In 2009, a former researcher with the U.S. Department of Education filed a lawsuit, charging that several student-loan agencies and companies had defrauded the federal government. But a judge dismissed the charges against four entities, all state-created student-loan authorities which had argued that they were not subject to suit under the federal False Claims Act.
Now, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit has ruled that the lower court did not properly determine if the state loan authorities were subject to the federal law.
The state lenders—the Kentucky Higher Education Student Loan Corporation, the Pennsylvania Higher Education Assistance Agency, the Vermont Student Assistance Corporation, and the Arkansas Student Loan Corporation—had argued that they were immune from such lawsuits because they were acting as agents of their state governments.
But in an opinion issued on Monday, the appellate court held that the key issue is how much independence a state corporation has from the government, not its label.
The unanimous opinion, written by Judge J. Frederick Motz, states that nothing in the legal precedents cited in the case “suggests that the fact that a state legislature or a state court labels a corporation a state agency immunizes that corporation from suit” under the False Claims Act.
The ruling sends the case back to the lower court, which will have to apply a four-part test to determine how much autonomy the state-loan authorities have from their state governments. Considerations it should weigh include “who appoints the entity’s directors or officers, who funds the entity, and whether the state retains a veto over the entity’s actions,” Judge Motz wrote.
The ruling is the latest turn in the three-year-old suit, filed by Jon H. Oberg, who retired from the Education Department in 2005.
In the suit, Mr. Oberg contended that many of the nation’s largest student lenders, both for-profit companies and nonprofit corporations, had improperly received $1-billion dollars in excess federal subsidies. The lawsuit has resulted in several settlements with lenders, including one in which the company Nelnet agreed to pay $55-million.