At issue is the scope and interpretation of provisions in the Higher Education Act that require parity between the direct and bank-based education loan programs. The Department believes that these reductions will save the government money by preventing defaults, save students money by reducing costs, and are necessary to level the playing field.
Many lenders already offer similar discounts.
According to the attorney for the lenders, the goal of the lenders' lawsuit is to have the Department extend similar benefits to students with loans in the bank-based education loan programs. The default rate is defined to be the percentage of borrowers who default on their federal student loans within 12 to 24 months of leaving college. This provision has served to eliminate more than 850 institutions, mostly for-profit trade schools, from the program since 1993. Interest rate reductions. Prompt repayment discounts.