Nicole D. Nelson, Plaintiff-Appellant,
Great Lakes Educational Loan Services, Inc., et al., Defendants-Appellees.
October 23, 2018
from the United States District Court for the Southern
District of Illinois. No. 3:17-CV-183. Nancy J. Rosenstengel,
Kanne, Hamilton, and St. Eve, Circuit Judges.
HAMILTON, CIRCUIT JUDGE.
many students, plaintiff Nicole Nelson borrowed money to pay
for her education. Defendant Great Lakes Educational Loan
Services, Inc. services repayment of her federally insured
loans. On its website, Great Lakes offered to provide
guidance to borrowers struggling to make their loan payments.
It told borrowers: "Our trained experts work on your
behalf," and "You don't have to pay for student
loan services or advice, ” because "Our expert
representatives have access to your latest student loan
information and understand all of your options." Nelson
alleges that despite these representations, when she and
other members of the putative class struggled to make
payments, Great Lakes did not work on their behalf. Instead,
Nelson contends, Great Lakes steered borrowers into repayment
plans that were to Great Lakes' advantage and to
alleges that defendant's conduct violated the Illinois
Consumer Fraud and Deceptive Business Practices Act and
constituted constructive fraud and negligent
misrepresentation under Illinois common law. The district
court granted Great Lakes' motion to dismiss, holding
that all of Nelson's claims were expressly preempted by
this provision of the federal Higher Education Act:
"Loans made, insured, or guaranteed pursuant to a
program authorized by title IV of the Higher Education Act of
1965 (20 U.S.C. 1070 et seq.) shall not be subject to any
disclosure requirements of any State Law." 20 U.S.C.
§ 1098g. The district court reasoned that Nelson's
claims are expressly preempted because they all allege in
substance only that Great Lakes failed to disclose certain
district court's ruling was overly broad. When a loan
servicer holds itself out to a borrower as having experts who
work for her, tells her that she does not need to look
elsewhere for advice, and tells her that its experts know
what options are in her best interest, those statements, when
untrue, cannot be treated by courts as mere failures to
disclose information. Those are affirmative
misrepresentations, not failures to disclose. Great Lakes
chose to make them. A borrower who reasonably relied on them
to her detriment is not barred by § 1098g from bringing
state-law consumer protection and tort claims against the
loan servicer. Tort law has long recognized the difference
between mere failures to disclose information and affirmative
deceptions. And as we explain below, the Ninth Circuit
decision the district court relied upon, Chae v. SLM
Corp., 593 F.3d 936 (9th Cir. 2010), does not apply to
claims of affirmative misrepresentations in counseling
borrowers in distress.
Nelson's claims are not expressly preempted to the extent
she is alleging that Great Lakes made false or misleading
affirmative representations to her in the counseling process.
Also, neither conflict preemption nor field preemption
applies to her claims. We vacate the judgment of the district
court and remand for further proceedings consistent with this
Factual & Procedural Background
district court granted defendant's Rule 12(b)(6) motion
to dismiss on preemption grounds, a legal determination that
we review de novo. Guilbeau v. Pfizer Inc., 880 F.3d
304, 310 (7th Cir. 2018), citing Toney v. L'Oreal
USA, Inc., 406 F.3d 905, 907-08 (7th Cir. 2005). We
accept as true all well-pleaded factual allegations in the
amended complaint and draw all permissible inferences in
Nelson's favor. E.g., Fortres Grand Corp. v. Warner
Bros. Entertainment Inc., 763 F.3d 696, 700 (7th Cir.
Loans Under the Higher Education Act
Higher Education Act ("HEA") was enacted "to
keep the college door open to all students of ability,
regardless of socioeconomic background." Rowe v.
Educational Credit Management Corp., 559 F.3d 1028, 1030
(9th Cir. 2009) (citation and internal quotation marks
omitted); see also 20 U.S.C. § 1071(a)(1) (identifying
purposes of statute). The HEA established the Federal Family
Education Loan Program ("FFELP"), a system of loan
guarantees administered by the U.S. Secretary of Education
that were "meant to encourage lenders to loan money to
students and their parents on favorable terms." Chae
v. SLM Corp., 593 F.3d at 938-39 (footnote omitted).
FFELP regulated three parts of student loan transactions: (1)
between lenders and borrowers, (2) between borrowers and
guaranty agencies, and (3) between guaranty agencies and the
Department of Education. Bible v. United Student Aid
Funds, Inc., 799 F.3d 633, 640 (7th Cir. 2015), citing
Chae, 593 F.3d at 939. Under the program, lenders
used their own funds to make loans to students attending
postsecondary institutions. These loans were guaranteed by
guaranty agencies and reinsured by the federal government.
See 20 U.S.C. § 1078(a)-(c). Thus, the federal
government served (and still serves) as the ultimate
guarantor on FFELP loans. Bible, 799 F.3d at 640.
Lenders assigned the loans to loan servicers like Great Lakes
to manage the repayment process with the borrowers.
2010, Congress ordered a halt in new FFELP loans and
transitioned to a "Direct Loan" program, in which
the United States serves as the lender and contracts with
nongovernmental entities to service loans issued by the
Department. 20 U.S.C. § 1071(d); see also Health Care
and Education Reconciliation Act of 2010, Pub. L. No.
111-152, § 2201 et seq., 124 Stat. 1029, 1074. Federal
Direct Loans "have the same terms, conditions, and
benefits" as those issued under the FFELP. 20 U.S.C.
to the preemption issue here, the HEA requires lenders and
loan servicers to make certain "disclosures" before
disbursement of loans, before repayment of loans, and during
repayment of loans. See 20 U.S.C. § 1083. Required
disclosures include the core terms of the loan at
origination, as well as before and during repayment. §
1083(a), (b), & (e). But when a borrower is having
difficulty making payments, as Nelson was, §
1083(e)(2)(A) requires loan servicers to provide: "A
description of the repayment plans available to the borrower,
including how the borrower should request a change in
repayment plan." Loan servicers must also provide to
distressed borrowers descriptions of forbearance and other
options to avoid default and expected costs or fees
associated with those options. § 1083(e)(2)(B) &
includes several express preemption provisions, including the
one dealing with "disclosures," which is the focus
of this appeal. Entitled "Exemption from State
disclosure requirements," again it provides: "Loans
made, insured, or guaranteed pursuant to a program authorized
by title IV of the Higher Education Act of 1965 (20 U.S.C.
1070 et seq.) shall not be subject to any disclosure
requirements of any State law." 20 U.S.C. § 1098g.
Both Federal Direct Loan Program and FFELP loans are so
authorized, so lenders and loan servicers are not subject to
"disclosure requirements" imposed by state law.
Nelson's Loans and Claims
Nelson financed her education with federal student loans.
Great Lakes, Nelson's loan servicer, manages
borrowers' accounts, processes payments, assists
borrowers with alternative repayment plans, and communicates
with borrowers about the repayment of their loans. Great
Lakes services many billions of dollars in federal student
loans for millions of borrowers.
began repaying her loans in December 2009. In September 2013,
she changed jobs and her income dropped. She contacted Great
Lakes, and its representative led Nelson to believe that
"forbearance" was the best option for her personal
financial situation. A few months later, Nelson lost her new
job. She contacted Great Lakes again in March 2014. Great
Lakes' representative again did not inform her of
income-driven repayment plans and instead steered her into
"deferment." Nelson alleges that Great Lakes'
representatives were working off of a script provided to them
by Great Lakes when they made these recommendations to her.
Nelson alleges that she relied on the information provided by
is "the temporary cessation of payments, allowing an
extension of time for making payments, or temporarily
accepting smaller payments than previously were
scheduled." 34 C.F.R. § 682.211(a)(1). Nelson
argues that forbearance is not appropriate for borrowers
experiencing long-term financial difficulty. Under
forbearance, unpaid interest is capitalized (i.e., added to
the loan principal), which can substantially increase monthly
payments after the forbearance period ends.
law requires lenders and loan servicers to offer
income-driven repayment plans, which set monthly loan
payments as a percentage of a borrower's discretionary
income. See 20 U.S.C. § 1098e(b); 34 C.F.R. §§
682.215 & 685.208. Nelson argues that these plans are
more appropriate in situations of longer-term financial
hardship. These plans can offer borrowers extended payment
relief and reduced monthly payments that can still count
toward various loan forgiveness programs. Despite the
availability of these plans, Nelson alleges, Great Lakes
steered borrowers away from income-driven repayment plans
that are less lucrative to lenders and toward more burdensome
options, especially forbearance. Am. Cplt. ¶ 6. Nelson
asserts that enrolling borrowers in income-driven repayment
plans is "time-consuming" and requires
"lengthy and detailed conversations" with the
borrowers about their financial situations. She argues that
Great Lakes thus "failed to perform its core duties in
the servicing of student loans."
focus on the factor we view as decisive here-the difference
between affirmative misrepresentation and failure to disclose
information-we lay out next some of the details of
of Nelson's Amended Complaint asserts violations of the
Illinois Consumer Fraud and Deceptive Business Practices Act,
815Ill.Comp.Stat. 505/1 et seq. She highlights seven unfair
acts and practices in servicing loans:
(a) Holding themselves out to be experts in student loan
servicing issues or offering "expert" help;
(b) Holding themselves out as working on Plaintiff's and
Class Members' behalves, when they worked for the ...