ASCENDIUM EDUCATION SOLUTIONS, INC., APPELLEE v. MIGUEL A. CARDONA, IN HIS OFFICIAL CAPACITY AS SECRETARY OF THE DEPARTMENT OF EDUCATION AND DEPARTMENT OF EDUCATION, APPELLANTS
No. 22-5104
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 15, 2022 Decided August 29, 2023
Consolidated with 22-5117
Steven H. Hazel, Attorney, U.S. Department of Justice, argued the cause for appellants/cross-appellees. With him on the briefs were Brian M. Boynton, Principal Deputy Assistant Attorney General, and Mark B. Stern, Attorney.
Kevin M. St. John argued the cause and filed the briefs for appellee/cross-appellant.
Before: WILKINS, WALKER and PAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge PAN.
Concurring opinion filed by Circuit Judge WALKER.
PAN, Circuit Judge: When Congress passed the Higher Education Act of 1965 (the “Act“),
The Act permits guarantors to charge some debt-collection costs to defaulting borrowers. See
Ascendium Education Solutions (“Ascendium“) is a Program guarantor that previously charged debt-collection costs to defaulting Program borrowers who entered loan rehabilitation agreements. Ascendium challenged the Rule under the Administrative Procedure Act (“APA“), arguing that the Department of Education and its Secretary (collectively, the “Department“) did not have statutory authority to promulgate the Rule because the Rule conflicts with the Act. The district court ruled that Ascendium lacked standing to challenge the Rule as it applies to borrowers who enter repayment agreements because Ascendium did not charge such borrowers for any collection costs. But the district court held that the Rule exceeded the Department‘s authority under the Act with respect to borrowers who enter rehabilitation agreements. Both Ascendium and the Department appealed.
For the following reasons, we conclude that Ascendium has standing to challenge the entirety of the Rule, that the Rule is consistent with the Act and therefore is lawful, and that the Rule is not arbitrary or capricious. Accordingly, we reverse in part and affirm in part the judgment of the district court.
A.
The Program‘s system of loan guarantees is activated when a borrower enters default.1 See Bible, 799 F.3d at 640–41. Borrowers are in default on their loans when they fail to make payments to their lenders for at least 270 days.
for the amount of its loss,”
Within 45 days of taking over a defaulted loan, a guaranty agency must “[a]dvise the borrower that the agency has paid a default claim filed by the lender and has taken assignment of the loan.”
Borrowers can remove their loans from default in two ways relevant here. First, any borrower can “enter into a repayment agreement on terms satisfactory to the [guaranty] agency.”
borrowers can rehabilitate their loans, a process that requires them to make nine timely payments in ten consecutive months.
Section 1091a of the Act mandates that the reasonable costs of collecting on a defaulted loan must be passed on to borrowers. It provides: “[A] borrower who has defaulted on a loan made under [the Program] shall be required to pay . . . reasonable collection costs.”
B.
The challenged Rule precludes guarantors from levying collection costs against defaulting borrowers who enter a repayment plan or rehabilitation agreement during the initial default period, i.e., within 60 days after default.
The Rule arose from the Seventh Circuit‘s decision in Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir. 2015). There, a defaulting Program borrower entered into a rehabilitation agreement within the initial default period, completed the required payments, and exited default; yet the agency charged her hefty collection costs. Id. at 638, 645. The borrower sued the guarantor for breach of contract, arguing that the assessment of costs was prohibited by
The Department was not a party to the case but submitted an amicus brief opining that guaranty agencies could not charge collection costs when a borrower promptly enters a repayment plan or rehabilitation agreement. Bible, 799 F.3d at 639. The Department had taken the same position before the Seventh Circuit several years earlier. See id. at 651. Although the Department had not previously issued guidance with this interpretation, it had taken the position that a guaranty agency “is not required to assess the borrower collection costs” when the borrower “enter[s] into a satisfactory repayment agreement” in the initial default period. J.A. 142 (Department Letter to Guaranty Agency). The Seventh Circuit ruled in favor of the borrower, agreeing with the Department‘s interpretation. Bible, 799 F.3d at 645. But Judge Flaum noted in a concurring opinion that “perhaps the Department might consider reexamining and revising the language of the regulations” to eliminate all ambiguity. Id. at 663 (Flaum, J., concurring).
In July 2015, the Department followed Judge Flaum‘s advice. It issued a “Dear Colleague” letter that interpreted the existing statutes and regulations regarding collection costs as prohibiting guaranty agencies from charging collection costs to borrowers who enter a repayment plan or rehabilitation agreement during the initial default period. See J.A. 143–48. Then, in 2017, the Department withdrew that letter and began a negotiated rulemaking. See J.A. 149–50; Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 83 Fed. Reg. 37,242, 37,247–50, 37,282, 37,324 (July 31, 2018). After receiving public comments, including from Ascendium, the Department promulgated the challenged Rule. 84 Fed. Reg. at 49,926. The Rule states:
Whether or not provided for in the borrower‘s promissory note and subject to any limitation on the amount of those costs in that note, the guaranty agency may charge a borrower an amount equal to the reasonable costs incurred by the agency in collecting a loan on which the
agency has paid a default or bankruptcy claim unless, within the 60-day period after the guaranty agency sends the initial notice described in paragraph (b)(6)(ii) of this section, the borrower enters into an acceptable repayment agreement, including a rehabilitation agreement, and honors that agreement, in which case the guaranty agency must not charge a borrower any collection costs.
C.
Ascendium sued the Department in the district court, alleging that the Rule violates the APA because it exceeds the Department‘s statutory authority by conflicting with the Act‘s directives and is arbitrary, capricious, or otherwise not in accordance with law. The Department moved to dismiss the complaint. It argued that Ascendium lacked standing to challenge the part of the Rule relating to collection costs for repayment agreements, as opposed to rehabilitation agreements, and that Ascendium did not adequately allege that the Rule was arbitrary, capricious, or contrary to law. A month later, Ascendium moved for summary judgment on the merits.
The district court decided the motions at the same time, granting both in part. See Ascendium Educ. Sols., Inc. v. Cardona, 588 F. Supp. 3d 7, 10 (D.D.C. 2022). The court determined that Ascendium lacked standing to challenge the Rule as it applied to borrowers who entered repayment agreements because Ascendium never charged collection costs to such borrowers and had no plans to do so. Id. at 15–16. Next, the court concluded that the Rule, as applied to borrowers who enter rehabilitation agreements, exceeded the Department‘s authority under the Act. Id. at 21–22. Under the district court‘s reasoning, the Act permits guaranty agencies to charge collection costs to borrowers whenever the agencies engage in collection activities, including during the initial default period. Id. at 17–22. The court determined, however, that the Rule is not otherwise arbitrary, capricious, or contrary to law. Id. at 22. Accordingly, the district court vacated the Rule with respect to borrowers who enter rehabilitation agreements but left it in place with respect to borrowers who enter repayment plans. That decision satisfied neither party. The Department timely appealed, and Ascendium timely cross-appealed.
II.
Both parties contend that the district court erred. The Department argues that it had authority to promulgate the Rule; Ascendium asserts that it has standing to challenge the Rule as it applies to all borrowers, and that the Rule is arbitrary and capricious.
On de novo review, we reverse the district court‘s decision in part. See Rempfer v. Sharfstein, 583 F.3d 860, 864–65 (D.C. Cir. 2009). As an initial matter, we find that Ascendium has standing to challenge the Rule as applied to borrowers who enter repayment and rehabilitation agreements. We further conclude that the Department had authority to promulgate the Rule. The Act permits guarantors to charge borrowers only for “reasonable collection costs,”
We begin, as we must, with Ascendium‘s standing. The Department contends that Ascendium is not injured by the Rule to the extent that it restricts collection costs for borrowers who enter “repayment agreement[s],” as opposed to “rehabilitation agreement[s],” during the initial default period.
Ascendium lacks standing to challenge the part of the Rule that applies to that category of borrowers.
To have standing, Ascendium must have suffered an injury in fact that is fairly traceable to the Department‘s challenged conduct; and a decision granting the relief that Ascendium requests must be likely to redress its injury. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Standing is required “for each claim [Ascendium] seeks to press and for each form of relief that is sought.” Davis v. FEC, 554 U.S. 724, 734 (2008) (cleaned up); accord Finnbin, LLC v. Consumer Prod. Safety Comm‘n, 45 F.4th 127, 136 (D.C. Cir. 2022). “[F]or purposes of determining standing, we must assume that petitioners will prevail on the merits of their argument.” See NRDC v. Wheeler, 955 F.3d 68, 77 (D.C. Cir. 2020).
Ascendium has standing to pursue its claims. The Rule injures Ascendium by depriving it of collection costs that it previously charged (and planned to continue charging) to borrowers who entered rehabilitation agreements during the initial default period. See Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 464 (2017) (“For standing purposes, a loss of even a small amount of money is ordinarily an injury.” (cleaned up)). Further, Ascendium alleges that the rule is unlawful in its entirety either because it was enacted without statutory authority or because it is arbitrary and capricious. A ruling for Ascendium would thus result in vacatur of the Rule. And if the Rule were vacated for either reason, Ascendium‘s injury would be redressed: It could once again charge collection costs to borrowers who enter rehabilitation plans. Ascendium thus has standing to bring any claims that could lead to the Rule‘s vacatur, like the ones it raises here. See Mozilla Corp. v. FCC, 940 F.3d 1, 46–47 (D.C. Cir. 2019) (“When a party alleges concrete injury from promulgation of an agency rule, it has standing to challenge essential components of that rule . . .
even if they are not directly linked to Petitioners’ injuries; if Petitioners’ objections carry the day, the rule will be struck down and their injury redressed.“); Catholic Soc. Servs. v. Shalala, 12 F.3d 1123, 1124–25 (D.C. Cir. 1994) (determining that plaintiffs had Article III standing to challenge entire rule because, even though they were injured only by its prospective effects, they had argued and alleged that its retroactive impacts rendered the entire rule invalid).2
1.
On the merits, Ascendium argues that the Department acted “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right,”
To determine whether the Department acted within the bounds of its statutory authority, we begin with the traditional
tools of statutory interpretation: text, context, structure, and purpose. See Am. Hosp. Ass‘n v. Becerra, 142 S. Ct. 1896, 1904, 1906 (2022); Lindeen v. SEC, 825 F.3d 646, 653 (D.C. Cir. 2016).
“The starting point for our interpretation of a statute is always its language.” Lindeen, 825 F.3d at 653 (cleaned up). Here, the text of the Act mandates that borrowers who default on their loans “shall be required to pay . . . reasonable collection costs.”
The statutory context and structure do not provide any additional clarity on the meaning of “reasonable collection costs“; instead, they demonstrate that Congress intended for the Department to determine which costs fit that criterion. Importantly, in
regarding the meaning of “reasonable” collection costs, and it grants the Department the authority to fill that gap, so long as the Department‘s interpretation itself is reasonable. Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 (1984); Black, 459 F.3d at 799 (“Congress left it up to the Secretary to interpret that term [(‘reasonable collection costs‘)] through regulations.“); cf. Solar Energy Indus. Ass‘n v. FERC, 59 F.4th 1287, 1298 (D.C. Cir. 2023) (Walker, J., concurring in part and dissenting in part) (noting that where Congress leaves a gap for an agency to fill, like determining what level of pollutants is “unreasonable,” “courts should not second guess the agency‘s decision” (cleaned up)).
Ascendium reads the Act differently. It contends that the Act unambiguously and without exception permits guarantors to charge borrowers collection costs when they default. Thus, Ascendium contends, there is no room for the Department to impose any limits on the recovery of collection costs. In support of its position, Ascendium relies on
see also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 174 (2012) (describing canon against surplusage). Ascendium‘s construction of
Ascendium also argues that
Ascendium posits that “in order to defray collection costs” is merely a “preamble” or “prefatory clause,” and so does not change the plain meaning of the “operative clause” allowing an unconditional 16-percent fee. Ascendium Br. 39–42. Yet that reading too would give no effect to several words in the statute — like “may” and “in order to defray costs,”
672 (“[We] are to construe a statute so as to give effect to every clause and word.” (cleaned up)).
Ascendium‘s reading of
any costs resulting from “collection activities.” See Ascendium Br. 48–50 (contending that the Act defines “default collection activities” as “activities of a [guarantor] that are directly related to the collection of the loan on which a default claim has been paid to the participating lender” (alteration in original) (quoting
In any event, we disagree with Ascendium‘s claims that the Act unambiguously defines “collection costs” as costs for “collection activities,” and that those terms encompass all steps taken to recover a loan. The provision cited by Ascendium is expressly limited to a subsection setting forth how guaranty agencies must structure their “Operating Funds,” and does not address how guarantors may interact with borrowers. See
initial default period, “notify the borrower . . . that if he or she does not make repayment arrangements acceptable to the agency, the agency will promptly initiate procedures to collect the debt” (emphasis added)). Other parts of the Act explicitly connect “collection costs” with activities guarantors may engage in only after the initial default period, like litigation; they suggest that the initial outreach that agencies engage in to communicate with borrowers who first enter default fall into a separate category. See
Because the Act requires all “collection costs” charged to borrowers to be “reasonable,” we turn to whether the Rule reflects a permissible interpretation of “reasonable collection costs.”
As noted, the ordinary meaning of “reasonable” is “[f]air, proper, or moderate under the circumstances; sensible” or
“[according] to reason.” Reasonable, Black‘s Law Dictionary, supra; Van Hollen v. FEC, 811 F.3d 486, 492 (D.C. Cir. 2016) (explaining that the starting point for determining whether an agency interpretation of a statute is permissible is the text). We naturally also must evaluate the reasonableness of the costs in question based on the statutory context. See Ross, 34 F.4th at 1119 (“[T]he meaning of statutory language, plain or not, depends on context.” (cleaned up)); cf. US Airways, Inc. v. Barnett, 535 U.S. 391, 399–402 (2002) (looking to statutory context and ordinary use to define term “reasonable accommodation“).
Here, the Rule prohibits a guarantor from charging collection costs to a borrower who enters a repayment plan or a rehabilitation agreement during the initial default period: It implicitly deems such costs “unreasonable” under the circumstances. See
also id. (noting that Rule is consistent with policy articulated in 2015 Letter); J.A. 146 (2015 Letter) (recognizing that borrowers in “different stages of delinquency” create different types of costs). We conclude that the Rule is consistent with the Act‘s requirement that “reasonable” collection costs must be passed on to borrowers.4
collection costs to a borrower who enters into an acceptable repayment agreement, including a rehabilitation agreement, and honors that agreement, within 60 days of receiving notice of default.“); 84 Fed. Reg. at 49,877 (“It is not reasonable for the guaranty agency to charge collection costs for collection activities it does not need to take because the borrower entered into and met the requirements of a loan rehabilitation agreement.“).
Ascendium counters that the Rule does not actually define “reasonable collection costs.” It points to the fact that the Rule did not disturb the regulation defining collection costs,
Ascendium‘s contention that the Rule is not an interpretation of “reasonable collection costs” is not supported by the record. The Department explicitly invoked the statutes requiring “reasonable” costs —
“attorney‘s fees, collection agency charges, and court costs,” which guaranty agencies cannot incur until after the initial default period. Id. The subsection‘s reference to
In sum, the Rule is consistent with the Act‘s text, structure, and purpose, and the Department acted well within its congressionally delegated authority by promulgating it.
C.
Ascendium further contends that the Rule is arbitrary and capricious. “The scope of review under the ‘arbitrary and capricious’ standard is narrow and a court is not to substitute its judgment for that of the agency.” Motor Vehicle Mfrs. Ass‘n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). “We will uphold the agency‘s action if the agency . . . articulated a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Am. Clinical Lab‘y Ass‘n v. Becerra, 40 F.4th 616, 624 (D.C. Cir. 2022) (cleaned up).
Ascendium asserts that the Rule is arbitrary and capricious because the Department failed to provide a sufficient response to its comment during the rulemaking process that “there is no reasonable basis for separating the availability of fees from the activities guarantors perform.” Ascendium Br. 68. According
to Ascendium, guaranty agencies that encourage the early entry of rehabilitation plans provide superior services to borrowers and further the goals of the Act. Thus, Ascendium argues, it is “perverse” that such guarantors cannot collect fees when they successfully persuade borrowers to enter rehabilitation plans within the initial default period. Id. at 71. The Department, however, provided a reasoned response to that comment: It explained that “[c]ollection costs are not intended to be a funding source for guaranty agencies or an incentive for them to offer a statutorily required opportunity to borrowers.” 84 Fed. Reg. at 49,877.
As recognized by the Department, the Act requires guaranty agencies to maintain a rehabilitation program, see
* * *
For the reasons stated, we affirm in part and reverse in part. We hold that Ascendium has standing to challenge the entirety of the Rule; that the Department did not exceed its
statutory authority in promulgating the Rule; and that the Rule is not arbitrary or capricious. We thus uphold the Rule in its entirety.
So ordered.
WALKER, Circuit Judge, concurring:
Congress empowered the Department of Education to impose “reasonable collection costs” on certain debtors who default on their student loans.
I write separately to emphasize that the deference we owe to the Department‘s choice does not depend on Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). With or without Chevron, the term “reasonable” itself “confers broad discretion.” Beal v. Doe, 432 U.S. 438, 444 (1977); see also Williams Natural Gas Co. v. FERC, 943 F.2d 1320, 1331 (D.C. Cir. 1991). So if Congress expressly (and constitutionally) empowers an agency to make a “reasonable” regulatory choice, the validity of the agency‘s action depends on no more and no less than whether the agency acted reasonably and explained itself reasonably.
Here, the Department of Education did so — and we don‘t need Chevron to tell us that.1
‘feasible,’ or ‘practicable.’ In those cases, courts should say that the agency may choose among reasonable options allowed by the text of the statute. In those circumstances, courts should be careful not to unduly second-guess the agency‘s choice of regulation. Courts should defer to the agency, just as they do when conducting deferential arbitrary and capricious review under the related reasoned decisionmaking principle of State Farm.“) (citing Motor Vehicle Manufacturers Association of United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983)) (other citations omitted).