Federally Regulated Student Loans Not Governed By State Law

California consumer protection laws do not apply to student loans regulated by the Higher Education Act (20 USC §§ 1001-1155). In Chae v. SLM Corporation, the plaintiffs complained about improper interest charges, contending they were overcharged on their student loans.

The plaintiffs sued the lender and processing agents, claiming that the interest charges violated California contract law, the covenant of good faith and fair dealing, and amounted to unjust enrichment. In addition, the plaintiffs contended the interest charges constituted an unfair business practice in violation of Business and Professions Code section 17200. They also claimed a violation of California’s Consumers Legal Remedies Act (Civil Code §§ 1750-1784). The Ninth Circuit rejected all the claims, holding that the Federal loans were just that – Federal loans. The state law claims are preempted, said the court. With student loans controlled by the Higher Education Act and related regulations, no claim can be brought based on a state law violation. The remedies available are those that exist pursuant to the governing Federal regulations enacted by the Department of Education. A copy of the court’s opinion is attached.