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Law360 (March 26, 2020, 5:20 PM EDT ) Northstar Education Finance borrowers filed a proposed class action Thursday alleging the lender suspended an interest-rate reduction tied to steady payments amid stock market volatility over COVID-19 concerns, saying the effective rate hike violates a settlement over the program's suspension amid the last major financial crisis.
In the complaint filed in Minnesota federal court, the proposed class alleges that Northstar breached its student loan agreements by suspending the Total Higher Education repayment bonus, an arrangement that lowered the interest rate for those who were no more than 59 days late in making loan repayments. Northstar announced the suspension in a letter sent to borrowers in early February in which it cited "changes in economic conditions."
"Northstar falsely claims in the form letter that the T.H.E. Program was merely a 'gratuitous reduction'" as opposed to a contractual obligation, the complaint states.
Northstar settled a similar suit in 2009 after it similarly suspended the program in February 2008 under the justification of "ongoing disruption in the global markets." That deal required the lender to honor the interest-lowering program for the remaining life of the loans.
According to named plaintiff Demian Oksenendler, the interest-lowering program that drew many to choose the lender over others is far more than "gratuitous." Oksenendler argued in Thursday's complaint that Northstar is contractually bound to follow through on its loan arrangements due to the previous settlement.
"Nowhere in the letter does Northstar even mention its obligation under the settlement to pay the T.H.E. repayment bonus," the complaint states, "let alone attempt to justify the suspension as a contractual matter."
The decade-old settlement deal outlines "certain circumstances" that would allow Northstar to back out of the program, justifying the suspension of an individual borrower's benefits if he or she falls behind on loan payments. The group of borrowers argues that no events have "triggered" a legal suspension, including the "changes in economic circumstance" cited in the letter they received in February.
The 2009 settlement deal granted court-appointed class counsel the "right to audit Northstar's compliance with the terms and conditions" if credible evidence of Northstar's noncompliance arises.
Two of three appointed attorneys, Adam J. Levitt and Robert K. Shelquist, state in the complaint that Northstar bypassed its requirement to notify them of the program suspension.
Representatives for Northstar Education Finance Inc. did not respond to requests for comment.
Class counsel declined to comment.
The proposed class is represented by Robert K. Shelquist of Lockridge Grindal Nauen PLLP, Adam J. Levitt, John E. Tangren and Adam M. Prom of DiCello Levitt Gutzler LLC and Jennie Lee Anderson of Andrus Anderson LLP.
Counsel information for Northstar Education Finance Inc. was not immediately available.
The case is Oksenendler v. Northstar Education Finance Inc., case number 0:20-cv-00805, in the U.S. District Court of Minnesota.
--Editing by Jack Karp.
For a reprint of this article, please contact reprints@law360.com.
