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Student-loan servicer can’t use federal law to avoid lawsuit over alleged bad advice

A federal appellate court has revived an Illinois woman’s case that claimed her student-loan servicer actively gave her bad advice on the best way to pay off her debt.

That’s not only a win for the borrower — who’s coping with student-loan debts like millions of other Americans — it’s also possibly the highest court yet to rule on when federal law does and doesn’t override state consumer-protection laws in student-loan litigation, experts say.

The Chicago-based Seventh Circuit Court of Appeals unanimously decided last week that a loan servicer couldn’t allegedly go out of its way to misrepresent repayment options, and then use federal laws to shield itself from state rules barring deceptive business practices.

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