A r c h i v e d  I n f o r m a t i o n

GOVERNMENT-GUARANTEED STUDENT LOAN LENDERS LAWSUIT
THREATENS MILLIONS IN SAVINGS FOR DIRECT LOAN BORROWERS

On November 3, a number of large lenders in the government-guaranteed student loan program and their associations filed suit against the Department challenging various fee and interest rate reductions and repayment incentives the Department offers direct loan borrowers and borrowers in the Federal Family Education Loans (FFEL) program who consolidate their loans with the Department. Taken together, these challenged initiatives will save students some $600 million over five years. (Please see "ED Announces Lower Student Fees on Direct Loans," and "Education Secretary Riley Announces Lower Interest Rates on Direct Student Loans and Consolidation.")

The suit, Student Loan Finance Corp. v. Riley, challenges both the reduction in the direct loan fee, implemented in 1999, and the interest rate rebate and direct consolidation loan interest rate reduction, which were implemented in August. The suit's plaintiffs, participants in the Federal Family Education Loan program (FFEL), have been and continue to offer similar discounts and repayment incentives to FFEL borrowers. The plaintiffs are: Student Loan Finance Corp. (a secondary market); Education Finance Council (an association of lenders); Key Bank, U.S.A.; Bank of America; NELnet; Wells FargoBank; North Texas Higher Education Authority (a Texas secondary market); Student Loan Corp.; National Coalition of Higher Education Loan Programs; Bank One and USA Education (Sallie Mae).

The plaintiffs' only claim of how they have been harmed by the Department is that the reductions have placed them at a "competitive disadvantage" in marketing FFEL loans to eligible borrowers.

Secretary of Education Riley and the Clinton Administration have worked hard to make college more affordable for students and parents. The fee reduction and repayment incentives challenged by the lenders in their lawsuit save students and parents money, are in the best interests of the taxpayer, and help prevent defaults. (Please see Statement by U.S. Department of Education on Lawsuit Filed by Private Lenders and Associations.) The Department will work together with the U.S. Justice Department to defend benefits and savings for student loan borrowers. The Department expects to file its brief in early 2001.