Judge Guts Teachers’ Claims Against Student Loan Servicer

AKRON, Ohio (CN) - A federal judge on Monday rejected the racketeering claims of teachers who said in a class action that one of the nation’s largest student loan servicers illegally converted teaching grants into loans.

U.S. District Judge Sara Lioi gutted a January 2017 lawsuit filed by 13 Ohio teachers against the Pennsylvania Higher Education Assistance Agency - doing business as FedLoan Servicing - throwing out claims for racketeering and unjust enrichment.

The educators claimed the loan servicer converted grants that gave each of them $4,000 toward their education if they took teaching jobs in areas that needed math and science teachers upon graduation. Under the Teacher Education Assistance for College and Higher Education, or TEACH, Grant program, students commit to at least four years of teaching in underserved schools in exchange for the grants.

FedLoan allegedly converted the grants to loans based on small and correctable omissions on certification paperwork such as signatures. Teachers said they had also missed deadlines to file paperwork because they had received notifications electronically rather than by mail. The company refused to reverse the decisions even if the teachers showed they were in qualifying teaching jobs, according to the lawsuit.

In a 19-page opinion, Judge Lioi found that the teachers had failed to establish a “scheme to defraud” under federal law.

Even if the teachers established that the parties' contract dispute was intertwined with an illegal scheme, that was not enough to support allegations of wire and mail fraud that formed the basis of the racketeering claim, the judge ruled.

The alleged “underhanded tactics,” including the “arbitrary” deadlines and the small form errors or omissions used to convert the grants into loans, had more in common with contract disputes than racketeering, Lioi added.

“The fact that plaintiffs take issue with [Pennsylvania Higher Education Assistance Agency’s] interpretation of the contract deadlines may give rise to a contract disputes, but it does not give rise to a fraud claim, nor does a dispute over the legal significance of the delays by plaintiffs in submitting certification paperwork,” the judge wrote.

While Lioi dismissed the allegations against FedLoan, breach of contract and unjust enrichment counts against co-defendants the U.S. Department of Education and Secretary of Education Betsy DeVos remain.

The teachers’ attorney Troy Doucet said he was “profoundly disappointed" by the court’s ruling.

"These are teachers who are doing absolutely everything that they can in order to help society out," Doucet said. "We're really looking out for these teachers and at the end of the day, big picture, it's about human beings. It's about society. And that's what this fight's all about. "

FedLoan Servicing and the Department of Education did not immediately respond Monday to requests for comment.

In August 2017, Massachusetts Attorney General Maura Healey has also filed a lawsuit over the conversion of grants to loans in August 2017. She claimed FedLoan was saddling students who committed to taking public service jobs in return for loan forgiveness and other grants with unmanageable debt. A judge declined to throw out the lawsuit earlier this month.

The Department of Education filed a statement of interest asserting that Massachusetts' claims are preempted under state law. Secretary DeVos cemented that position in a declaration filed in the Federal Register earlier this month.

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