On February 28, a Suffolk County Superior Court denied a Pennsylvania-based student loan servicing agency’s (defendant) motion to dismiss a lawsuit filed by the Massachusetts Attorney General, which alleged the defendant overcharged borrowers and improperly processed claims for public service loan forgiveness. (See previous InfoBytes coverage here.) According to the court, the loan servicer’s argument that it is “an arm of the Commonwealth of Pennsylvania” and therefore entitled to sovereign immunity from lawsuits was not convincing; it noted that not only had the defendant failed to qualify as a state entity but it demonstrated “substantial financial and operational independence” from the state.

Furthermore, the court also rejected the defendant’s arguments that the action was not permitted because the Department of Education is an indispensable party to the suit and that the Massachusetts Attorney General’s claims “are preempted ‘to the extent’ that they ‘conflict with the requirements of federal law.’” The judge opined that the Department of Education is not an indispensable party even though some of the injunctive relief sought may conflict with the Department of Education’s rights under its loan servicing contract or regulatory requirements.