Northstar Student Lender Sued
LOS ANGELES–A class action lawsuit filed in U.S. District Court here alleges that Northstar Education Finance broke its contract with its student loan customers and raised their interest rates to generate extra revenues to cope with its financial difficulties, according to Kabateck Brown Kellner LLP, the law firm handling the case.
Northstar is one of the nation’s largest student lenders, with a loan portfolio of $5 billion. Northstar consolidates student loans. Its business model is predicated on providing borrowers with substantial reductions of their monthly payments. One of its key enticements for customers was its “T.H.E. Repayment Bonus” program, which reduced borrowers’ interest rates by .75% if they were up-to-date on their payments for 60 days. The program is incorporated into the binding contract between borrowers and Northstar. In February 2008, with Northstar (like other financial institutions) feeling an economic crunch, the firm announced it was “temporarily” suspending the program.
For the plaintiff named in this case, that means a 33% increase in her monthly payments–from $120 to $160.
The suit seeks to force Northstar to reimburse students for their extra payments and to comply with the terms of the contract they entered into with their borrowers by reinstating the .75% interest rate reduction.
Student Loans Largely Misunderstood
NEW YORK–Few parents of college-bound students understand the terms necessary to make fully informed financial aid decisions, says a new survey conducted by Siegel+Gale.
“Parents really don’t understand the true cost of college and the financial help that is available,” states Peter S. Cohl, Siegel+Gale’s Higher Education practice leader, “nor do they understand the difference between loans, grants, scholarships and work-study funds.”
Siegel+Gale surveyed 202 parents of college-age children who have applied for financial aid in the past two years and who have evaluated financial aid award letters from schools. Among the findings:
* Three-quarters of survey respondents did not know the difference between cheaper government subsidized loans and unsubsidized loans, which are more expensive.
* Forty percent of working class families surveyed didn’t realize that Pell Grants are not loans, but federal grants, which do not have to be repaid.
* The two major types of federal student loans, Stafford loans and Perkins loans, were correctly identified by only 53% and 33% of parents respectively.
* Twenty-five percent of parents do not know that grants in general do not have to be repaid.
* Less than half knew that not all student loans require a credit check.
* Over two-thirds were unaware that work-study money is taxable income to the student.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
