Sallie Mae Settles Competitor's Lawsuit.

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Author: Smallwood, Scott

MONEY & MANAGEMENT NOTES

Sallie Mae has agreed to pay $14-million to settle a lawsuit filed by the College Loan Corporation, one of Sallie Mae's competitors in the federal program that allows college students to consolidate their loans.

The College Loan Corporation sued Sallie Mae in 2002, accusing the company of forcing students to use its loan-consolidation services. Sallie Mae is the country's largest provider of federal student loans. A jury sided with Sallie Mae, but in January a federal appeals court overturned that verdict, saying that the trial judge had mistakenly tossed out many of the most serious accusations. The case was sent back to the lower court for a new trial.

But the two companies have now settled, instead of going forward with a second trial. In a written statement announcing the settlement, Sallie Mae said that the deal did not mean the company was acknowledging any wrongdoing and that it did not require Sallie Mae to change its current practice related to the Higher Education Act's "single-holder rule."

It was that rule--and Sallie Mae's interpretation of it--that formed the crux of the complex case. The College Loan Corporation argued that Sallie Mae had interpreted the rule in a manner that violated the law. The rule requires a borrower who has multiple student loans to consolidate them with whatever company holds them, but if more than one company holds the loans, the borrower can refinance with any lender. Sallie Mae claims that it and its affiliates, like J.P. Morgan Chase & Company, constitute a giant single holder.

"We are pleased to conclude this matter without the disruption, expense, and uncertainty that accompany such litigation," Robert Lavet, senior vice president and general counsel for Sallie Mae, said in the statement.

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By Scott Smallwood