78 F.4th 470
D.C. Cir.2023Background
- The FFELP guaranty system reimburses lenders when borrowers default and guarantors then attempt collections; guarantors may pass on "reasonable collection costs" to defaulting borrowers under 20 U.S.C. § 1091a(b)(1).
- The Department of Education promulgated a 2019 rule (34 C.F.R. § 682.410(b)(2)(i)) forbidding guarantors from charging any collection costs when a borrower enters and honors a repayment or rehabilitation agreement within 60 days of the initial default notice.
- Ascendium, a guaranty agency that historically charged collection costs on rehabilitated loans, sued under the APA arguing the Rule exceeded statutory authority and was arbitrary and capricious; the district court held Ascendium lacked standing to challenge the Rule as to repayment agreements and concluded the Rule exceeded authority as to rehabilitation agreements.
- The Department appealed and Ascendium cross-appealed. The D.C. Circuit reviewed de novo.
- The D.C. Circuit held Ascendium has standing to challenge the Rule in full, concluded the Rule is a permissible interpretation of Congress’s requirement that borrowers pay only "reasonable" collection costs, and found the Rule was not arbitrary or capricious. The Rule was upheld in its entirety.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to challenge the Rule as to repayment agreements | Ascendium claimed a right to challenge whole Rule; alternatively argued prospective injury from loss of right to charge fees | Dept argued Ascendium lacked Article III injury re repayment agreements because it never charged such fees or planned to | Ascendium has standing to challenge entire Rule because vacatur would redress its injury from the rehabilitation-related fee prohibition and successful challenge could invalidate the Rule in whole |
| Statutory authority — does Rule exceed the Act by forbidding fees? | Ascendium: Act unambiguously authorizes guarantors to charge collection costs on default; §1078-6’s 16% figure is an unconditional right | Dept: Statute requires only "reasonable" collection costs and authorizes the Secretary to fill gaps; Rule implements that reasonableness limit for minimal initial-period activity | Rule is within statutory authority: "reasonable" modifies collection costs, Congress left gap for agency to define reasonableness, and Rule reasonably treats initial-period administrative work as not justifying large fees |
| Effect of §1078-6 16% provision | Ascendium: §1078-6 grants an unconditional right to charge up to 16% on rehabilitated loans | Dept: That provision caps fees to defray collection costs and does not exempt fees from the statutory reasonableness requirement | Court rejects Ascendium’s unconditional-right reading and treats 16% as a cap subject to the underlying reasonableness requirement |
| APA arbitrary-and-capricious challenge | Ascendium: Rule irrational because it disallows fees even where guarantors successfully induce rehabilitation, which furthers statutory goals | Dept: Agency reasonably explained that collection costs are not intended as funding/incentive and that initial-period activities are largely administrative | Rule survived review: Department provided a reasoned explanation and rational link between facts and policy; not arbitrary or capricious |
Key Cases Cited
- Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir. 2015) (interpreting guaranty regulations to limit collection charges when borrower promptly rehabilitates)
- Black v. Educ. Credit Mgmt. Corp., 459 F.3d 796 (7th Cir. 2006) (discussing statute’s reasonableness requirement and average-cost scheme)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing standard requiring concrete, traceable, redressable injury)
- Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (agency deference where statute ambiguous and agency interpretation reasonable)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary-and-capricious review requires reasoned explanation and rational connection to facts)
- Mozilla Corp. v. FCC, 940 F.3d 1 (D.C. Cir. 2019) (when a party alleges concrete injury from a rule, it may challenge essential components of that rule because vacatur would redress injury)