Student Loan Lender Sued for Breach of Low-Interest Rate Contract with Students

July 18, 2008

Student loan lender, Northstar Education Finance, attracted college graduates to consolidate their student loans to its low rates then eliminated the program, leaving students to pay 33 percent more in monthly payments.

Kabateck Brown Kellner, LLP, a consumer law firm, filed a class-action lawsuit in the U.S. District Court, Central District of California against Northstar for a breach of contract. The suit states Northstar raised its interest rates on student loans to cope with the current economic crisis that many financial institutions are having.

“What kind of corporation protects its profits by breaking a contract it’s made with student borrowers?” said Brian Kabateck, managing partner of Kabateck Brown Kellner. “To add insult to injury, the borrowers they’re targeting are those the company has recognized for their on-time payment histories. Student borrowers have been victimized too many times and in too many ways by the student lending industry,” he said. “We’re going to make sure they don’t get away with it this time. Northstar is preying on recent graduates trying to pay off huge student debts in a bad economy.”

T.H.E. Repayment Bonus program reduced student’s interest rates by .75 percent, if the student was up to date with his or her payments for 60 days. Northstar stated that it was only suspending the program on a temporary basis, to weather the storm, because the company’s funding comes from the sale of bonds and securities, as stated in its notice to student borrowers. But the lawsuit states the terms of the contract were not subject to change.


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