Is the U.S. facing a student loan revolution?

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What would a revolution in the United States look like? You may envision something out of a movie with ordinary citizens fighting in the streets against an oppressive regime, but in fact, if there is a large-scale revolt starting – and it may just be – the battleground will probably be in the courts, not the streets. But it’s not an overthrow of our POTUS, equal representation for taxation, or state sovereignty that are the desired outcomes of this revolution. No, this will be a massive revolt over student loans and education reform, and the first trumpet of that movement may just have been sounded with a recent U.S. Court of Appeal ruling, opening up the floodgates for students to sue their universities and student loan providers for amnesty.

Sound crazy? Don’t be so sure. Student loans are one of the most pressing financial hot buttons for tens of millions of Americans, with unprecedented levels of debt that no longer yield equitable jobs and salaries, and Draconian bankruptcy rules keeping even the most financially destitute from finding relief.

In fact, student loan debt has more than tripled in just the last decade (let that sink in for a moment) to a jaw-dropping $1.2 trillion dollars. Yet Americans – especially Millenials who recently graduated college – are having a harder time than ever paying back their loans.

What’s the problem? Quite simply, the average tuition at four-year public colleges has rose by 87% between 2000 and 2013, yet the median income for the middle class has only increased by 24% during that same span. Rising costs of healthcare, housing, etc. have also exasperated the problem, to the point that tens of millions of former students are having trouble paying back their loans – or outright defaulting.

According to recent estimates, seven million people have already defaulted on their student loans – a huge number – and vice-tight bankruptcy laws exclude student loans from insolvency except for under the most ardent circumstances. Student loan tyranny has reached the point where some are even making strategic post-college decisions to flee to Europe or abroad to start a new life instead of face the music with their loans at home.

The seed of this revolution was planted in delicate soil late last year, when the U.S. Court of Appeals for the Fourth Circuit ruled that the Pennsylvania Higher Education Assistance Agency (PHEAA) is not immune from lawsuits. PHEAA, which also does business under the same umbrellas as American Education Services and FedLoan Servicing and one of the U.S. Department of Education’s four major servicers, manages student loans for about 8 million borrowers to the tune of $287 billion in 2014.

Up until now, PHEAA shielded themselves from borrower lawsuits, claiming that it was “an arm of the state” (since it was established by the state of Pennsylvania) and therefore immune from litigation. But the U.S. Court of Appeals in that Fourth District set precedent by ruling that it was not, in fact, an arm of the state, since it is financially autonomous and makes its own revenue.

That removes the roadblock for student lawsuits looking to hold PHEAA and other educational loan organizations accountable for their actions, including two pending lawsuits that will most likely now proceed.

One case was brought in 2006 by John H. Oberg, a former Education Department researcher who blew the whistle on what he describes as lenders illegally inflating their loan portfolios to defraud borrowers and the government of hundreds of millions of dollars. To date, the other defendants in the False Claims Act case have settled except for PHEAA, which hid behind its status as a state entity until now.

A second case against PHEAA was brought by Lee Pele, a citizen who was penalized for having a defaulted student loan on his credit report that was not his.

The Mothers and Fathers of the Revolution? Those very well could be the 7,500 student loan borrowers who have applied to have their student loan debt  – totaling $164 million – expunged under an obscure 1994 federal law that technically forgives debt for borrowers who prove their schools used illegal tactics to recruit them. The law, only used three times before this recent re-discovery, looks to remedy fraudulent practices like schools making false promises about earnings, jobs, career placement, etc. if they attend their institutions.

Already, the U.S. Department of Education has agreed to cancel $28 million of debt for 1,300 loan holders, many of them of them former students at Corinthian Colleges, a for-profit national chain that went bankrupt last year, as well as the Art Institutes, owned by Education Management Corp.; and ITT Technical Institutes, owned by ITT Educational Services Inc. All three of these institutions have been the target of federal probes into illegal recruiting tactics in recent years.

“This decision is really beneficial for consumers,” said Scott Michelman, an attorney at Public Citizen, a consumer advocacy group representing one of those two litigants. “It ensures that this major student lender can be held accountable in court.”

This ruling leaves the Education Department scrambling, trying to get a tighter legal definition on the 1994 law as well as reassess how to provide legitimate forms of student debt relief for those who need it most – without organized mass defaults or a quagmire of litigation.

How big will the student loan revolt be and how fast are its boots marching?  What burden of proof will be necessary to prove that education institutions committed fraud? Will there be widespread loan relief and forgiveness for millions of Americans?

“We just don’t know,” said Ted Mitchell, undersecretary for the Education Department. “This is new territory for us.”

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