Borrower Sues Student-Loan Lender for Allegedly Reneging on Its Contract

Student Loan Girl — Sat, 19 Jul 2008 01:03:00 GMT

A student-loan borrower has filed a class-action lawsuit against student-loan lender Northstar Higher Education for allegedly breaking its contract with borrowers.

In the suit, filed Monday with the U.S. District Court in Los Angeles, Northstar is accused of breaking its contract by eliminating its “Total Higher Education Repayment Bonus,” a program that offers borrowers a 0.75-percent interest-rate reduction for 60 days of on-time payments.

Northstar eliminated the program on February 18 of this year, citing the failure of the auction-rate securities used by lenders to finance student loans, according to an article in the Minneapolis Star Tribune (“Student Loan Firm Sued Over End to ‘Repayment Bonus’ Program,” July 16, 2008).

“While Northstar might be facing financial difficulties comparable to other banking institutions, this does not provide it with carte blanche to breach its contractual obligations,” the suit reads.

The suit, filed on behalf of plaintiff Jennifer So, seeks monetary damages and contractual interest-rate reductions for any borrower who had student loans with Northstar on February 18.

The student loan company had not received a copy of the complaint by the time the Star Tribune went to print on July 16, but Northstar’s General Counsel Mark Lindgren said, “Northstar takes it obligations to its customers seriously and believes it has fully complied with the terms of its agreements. In particular, the company has always sought to provide its customers with the benefits from T.H.E. Bonus but has never guaranteed that the bonus would be available under any and all market conditions.”

Share this post: email this | del.icio.us | reddit

With Government’s Help, Lenders Returning to Federal Student Loan Market

Student Loan Girl — Thu, 05 Jun 2008 21:08:00 GMT

A number of lenders who abandoned the federal student loan market in recent months may be returning, in light of a new law designed to keep struggling lenders afloat, according to a Dow Jones Newswires article.

Many of the 102 companies that scaled back or withdrew from the Federal Family Education Loan Program, in which federal student loans are funded by private lenders, are expected to at least consider returning to the program for the 2008–09 academic year, writes Dow Jones reporter Melissa Korn (“Student Lenders Tiptoe Back to Market With Government Bailout,” June 4, 2008).

Brett Lief, president of the National Council of Higher Education Loan Programs, said every one of the lenders in his organization "changed their policies" during the credit crunch earlier this year — reducing or suspending their participation in the FFEL program. The 60 FFELP lenders that are members of the NCHELP reported that the changes were necessary because federal student loans were no longer profitable.

But after Congress passed the Ensuring Continued Access to Student Loans Act (HR 5715), which gives the U.S. Department of Education the authority to buy student loans from lenders who have been unable to sell them, those lenders are “all reviewing their policies again,” Lief said.

Before the passage of the act, Sallie Mae, one of the nation’s largest originators of federal student loans, was considering whether to remain in the FFEL program, and Nelnet, NorthStar Education Finance, Inc., and the Kentucky Higher Education Assistance Authority had left the FFEL program.

Under the new legislation, all four of these lenders have reaffirmed they will continue to issue new federal student loans. However, some lenders still question whether the government changes will ultimately be profitable despite the Education Department’s infusion of liquidity, while other lending banks, like Citibank, JPMorgan Chase, PNC, and SunTrust, remain unmoved.

These banks no longer offer student loans to certain colleges — schools that they have determined tend toward higher default rates, fewer borrowers, and smaller loan amounts that make business less profitable.

Share this post: email this | del.icio.us | reddit

Student Loan Blog : Northstar Education Finance Inc.

Borrower Sues Student-Loan Lender for Allegedly Reneging on Its Contract

With Government’s Help, Lenders Returning to Federal Student Loan Market