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Court Rules That Student Loan Company Isn't Above the Law

This lawsuit could have blocked borrowers from getting their day in court.
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Photographer: Chris Ison/PA Wire/PA Images

The scariest thing about the calls that Lee Pele started to get from debt collectors was not that they wanted $137,000. It was that he was sure he didn't owe the money. The company servicing the student debt got him confused with someone else, he said, but it refused to correct the error when he offered evidence that the loans were not his. The alleged mistake ruined Pele’s credit, he said, just as he was trying to pay for an engagement ring for his fiancée and buy a house with her.

On Wednesday, a federal court in Richmond, Va., gave Pele a shot a vindication. The Fourth Circuit Court of Appeals said Pele could proceed (PDF) with his lawsuit against the Pennsylvania Higher Education Assistance Agency, the company that serviced the debt. The court said the company does not have the right to “sovereign immunity,” as it had argued, which would have denied consumers the right to sue it in most circumstances.