Federal Law Preempts California Claims Against Student Loan Servicers, Court Says

The U.S. Court of Appeals for the Ninth Circuit Jan. 25 said the federal Higher Education Act preempts class claims that Sallie Mae’s interest rates, late fees, and payment schedules violate California law (Chae v. SLM Corporation).

The ruling for Sallie Mae, the nation’s largest servicer of student loans, also will benefit third-party servicers and lenders in the Ninth Circuit that service their own loans by shielding them from state law claims.

The decision is significant in part because it addresses outstanding questions on how the Higher Education Act—and the Federal Family Education Loan Program (FFELP), a key ...