Class Action Filed by Student Loan Borrower Over Suspension of NorthStar’s Repayment Bonus Program

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NorthStar Education Finance, Inc. is on the receiving end of a proposed class action that alleges the student loan provider failed to uphold an agreement to lower interest rates for borrowers who made timely loan payments.

The 23-page case explains that the defendant, which does business as Total Higher Education, began to offer in 2001 a credit to borrowers whose loan payments were no more than 59 days late. Known as the “T.H.E. Repayment Bonus,” the credit was given to eligible borrowers as a monthly interest rebate that effectively lowered their interest rates by a set amount, the suit says. The program, according to the case, was “a material and binding term” of borrowers’ student loans with NorthStar that set the defendant apart from other student loan providers.

The case says that NorthStar in 2008 “committed its first unilateral breach of its loan agreements with borrowers” by suspending the T.H.E. Program. Back then, the defendant cited “the ongoing disruption in the global markets” as the basis for the suspension even though borrowers’ agreements with NorthStar contained no such condition or option by which the company could justify doing so, according to the suit.

“Northstar’s justification of its suspension of the T.H.E. Program was legally invalid,” the complaint states. “Nowhere in any of the loan documents that Northstar provided to Plaintiff and the other Class members did Northstar reserve a right to change, amend, revoke, withdraw, terminate, discontinue, suspend, cease, modify, and/or alter the T.H.E. Repayment Program in any way.”

The lawsuit goes on to say the suspension triggered class action litigation that was settled in December 2009 with NorthStar agreeing to reinstate the T.H.E. Program for “the remaining life of the loans.” As part of the agreement, class counsel was given the right to audit NorthStar’s compliance with the terms of the settlement, the suit states.

The lawsuit claims that NorthStar nevertheless suspended the T.H.E. Program again in March 2020 based on “changes in economic circumstance.” Nowhere in the letter sent to borrowers regarding the suspension did the defendant mention its contractual obligation to pay the repayment bonus, “let alone attempt to justify the suspension as a contractual matter,” the lawsuit says. The suit claims the suspension is a violation of both its loan contracts and the 2009 settlement agreement with student loan borrowers.

The plaintiff claims his decision to consolidate his student loans with NorthStar was based in large part on the defendant’s T.H.E. Program, adding that he and other borrowers have been unjustly injured by the suspension of the program.

The case seeks to represent anyone who obtained or co-signed a loan held by NorthStar or a subsidiary at the time the T.H.E. Program was re-suspended in February or March 2020.