568 B.R. 367
Bankr. D. Kan.2017Background
- Debtor Jennifer Kennedy filed a Chapter 13 petition in April 2015 and proposed a pro rata plan for student loans.
- Navient timely filed a proof of claim on May 20, 2015 for $123,548.34, including $97,500.15 principal, $3,658.73 interest, and $22,389.43 in collection costs.
- The promissory note provides that default will trigger payment of reasonable collection costs, including attorney’s fees, court costs, and other fees.
- Debtor objected to Navient’s collection costs as not reasonable, arguing the costs were not actually incurred and were not in active collection.
- Navient relies on 34 C.F.R. § 30.60 and 34 C.F.R. § 682.410(b)(2) to calculate a 22.5% collection-cost rate; it maintains the calculation is based on DOE regulations and portfolio-wide costs.
- The court overrules Debtor’s objection, applying Seventh Circuit reasoning in Black v. ECMC and deferring to DOE regulations as reasonable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Burden of proof and Rule 3001 compliance | Kennedy contends Navient failed to furnish an itemized statement sufficient under Rule 3001(c)(2)(A). | Navient argues it complied by itemizing principal, interest, and collection costs, satisfying Rule 3001(c)(2)(A). | Navient is presumed valid; proper disclosure satisfied Rule 3001(c)(2)(A). |
| Reasonableness of collection costs under DOE regulations | Kennedy argues the flat-rate percentage is not reasonably tied to actual costs for her account. | Navient asserts the DOE framework permits a flat-rate percentage aligned with the agency’s portfolio costs and the 25% cap. | Collection costs at 22.5% are reasonable under DOE regulations. |
| Effect of promissory note cap on collection costs | Kennedy claims collection costs cannot exceed 18.5% per the note’s language for consolidated loans. | Navient notes the cap applies to certain consolidated loans, not to Navient’s current arrangement, which is governed by the DOE framework. | Promissory note cap applies to specific consolidation loans only; not controlling for Navient's claim under DOE regulations. |
| Chevron/Skidmore deference to DOE regulations | Kennedy contends the regulations should not be given Chevron deference in this context. | Navient relies on Chevron/Skidmore deference to DOE collection-cost regulations as reasonable. | Regulations are entitled to deference; they support the reasonableness of Navient's collection costs. |
Key Cases Cited
- Black v. Educational Credit Management Corp., 459 F.3d 796 (7th Cir. 2006) (DOE policy permitting flat-rate collection costs based on portfolio costs is reasonable)
- Educ. Credit Mgmt. Corp. v. Barnes, 318 B.R. 482 (S.D. Ind. 2004) (Chevron deference to DOE collection-cost computation model)
- United States v. Vilus, 419 F. Supp. 2d 293 (E.D.N.Y. 2005) (deference to DOE collection procedures; cost reasoning for portfolio-based costs)
- In re Schlehr, 552 B.R. 338 (Bankr. N.D. Tex. 2016) (reasonableness of collection costs under DOE framework; >20% not per se unreasonable)
- In re Picacho Hills Util. Co., Inc., 515 B.R. 820 (Bankr. D.N.M. 2014) (preference for detailed allocation of costs; context of reasonableness analysis)