Student Loan Originator Sued for False Interest Rate Reduction
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UPDATED: May 2, 2012
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A George Washington University Law School graduate is suing Citibank, Discover and The Student Loan Corporation, which is a subsidiary of Discover, for allegedly deceiving borrowers with fake interest reduction programs, according to ABC News.
Justin Kuehn, 29, claims he was a victim of a scheme in which his student loan provider told him he would receive lower monthly payments due to an interest rate reduction.
While Kuehn did see lower monthly payments, it wasn’t until later that he learned that his interest wasn’t reduced, but instead the amount of money being put towards his principal was what his provider reduced.
Kuehn graduated from law school in 2007, and immediately consolidated his four student loans into a single loan that amounted to $99,148.19 at a 9.55 percent interest rate. He paid nearly $850 a month, but would make additional payments in order to pay his principal down quicker.
Then in January of 2012, the Student Loan Corporation “unilaterally” dropped his monthly payment to $539.27, saying “The variable interest rate on your student loan has changed. Your monthly payment has been adjusted to reflect the new interest rate, as stated above,” reported ABC News.
But Kuehn’s interest rate only fell 0.50 percent—from 9.55 percent to 9.05 percent.
“They claimed [the lower monthly bill] was due to an interest rate reduction but I knew that, just by the amount of that drop, that couldn’t be correct,” he told ABC News.
As a result of this “interest rate reduction,” the amount of money being put towards Kuehn’s principal declined from $335.67 to $42.59, effectively extending the term of his student loan and extracting more interest from him—that is, if he didn’t catch the error first.
Kuehn contacted the Student Loan Corporation on January 4, but was told he couldn’t return his monthly payments to the original amount.
“I tried to resolve this with them and they were not open to it,” Kuehn told ABC News.
So he filed a law suit, which is currently pending litigation, and he hopes it will become a class-action suit.
A spokespeople for both Discover and Citibank said they couldn’t comment on the lawsuit since it is currently pending litigation.