On Super Bowl Sunday in 2008, Silver State Helicopters, an unlicensed and unaccredited Nevada-based flight school chain, shut down without warning, leaving its 2,500 students in the lurch – heavily indebted with tens of thousands of dollars of expensive private student loans and little practical training. The students, however, fought back and most have succeeded in getting their debt discharged or at least reduced. Under threat of legal action, lenders such as Citibank and Student Loan Xpress have backed down and agreed to forgive much of the debt these students took out to attend this fly-by-night school.
But one lender has refused to budge. KeyBank continues to fight tooth and nail to force Silver State students to pay back every single penny they borrowed from the company. The battle is expected come to a head later this month when a federal district court in Northern California is scheduled to hear KeyBank’s motion to get the court to throw out a class action lawsuit brought against the lender by former Silver State students who are seeking to have their high-cost private loans canceled.
The students accuse the Ohio-based lender of colluding with the school to defraud them. From 2002 to 2005, the bank was Silver State’s exclusive private student loan provider -- a time when the flight school chain grew by “an astounding 2,786 percent,” according to the lawsuit. During this time, the school directed prospective students to apply for private loans from KeyBank to cover the full cost of attendance – between $50,000 to $70,000 per student – that they were required top pay upfront before the classes started. The willingness of KeyBank to waive its credit requirements to provide these high-cost loans to financially needy students served “as a fundamental catalyst” for the school chain’s “exponential growth.”
Soon after enrolling, the students discovered that the school was ill-equipped to deliver the training that was promised. “SSH was unable to provide the equipment, instructors, or maintenance necessary to enable the students to gain their pilot ratings,” the lawsuit says. KeyBank was made aware of these problems, the students’ lawyers say, but continued to help market the school for several years. [In 2005, KeyBank severed its ties to Silver State, forcing the school to find other lending partners to make and service the loans]
KeyBank officials deny any wrongdoing, saying that they had little involvement with the school except to provide financing to their students. Therefore, they say, they can’t be held responsible for mismanagement at the schools with which they work.
In weighing these arguments, the court can not look at this case in isolation. It needs to understand that the bank’s actions are part of a much larger pattern of predatory lending.