Collection Costs on Rehabilitated Loans 2016 Winter Legal Meeting Shelly Repp, NCHER

Department of Education: A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and honors that agreement -Amicus brief filed by DOJ in the appeal of the Bible decision (May 21, 2015) Dear Colleague Letter GEN-15-14 (July 10, 2015)

Bible v. USA Funds (7th Circuit Court of Appeals) In a split (2-1) decision, the Court held that the HEA and regulations do not allow collection costs to be assessed in the circumstances described. The majority said that ED’s position is entitled to deference, inciting Chevon and Auer v. Robbins. Motion For En Banc Reconsideration denied, with a senior judge stating, “whether Auer supports the Secretary’s current position is a substantial and potentially important question, …an antecedent issue is whether Auer is sound.” Thus, it would not be a good use of the 7th Circuit’s limited “resources to have all nine judges consider whether Auer applies…when Auer may not be long for this world.”

Bible v. USA Funds (Supreme Court) On January 4, 2016, USA Funds filed a petition for a writ of certiorari with the Supreme Court, presenting two issues: Whether Auer should be over ruled Whether, in affording deference to an agency’s interpretation of its own regulations that conflicts with the governing statute, regulations, and decades of prior guidance, the 7th Circuit’s decision conflicts with prior Supreme Court decisions.

Bible v. USA Funds (Supreme Court) On February 5, 2016, NCHER filed an amicus brief in support of the second question in the USA Funds petition. NCHER argues that: The HEA, ED’s regulations, and ED-mandated loan documents all authorize the assessment of collection costs on defaulted loans regardless of whether or when the loans became subject to loan rehabilitation An OMB circular recognizes a guaranty agencies’ right to assess collection costs in these circumstances ED has acquiesced for years in the assessment of collection costs in these circumstances “It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to devine the agency’s interpretative in advance or else be liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.” Christopher v. SmithKlineBeecham

USA Funds v. Duncan (District Court, DC) Filed By USA Funds on 7/16/2015 Challenges ED’s administrative action based on: New rule is a violation of, and not authorized by, the HEA New rule is in conflict with existing regulations New rule is arbitrary, capricious, an abuse of discretion and not in accordance with law New rule is a substantive rule that affects an agency’s rights or obligations and ED has failed to follow required notice and comment rulemaking New rule is unsupported by facts and record New rule is impermissible retroactive rulemaking

USA Funds v. Duncan ED filed a motion to dismiss, which has been fully briefed (no activity since 10/26/2015) ED’s arguments ED’s interpretation is consistent with the HEA and regulations ED’s interpretation is not plainly erroneous or inconsistent with its regulations, and its not arbitrary or capricious and thus, under Auer v. Robbins, is entitled to deference ED’s interpretation is not subject to notice and comment rulemaking as it simply restates and clarifies the existing rule

New Regulation During the 2016 “Borrower Defense to Repayment” Negotiated Rulemaking, ED proposed creating a new regulation which would codify the explanation of the current regulations provided in DCL GEN-15-14. The FFELP negotiator insisted that this be deemed a new regulation that will be prospective in effect. ED responded by withdrawing the proposed rule, citing the pending litigation.