If the Pennsylvania Higher Education Assistance Agency ever appears in federal court to fight pending lawsuits from the states of New York and Massachusetts, it won’t be with the help of attorneys representing the Commonwealth.
The reason, according to state Attorney General Josh Shapiro? Pennsylvania’s top lawyer can’t represent the state agency without compromising his duties to taxpayers.
Shapiro confirmed to the Capital-Star last month that he has declined to represent the student loan servicer — widely known as PHEAA — as it fends off challenges from the attorneys General of New York and Massachusetts, which sued it in 2019 and 2017, respectively, for deceptive lending practices.
As Pennsylvania’s top attorney, it’s Shapiro’s job to defend Pennsylvania government agencies facing litigation.
But as its top consumer watchdog, Shapiro said he’s also bound to “protect the public from unfair or deceptive trade practices.”
Those dual roles created a unique conflict when Shapiro was called to defend PHEAA, which has been slammed in the courts, the press and the halls of Congress for allegedly bungling its role in a federal student loan forgiveness program.
Shapiro told the agency to hire private lawyers so that he could “maintain the duties” of his office and avoid conflicts of interest, he said in a statement provided to the Capital-Star through a spokesman.
He added that the allegations raised by his counterparts in New York and Massachusetts are “deeply concerning” if true.
PHEAA spokesman Keith New said the agency typically relies on an in-house legal team for representation. It’s also common for PHEAA to hire outside counsel, since it does business across the country and needs attorneys authorized to practice law in many jurisdictions, New said.
However, remarks Shapiro made in October suggest his decision was motivated more by principle than practicality.
“I just don’t simply feel like in good conscience I can [represent PHEAA],” Shapiro told a crowd at the Community College of Philadelphia, where his office hosted a town hall on student debt. “They have to get their act straight and look out for good public servants … that’s an important step they need to take going forward.”
Shapiro appeared at that event with Seth Frotman, a former student loan watchdog for the U.S. Department of Education, who excoriated PHEAA’s record administering the Public Loan Service Forgiveness program.
Frotman made audience members gasp when he said the federal initiative, which offers to wipe away debt for public servants, has a 99 percent rejection rate.
PHEAA won a $1 billion contract in 2009 to act as the sole servicer for the program, and has been cited numerous times for poor customer service.
PHEAA executives say the agency has administered program rules in accordance with federal law.
But that hasn’t spared the agency any ire from borrowers and advocates, or inspired Shapiro to rise to its defense.
‘At the center of every scandal’
The lawsuits from New York and Massachusetts aren’t the only time that PHEAA has put Shapiro at odds with other Democratic attorneys general.
PHEAA was implicated in a July lawsuit filed by borrowers and the nation’s largest teachers union, who accuse the U.S. Department of Education and its secretary, Betsy DeVos, of breaking promises to public servants.
The next month, 20 Democratic attorneys general signed on to a brief supporting the case.
Shapiro has been in lockstep with his Democratic counterparts over the last three years as state attorneys general fight Trump administration regulations on everything from water quality to transgender rights.
But he broke rank with them in November, when they argued that DeVos and the Department of Education had harmed public servants — including state employees — with their broken promises of loan forgiveness.
PHEAA wasn’t named as a defendant in the case. But the complaint and the attorneys general brief cited lawsuits against PHEAA to bolster their claims.
Asked why he withheld his support for their brief, Shapiro said he could not comment, “given the dual roles” he holds as a consumer watchdog and attorney for state agencies.
Since taking office in 2017, Shapiro has carved out a reputation as a dogged consumer advocate, particularly on behalf of student borrowers.
His office is currently waging a battle against Navient, the student loan giant with offices in Wilkes-Barre. The suit accuses the company in federal court of peddling loans to for-profit colleges and withholding relief from stressed borrowers.
Consumer advocates welcome the scrutiny of student lenders. But they say there’s little that distinguishes Navient from PHEAA, which has morphed from a home-grown scholarship fund for Pennsylvania students into the nation’s second-largest loan servicer.
“In our experience, the same type of claims being brought against Navient could equally be brought against PHEAA,” said Michael Froehlich, a consumer rights attorney for Community Legal Services, a legal aid agency in Philadelphia. “We certainly would like to see more oversight.”
Speaking to the Capital-Star in January, Frotman, now the head of the non-profit Student Borrower Protection Center in Washington, D.C., said Shapiro deserves credit for mobilizing his office on behalf of consumers.
He declined to comment on whether or not the Attorney General should take a stronger stance on PHEAA.
But Frotman said Pennsylvania’s elected officials should exercise whatever oversight they can on the student loan behemoth in their own backyard.
“This is an entity that has been at the center of every scandal in the student loan market for more than a decade,” Frotman said. “It’s time for people in Pennsylvania to really grapple with what this company is doing to tens of millions of borrowers.”