Student loan servicer steering borrowers into costly repayment programs, class action claims; Plaintiff is former local assistant AG

By Ann Maher | Apr 11, 2017

Great Lakes Educational Loan Services has until April 24 to respond to a proposed class action claiming financially stressed borrowers were steered into costly repayment programs instead of more affordable income-driven repayment options.

Great Lakes Educational Loan Services has until April 24 to respond to a proposed class action claiming financially stressed borrowers were steered into costly repayment programs instead of more affordable income-driven repayment options.

Plaintiff Nicole Denise Nelson, 33, of Shiloh filed suit in February in federal court in East St. Louis on behalf of potentially thousands of others seeking in excess of $5 million in compensatory, exemplary and punitive damages.

Nelson is an attorney formerly employed at the Belleville office of the Illinois Attorney General. She is represented by Brandon Wise and Paul Lesko of Pfeiffer Rosca Wolf Abdullah Carr & Kane in St. Louis.

The suit claims that Great Lakes Educational Loan Services, based in Madison, Wisc., has encouraged financially strapped borrowers into forbearance, "which is more costly to the student loan borrower but significantly less costly for the student loan servicer."

At the heart of the case is how Great Lakes handles borrowers experiencing financial hardships that are not temporary. Such borrowers are being encouraged to file for forbearances, rather than more appropriate income-driven repayment plans, because it's in the best interests of the student-loan servicer, the complaint says.

"In sum, counseling borrowers about alternative student loan payment plans and enrolling those student loan borrowers in income-driven repayment plans is costly for Defendants and its employees," the complaint says. "In contrast, enrollment of student loan borrowers in forbearance can often be completed over the phone, in a matter of minutes, and generally without the submission of any paperwork."

The complaint indicates that 10 as yet unnamed individual defendants may be added to the complaint.

Nelson began making payments on her student loans in December 2009 but entered into forbearance by November 2012, according to her complaint. Over the next few years, Nelson bounced in and out of forbearance, changed jobs and became unemployed, but when she discussed her situation over the phone with Great Lakes employees, she was told that her options were forbearance or a deferment, according to the complaint.

"Plaintiff was not informed of alternative or income-driven repayment option," the complaint says. "These other alternative or repayment options would have likely allowed Plaintiff a $0.00 or extremely low monthly payment, and would have counted as qualifying payments towards loan forgiveness. Instead, Plaintiff was, pursuant to Defendants' policy and practice, steered into forbearance."

The complaint points out that federal student loan borrowers who can't make monthly payments on their student loan debt may opt for alternative repayment plans that can include a percentage of their discretionary income or that can count toward loan forgiveness programs.

"However, despite the wide-spread availability of income-driven repayment plans, and their clear benefits to student loan borrowers, student loan servicers, like Great Lakes, systematically deterred Plaintiff, and upon information and belief, potentially thousands of other borrowers from obtaining access to some or all of the benefits and protections associated with income driven repayment plans," the complaint says.

Great Lakes steered financially stressed borrowers into forbearance programs instead of other, more long-term but less lucrative student-loan repayment options, according to the complaint.

"Consequently, Great Lakes has failed to perform its core duties in the servicing of student loans," the complaint says. "Instead, Great Lakes has violated its duties to Plaintiff and others similarly situated under the Illinois Consumer Fraud and Deceptive Business Practices Act, as well as violating the trust that student loan borrowers placed in the company, by steering struggling student loan borrowers into forbearance, rather than an eligible 'income-driven' repayment plan that could have provided monthly payments as low as $0.00 per month, a significant benefit to the struggling student loan borrower, but (potentially) less profitable for Defendants."

Members of the class in this case would be anyone who lives in Illinois, has student-loan contracts in the state and, since Feb. 21, 2014, "were subjected to Defendants’ unfair and deceptive conduct," the complaint says.

The case is presided over by District Judge Nancy Rosenstengel.

Magistrate Judge Stephen Williams will handle pre-trial proceedings.

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Great Lakes Educational Loan Services Illinois Attorney General

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