Commonwealth v. Pennsylvania Higher Education Assistance Agency (Lawyers Weekly No. 09-019-18)

COMMONWEALTH OF MASSACHUSETTS SUFFOLK, ss. SUPERIOR COURT. 1784CV02682-BLS2 ____________________ COMMONWEALTH OF MASSACHUSETTS v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY d/b/a FedLoan Servicing ____________________ MEMORANDUM AND ORDER DENYING DEFENDANT’S MOTION TO DISMISS The Commonwealth of Massachusetts has sued the Pennsylvania Higher Education Assistance Agency (PHEAA) for engaging in allegedly unfair and deceptive acts and practices against Massachusetts student loan borrowers. It appears to be undisputed that PHEAA, although originally established to help provide student loans and grants for Pennsylvania residents, has become one of the largest student loan servicers in the country and now manages the federal student loan accounts of hundreds of thousands of Massachusetts residents under a contract with the United States Department of Education. The Commonwealth claims that PHEAA violated the federal Consumer Financial Protection Act and G.L. c. 93A by charging and collecting amounts not owed by borrowers, failing to process borrowers’ applications for income driven repayment plans in a timely and accurate manner, and failing to properly count borrowers’ qualifying payments under the Public Service Loan Forgiveness program. PHEAA has moved to dismiss this action on several grounds. The Court will DENY this motion because it is not convinced that PHEAA is an arm of the Commonwealth of Pennsylvania and shares in its sovereign immunity, that PHEAA cannot be sued under G.L. c. 93A or that its alleged misconduct is exempt from c. 93A because it is affirmatively permitted by federal law, or that the United States Department of Education is an indispensable party. 1. Background—PHEAA’s Enabling Act. Certain aspects of the enabling act that created PHEAA provide background relevant to PHEAA’s claims that it is entitled to invoke the Commonwealth of Pennsylvania’s sovereign immunity and that it cannot be sued under G.L. c. 93A because it is a public entity. – 2 – PHEAA was established by the Pennsylvania Legislature as “a public corporation and government instrumentality.” 24 Pa. Stat. § 5101. It is authorized to make, guarantee, and service student loans. Id. § 5104(3). By statute, PHEAA has substantial financial and operational independence from the Commonwealth of Pennsylvania. PHEAA can spend money “for any of its purposes” without needing any legislative appropriation. Id. § 5104(3). Although PHEAA must deposit its revenues “in the State Treasury,” it may use its funds whenever it wants “at the discretion of the board of directors for carrying out any of the corporate purposes of the agency.” Id.; see also id. § 5105.10 (PHEAA’s loan servicing, loan repayment, and other revenues are held within State Treasury in a segregated “Educational Loan Assistance Fund,” are all “appropriated to [PHEAA’s] board,” and “may be applied and reapplied as the board shall direct and shall not be subject to lapsing”). And PHEAA may […]

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