of the key plaintiffs in the case, a loan servicer affiliated with the state of Missouri, could be on the hook for as much as $175 billion if it impedes borrowers (who hail from across the nation, not just Missouri) from receiving debt forgiveness, according to a notice from the American Federation of Teachers (AFT) and the Student Borrower Protection Center (SBPC) released on Tuesday.

U.S. District Court Judge Henry Autrey got the plaintiffs in the case—the states of Nebraska, Missouri, South Carolina, Iowa, Kansas, and Arkansas—to concede that ongoing student debt forbearance, in the form of a payment pause that has been in place for two years, would be allowable legally. In other words, under the states’ argument, an open-ended zeroing-out of payments is legal, but an outright cancellation of those payments is not.

https://prospect.org/education/servicer-in-key-student-loan-cancellation-lawsuit-risks-175-billion-fine/

Presently my student loan is held by a private service provider, which was secured by the federal Department of Education at one time....presently I am one of the thousands who cannot, I repeat cannot have my loans forgiven.....because my service provider all by themselves moved it to a private lender...and so if you did not have any public service employment (10 years) you don't get any forgiveness....

[Johnny2X2X]

1. This is unfortunate

There was always going to be court cases, and private loan companies have standing.

There may need to be subsequent actions to help more borrowers with more reasonable options for repayment, because with private companies, they have contracts with borrowers that have weight in court.

[Thomas Hurt]

2. my current understanding is that if you have a loan with a private provider, you aren't eligible...

period. How are they are going to be harmed? Nothing is changing for them.

[turbinetree]

3. If anyone took out a loan prior to 2010 but it is federally insured the lender gets there money,

at the time of people signing those FFELP loans were probably thinking that they were federally insured, so if anything happens they would be paid off......in my way of thinking its all backed by the taxpayer funds because somehow someway that money comes from the Feds all of it ..... even if these loans were to be forgiven the DoE will pay those lenders.....there are over 700,000 of us in that plan and the interest being generated is the soul purpose for doing this.....