Appeals Court Reinstates Suit Against Lenders
A federal appeals court has partially revived a whistle-blower lawsuit against several student loan providers accused of improperly inflating their portfolios to obtain higher subsidies from the Education Department.
The case, brought by on John H. Oberg, a former Education Department researcher, alleges that a handful of lenders took advantage of a loophole in federal law to collect hundreds of millions of dollars in excess federal subsidies.
On Thursday, the U.S. Court of Appeals for the Fourth Circuit ruled that a lower court erred in dismissing the lawsuit against two of the defendants: the Pennsylvania Higher Education Assistance Agency and the Vermont Student Assistance Corporation. The district court will now have to reconsider whether the case against them can proceed.
But the court also upheld the lower court’s decision to dismiss the suit against the Arkansas Student Loan Authority, concluding that the loan provider was clearly a state entity and therefore can not be sued under the False Claims Act.
Four of the other lenders involved in the case collectively paid $57.8 million in 2010 to resolve their part of the lawsuit.