The massive nation wide loan company, Sallie Mae, allegedly used coercive methods in its loan consolidation processes, according to a lawsuit filed Monday in federal district court in Alexandria, Va.
The lawsuit, filed by competitor College Loan Corporation, accuses Sallie Mae of employing monopolistic practices, all of which violate the federal Sherman Antitrust Act, the Virginia Antitrust Act and the Higher Education Act.
Sallie Mae has engaged in "anti-competitive behaviors," most importantly in their interpretation of the single-holder rule, said James Trefil, a member of the outside litigation counsel representing CLC.
Added when the Higher Education Act was amended in 1998, the single-holder rule declares that if a borrower has several loans by several holders, they can consolidate with any of the lenders. "Sallie Mae intentionally misapplied the single-holder rule interfering with thousands of borrowers trying to exercise their right to consolidate loans with other lenders and in numerous cases, preventing those borrowers from obtaining a lower interest rate," CLC said in a press release.
Sallie Mae considers all of its affiliates as a behemoth single-holder and, according to CLC litigation counsel, this constitution is monopolistic because of the loose relationships that Sallie Mae has with many of these affiliates.
The lawsuit also alleges that Sallie Mae improperly induced institutions to release to them sole access to student loan referrals.
The allegations state that this practice, combined with the violation of the single-holder rule, has prevented CLC from receiving access to some "4,000 loan applications for which the CLC is seeking at least $50 million in compensation," Trefil said. The CLC also hopes this lawsuit will result in the court standing by the definition of the single-holder rule, which in turn will open the student loan market to more lenders, he added.
Trefil emphasized that the ruling would aid students in allowing them greater access to better loan rates.
In defense of the accusations, Martha Holler, a spokesperson for Sallie Mae, called the lawsuit merely a contract dispute on a topic that they have been discussing with CLC for months.
"Our lawyers advise that this case has no merits, and Sallie Mae is confident it will prevail in the courts," Holler said.
Holler also stated that the complaint was an unfortunate challenge to Sallie Mae's size in the student loan marketplace.
Currently, Sallie Mae controls twenty percent of student loans, roughly $76 billion, while the federal government controls 30 percent of the funds.
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