U.S. Dept. of Education Doesn’t Do Enough to Protect Against Fraudulent Student Loan Debt, Class Action Says

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A proposed class action alleges the United States Department of Education’s failure to implement adequate identity verification procedures and data safeguards has enabled fraudsters to steal hundreds of millions of dollars and saddle innocent consumers with fraudulent student loan debt. 

The 24-page complaint filed in Washington D.C. says that in light of how easy it is for someone to apply for and take out a student loan, thousands of Americans as a result have discovered that the federal government claims they are responsible for student loans “they know nothing about and to which they never agreed.”

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According to the lawsuit, the fault for this lies with the Department of Education, which apparently “does not even require information to be submitted directly from the obligor on a student loan,” enabling anyone to simply fill out the necessary loan forms as long as they have the right information on hand. Because most consumers at one point or another have been notified of a data breach affecting their personal information, the filing relays, fraudsters “find it easy to secure bogus student loans” from the Department of Education using stolen personal information. 

The case, filed on November 11, alleges the Department of Education has run afoul of the federal Privacy Act of 1974, which governs the collection, maintenance, use and dissemination of consumer information maintained in systems of records by federal agencies. 

“As evidenced by the tens of thousands of reports of identity theft with student loans, Defendant has failed to maintain a system with accurate records and adequate identity verification protocols, resulting in financial stress and confusion and pecuniary harm for countless Americans,” the suit alleges, claiming the DOE has essentially “enabled” fraud by failing to ensure the integrity and accuracy of the consumer information it collects, stores and shares. 

The lawsuit claims that student loan fraud has “continued unabated” in the years since a September 2011 report from the Department’s Office of Inspector General (OIG) titled “Distance Education Fraud Rings.” In the report, the OIG highlighted that it had responded to “a dramatic increase in fraud” in distance education programs delivered online, which pose “unique opportunities for fraud and challenges for oversight.” In 2013, the OIG acknowledged in another report that school-based student aid fraud was “a rapidly growing problem,” in particular with regard to the electronic processing of federal student aid applications, the lawsuit says. 

The suit contends that although the Department of Education has known for years that “blameless victims have been saddled with fraudulent student loans through identity theft,” it has “time and time again” violated the federal Privacy Act by failing to implement tools to ensure it obtains student loan applications directly from actual applicants, or correct inaccurate information once identity theft victims notify the department of their situation. 

The plaintiff, a Staff Sergeant in the United States Army’s 82nd Airborne Division, says that beginning in April 2012, fraudulent applications were submitted in his name to the Department of Education that falsely represented that he had agreed to endorse a series of student loans as a co-signer. According to the suit, the plaintiff’s father had forged and fraudulently submitted an endorser addendum for a federal student loan for $36,000, purportedly for online graduate education at Walden University. The lawsuit states that the plaintiff’s father’s fraudulent application bore “multiple hallmarks of identity theft,” including a false email address and telephone number and wrongly identifying the man as employed by the U.S. Navy, among other inaccuracies. 

In July 2012, July 2013, June and September 2014, July 2016, August 2017, August 2018 and in 2019 and June 2020, the plaintiff’s father repeatedly submitted fraudulent federal student loan applications to purportedly fund online graduate education at Walden and Capella University, another online school, for a total of $442,000, the suit continues. Aside from the “improbability” that the plaintiff would co-sign so many graduate school loans for his retirement-age father, the loan applications contained numerous inaccuracies and errors indicative of identity theft, the case relays. 

Per the lawsuit, the plaintiff only learned of the fraudulent student loans after applying and being denied for a credit card in 2020. Prior to this, the plaintiff received no communication from the Department of Education concerning the fraudulent student loans, as all messages were sent to the false addresses and emails supplied by the plaintiff’s father, the complaint relays. 

In 2021, the plaintiff filed a sworn statement in which he attested to never endorsing any such loans, as well as a police report, disputes with Nelnet, the loans’ servicer, a complaint with the Consumer Financial Protection Bureau, an identity theft report with the Federal Trade Commission and an Affidavit of Forgery with the Department of Education itself, the case states. 

In October 2021, the Department of Education informed the plaintiff that it had rejected his claim, stating that it was still holding him responsible as the co-signer on the fraudulent loans, the lawsuit says. 

The case looks to cover all persons who submitted an identity theft report under penalty of perjury to the U.S. Department of Education within the last two years where the report identified one or more direct student loans resulting from the theft and where the department did not update its information systems to discharge the person from any obligation on the contested loans within three months of receiving the identity theft report. 

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