Tuesday, May 01, 2012

Sneaky Banks, Student Loan Corp. Keep Students in Debt, Class Claims


MANHATTAN (CN) - Citibank, Discover Bank and The Student Loan Corporation are tricking former students into believing that their monthly payments have been cut when in fact only the payment toward principal has been lowered, generating greater interest income for the banks over the longer life of the loan, according to a federal class action.
Lead plaintiff Justin Kuehn, who is paying off four student loans, claims the defendants "are engaged in a scheme to collect additional interest at the expense of borrowers of student loans."
Kuehn claims the defendants are systematically breaching contracts and violating general business law.
"Defendants are engaged in a scheme to collect additional interest at the expense of borrowers of student loans," the complaint states. "Defendants are deceiving borrowers into believing that their monthly payments have been reduced because of an interest rate reduction, when in fact, the vast majority of the payment reduction is attributable to a reduction in the amount of principal being repaid each month. The end result is an extension of the loans' repayment term causing thousands of dollars in additional interest to be paid by student loan borrowers over the life of their loans."
Kuehn says he consolidated two CitiAssist Graduate loans and two Sallie Mae Grad Excel Unsubsidized loans through the Student Loan Corporation in late 2007.
Part of the consolidated loan program called for Kuehn to have payments debited from his account every month, he says.
In 2008-08, Kuehn says he made extra payments of $25,000 toward the principal of his loans. He says his monthly auto-debit payments remained the same: $845.72, until he got a notice that Citibank sold his consolidated loan to Discover in late 2011.
Early this year, the Student Loan Corporation sent him a letter stating that it dropped his payments to $539.27, falsely claiming that the change reflected his new interest rates, he says.


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