Fourth Circuit: major loan servicer is not arm of the state, can be sued

In two cases today (one of them litigated by Public Citizen), the Fourth Circuit held that the Pennsylvania Higher Education Assistance Agency (PHEAA) is not entitled to claim Pennsylvania's sovereign immunity because PHEAA is not an arm of the state. In fact, PHEAA is effectively an independent business, which holds, services or guarantees more than $100 billion in loans to students all over the country. Its chief financial officer has estimated that it is the tenth largest loan servicer in the country with respect to federal loans alone.

The Fourth Circuit's decisions today rejected the argument that PHEAA's affiliation with Pennsylvania renders it immune from suit; accordingly, PHEAA can be held accountable in court for wrongdoing. Central to the court's reasoning were the facts that PHEAA “is financially independent from the Commonwealth,” it “exercises control over its commercially generated revenues” and it “sets policy and makes the substantive fiscal and operational decisions” for itself.

The case litigated by Public Citizen (which we've discussed before, here) is the Fair Credit Reporting Act case of a Virginia resident whose credit was marred when PHEAA misattributed to him defaulted student loans that weren't his, and subsequently refused to correct its error. The district court had granted immunity to PHEAA; the court of appeals today reversed and sent the case back for trial.

The other case decided today, in which the court reached the same result regarding PHEAA's status, is a whistleblower's suit claiming that PHEAA defrauded the federal government.

Here is Public Citizen's case page containing both decisions and additional background. Here is our press release.

A good set of rulings for corporate accountability.

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