***** Pittsburgh Post-Gazette January 7, 2001, Sunday, TWO STAR EDITION SECTION: LOCAL, Pg. C-1 HEADLINE: STUDENT LOAN COURT CASE MAY BECOME CLASS ACTION BYLINE: TOM GIBB, POST-GAZETTE STAFF WRITER
The lawsuit's papers say the two Cambria County women were cheated on the student loans they got, en route to earning college degrees that, in turn, would help them land their teaching jobs.
And they probably weren't alone, according to the filings.
Nobody will know how much company the women have unless lawyers get the chance to sort through the lender's ledgers.
"The number is believed to be in the thousands," according to the legal papers.
And so begins a class action complaint, newly filed in Cambria County Common Pleas Court, to get back money that customers purportedly lost in dealing with the former Student Loan Marketing Association, now USA Education Inc., commonly called Sallie Mae.
The suit charges that:
* Under federal education loan subsidy rules, interest on loans the women took out and later consolidated should have been forgiven but wasn't.
* Under federal guidelines, loans should have been forgiven because the two women wound up teaching in low-income, Johnstown-area school districts. But that never happened.
* Sallie Mae failed to level with the two customers -- and perhaps with many more.
Greater Johnstown Middle School teacher Susan Grant estimated that, just in interest overcharges, her loss could total about $ 6,000; she figured that co-plaintiff Cheryl Dempsey, formerly a teacher in suburban Johnstown's Ferndale Area School District, was overcharged $ 9,000.
Attorney Bradley Gelder of the Pittsburgh firm Malakoff Doyle & Finberg said he hasn't even a glimmer of an idea how wide-ranging the losses could be if he's allowed to launch the suit as a class action and look for more Sallie Mae clients who say they were shortchanged.
Sallie Mae spokeswoman Molly Sullivan said that corporation couldn't respond because company lawyers have yet to see the court pleadings.
Sallie Mae, based in suburban Washington, D.C., began 29 years ago as a government-sponsored endeavor to buy up student loans. Recently, it began doing some primary lending. The company reorganized as a private entity in 1997 and expects to shake off its government ties and become fully private in seven years.
The holding company, USA Education, estimates that it manages loans for 5.3 million borrowers, holding a $ 53 billion portfolio of federally backed student loans.
That's where the lawsuit comes in.
Starting in the late 1980s, Grant and Dempsey paid for their schooling by taking out federally subsidized student loans known as Stafford loans and a second type of loan known as a Perkins loan.
Sallie Mae, in turn, bought out the loans and, about four years ago, consolidated them -- merging them into a single $ 32,000 loan for one of the women and a loan of about $ 20,000 for the other.
But when the company joined the loans, it improperly did away with federally subsidized interest deferments for both women -- a violation of federal regulations, according to the lawsuit.
The point of contention was the Perkins loans, Grant said.
Sallie Mae deemed Perkins loans ineligible for interest deferment and insisted that they made the whole consolidated loan package ineligible for interest deferment.
The plaintiffs argued otherwise, saying the Perkins loans do fit government criteria for deferment.
What's more, because the school districts where Dempsey and Grant taught are considered low income, federal regulations allow forgiveness of at least part of the loans, the court pleadings say.
Sallie Mae, though, never let that happen, the plaintiffs charge.
Grant said she and Dempsey, longtime friends, were aware of the problems from the start and filed suit when arguments with Sallie Mae produced no accord.
"It came after 3 1/2 years of a stressful situation, battling back and forth," Grant said.
Cambria County has scheduled no hearings on the case, waiting first for Sallie Mae to reply. *****
Yoshie