Student Loan Servicer Qualifies for Immunity | Courthouse News Service
Thursday, November 30, 2023
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Student Loan Servicer Qualifies for Immunity

(CN) - A federal student loan servicer that wrongly listed a man as having defaulted on over $137,000 worth of loans, ruining his credit, is immune from suit, a federal judge ruled.

Lee Pele, a Virginia resident, claims that the Pennsylvania Higher Education Assistance Agency (PHEAA), d/b/a American Education Services, wrongly listed him as having defaulted on over $137,000 in student loans.

PHEAA services millions of student loans in Virginia, West Virginia, Delaware, and Georgia, as well as Pennsylvania.

When Pele started receiving calls from debt collectors, he tried to correct PHEAA's information by sending credit dispute letters, but the agency only modified instead of deleting the information from Pele's credit file.

"PHEAA continued to attribute debts to Mr. Pele to the credit reporting agencies," the complaint says.

However, U.S. District Judge James Cacheris ruled Tuesday that Pele cannot sue over the bureaucratic mistake, because the agency "is an arm of the state of Pennsylvania and entitled to immunity under the 11th Amendment."

All of PHEAA's revenues go to the Pennsylvania State Treasury, and therefore any judgment against it would be paid with the government's money.

In addition, the agency was created to financially assist Pennsylvanians' pay for higher education, "an area of quintessential state concern," even if it has become a national loan servicer, and only gives back one-third of profits to the students of Pennsylvania via contributions to state grant programs.

"The Pennsylvania Commonwealth Attorneys Act explicitly defines PHEAA as an 'independent agency.' But this only serves to distinguish PHEAA from executive agencies. This does nothing to dispute the fact that PHEAA, an independent agency as defined by state law, is an arm of the Pennsylvania state government," Cacheris concluded.

Neither party responded to a request for comment.

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