Dive Brief:
- A lawsuit claiming that student loan companies defrauded the U.S. Department of Education will be allowed to continue against two defendants, an appeals court has ruled.
- The Pennsylvania Higher Education Assistance Authority and the Vermont Student Assistance Corporation are not extensions of state government, contrary to a lower court’s ruling, and therefore can be sued under the False Claims Act, according to the 4th U.S. Circuit Court of Appeals.
- Whistleblower Jon Oberg, a former employee of the education department, claims in the lawsuit that the companies overcharged the U.S. government for student loan subsidies.
Dive Insight:
The court also ruled that a third company, the Arkansas Student Loan Authority, is exempt from Oberg’s lawsuit because it is firmly controlled by the state. In 2003, Oberg pointed out to his bosses that lenders had apparently created billing systems to receive improperly inflated interest rate subsidies, and his bosses essentially told him to go work on something else. That was fortunate for him, considering that he must be getting rich off of his lawsuit, which under the whistleblower law allows him to receive a cut of the money recovered. He sued the lenders on behalf of the government for the return of $1 billion in excess fees. In 2010, four defendants in the lawsuit paid $57.75 million to settle. Oberg retired in 2005.
