Mississippi’s attorney general filed the action on behalf of the state against Navient Corporation, bringing claims under the Mississippi Consumer Protections Act and for unjust enrichment for Navient’s alleged practices of steering borrowers into costly forbearance rather than income-driven repayment, failing to properly recertify income-driven repayment criteria, making misrepresentations regarding cosigner releases, and making errors in process payments. Navient filed a motion to dismiss at the trial court level, which the trial court denied. Navient brought an interlocutory appeal to the Mississippi Supreme Court.
Navient argued that Mississippi’s claims were preempted by the Higher Education Action (HEA), 20 U.S.C. § 1098g, because the state sought to subject Navient’s federally held and federally guaranteed loans to state-law disclosure requirements. The court began its analysis by noting that there is a presumption against federal preemption generally, which applies particularly to consumer-protection laws. It then noted that the same preemption argument recently had been rejected in the Seventh Circuit Court of Appeal’s decision in Nelson v. Great Lakes Education Loan Services, Inc., along with three decisions from federal district courts. In rejecting the preemption argument, the court drew from the Seventh Circuit’s Nelson opinion and concluded Mississippi’s claims alleged “affirmative misrepresentations, not failures to disclose,” and thus the claims were “beyond what is contemplated by § 1098g.” The court echoed the observation by the U.S. District Court for the Eastern District of New York in Travis v. Navient Corp. that “there is nothing in the [HEA] that standardizes or coordinates how a customer service representative of a third-party loan servicer … shall interact with a customer … in the day-to-day servicing of his loan ….”
While the preemption issue has been hotly litigated for the past few years, it may soon be cooling off. Although the Department of Education has not formally walked back from its expansive 2018 interpretation of § 1098g, many in the industry anticipate that the new Biden administration and Secretary of Education Miguel Cardona may favor a change in policy, which could hinder federal loan servicers’ efforts to raise preemption. As with many legal issues in education finance, we’ll be watching closely.