B of A Sued by Top Firm in Student Loans

First Independent Trust Co. of Sacramento filed a multimillion-dollar lawsuit Thursday against Bank of America and the California Student Loan Finance Corp. alleging that they broke agreements to buy student loans.

The lawsuit filed in Sacramento County Superior Court seeks $73 million in compensatory damages and unspecified punitive damages for fraud, breach of contract and interference with economic relations.

First Independent was one of the nation’s largest lenders of guaranteed student loans until it stopped making new loans earlier this week, saying financing for some of the riskier loans had dried up.

At the time First Independent announced its decision, however, it had been put on notice by state student-loan officials that it was about to be banned from making loans in California for widespread and continuing violations of student-loan program rules--including failure to pay $4.5 million in fees owed to the federal government.

In addition, its largest guarantor, the nonprofit Higher Education Assistance Foundation in Minnesota, also has told the company that it will stop guaranteeing student loans it makes because of the alleged violations.

State’s Largest Such Lender

Since 1980, First Independent has been one of the nation’s most aggressive lenders in the student-loan business, making $1.5 billion in loans. Many were risky loans to students in vocational schools, who student-loan officials say have a default rate of from 30% to 40% nationally.

It has been the state’s largest student-loan lender over the past three years. During the past academic year, First Independent Trust Co. made $739 million in student loans to 295,000 students attending 1,500 schools in California and 43 other states.