Am. Bar Ass'n v. U.S. Dep't of Educ.

• Citation: 370 F.Supp.3d 1
• Decision Date: 22 February 2019
• Docket Number: Civil Action No. 16-2476 (TJK)
• Parties: AMERICAN BAR ASSOCIATION et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF EDUCATION et al., Defendants.
• Court: U.S. District Court — District of Columbia

370 F.Supp.3d 1

AMERICAN BAR ASSOCIATION et al., Plaintiffs,

v.UNITED STATES DEPARTMENT OF EDUCATION et al., Defendants.

Civil Action No. 16-2476 (TJK)

United States District Court, District of Columbia.

Signed February 22, 2019

Chong Seok Park, Edward Francis Roche, John T. Dey, Ropes & Gray LLP, Washington, DC, for Plaintiffs.

Chetan A. Patil, Julie Shana Saltman, Chetan A. Patil, Julie Shana Saltman, U.S. Department of Justice, Brian J. Field, U.S. Attorney's Office for the District of Columbia, Washington, DC, for Defendants.

MEMORANDUM OPINION

TIMOTHY J. KELLY, United States District JudgeIn 2007, Congress established the Public Service Loan Forgiveness Program ("PSLF" or "PSLF Program"), which offers federal student loan forgiveness for those who make ten years, or 120 months, of monthly loan payments while employed in public service. At any time, federal student loan borrowers employed in public service may check their ongoing eligibility to participate in the program by submitting an Employment Certification Form (ECF). Upon receipt of that form, the Department of Education (the "Department") determines whether the borrower's loan payments were made while employed at a qualifying "public service organization," such that they count towards the PSLF Program's requirements. This case concerns whether the Department's reversals of certain of those determinations, made before the borrower's completion of all 120 monthly loan payments, were lawful.

Plaintiffs American Bar Association (ABA) and Michelle Quintero-Millan, Geoffrey Burkhart, Kate Voigt, and Jamie Rudert (collectively, the "Individual Plaintiffs") filed this action against the Department and Betsy DeVos, in her official capacity as Secretary of Education (collectively, "Defendants"), challenging the Department's allegedly unlawful reversal of certain determinations under the PSLF Program. They bring five claims against Defendants. Counts I, II, III, and IV are brought under the Administrative Procedure Act (APA), 5 U.S.C. § 500 et seq. In Count I, Plaintiffs allege that the Department changed its interpretation of its regulations in an arbitrary and capricious manner by adopting new standards governing whether non-501(c)(3) not-for-profit organizations, such as the ABA and the Individual Plaintiffs' employers, qualify as "public service organizations" under the PSLF Program. ECF No. 1 ("Compl.") ¶¶ 183–92. In Count II, Plaintiffs allege that the Department failed to follow the APA's notice requirements when it introduced those standards. Id. ¶¶ 193–200. In Count III, the ABA and Plaintiffs Burkhart, Rudert, and Voigt allege that the Department's retroactive application of the standards was arbitrary and capricious. Id. ¶¶ 201–08. And in Count IV, Plaintiffs allege that the Department's new standards were themselves inconsistent with the PSLF statute and regulation. Id. ¶¶ 209–16. In Count V, Plaintiffs allege that the Department's retroactive application of the standards violated the Due Process Clause of the Fifth Amendment. Id. ¶¶ 217–20.

Before the Court are the parties' cross-motions for summary judgment. For the reasons explained below, the Court concludes that Defendants acted arbitrarily and capriciously when the Department changed its interpretation of the PSLF regulation in two ways without displaying awareness of its changed position, providing a reasoned explanation for that decision, and taking into account the serious reliance interests affected. Accordingly, summary judgment is appropriate on behalf of Quintero-Millan, Burkhart, and Voigt, on Count I, and the new standards on which the Department relied when it sent denial letters to them must be vacated. As a result, the Court need not reach their additional causes of action.

In contrast, summary judgment is appropriate in favor of Defendants on all causes of action brought by Rudert and the ABA. The record does not support Rudert's assertion that the Department impermissibly changed its interpretation of the PSLF regulation, and then relied on that interpretation in determining that his employment failed to qualify for the PSLF Program. For this and other reasons explained below, Rudert has failed to demonstrate that the APA was violated in his case. And further, for the reasons explained below, the Department's representations to the ABA concerning whether it qualified as a public service organization for purposes of the PSLF Program were not final agency actions subject to challenge by the ABA through the APA. Finally, both the ABA's and Rudert's claims under the Due Process Clause fail because both lack the protected property interests required to succeed on their claims.

Accordingly, the Court will grant in part and deny in part Plaintiffs' Motion for Summary Judgment, ECF No. 17, and grant in part and deny in part Defendants' Motion for Summary Judgment, ECF No. 22. For the reasons explained below, the Court will also grant Plaintiffs' Supplemental Motions to Allow for Extra-Record Review. ECF Nos. 24, 35.¹

I. Background

A. The PSLF Program

1. The PSLF Statute

In 2007, the College Cost Reduction and Access Act, Pub. L. No. 110-84, 121 Stat. 784, established the PSLF Program, under which the Department is required to forgive eligible loans of borrowers who make monthly loan payments for ten years while employed in public service. Under the statute, the Department must "cancel the balance of interest and principal" of qualifying student loans belonging to an individual who (1) is not in default on the loans, (2) makes 120 monthly payments after October 1, 2007, on the loans, and (3) is "employed in a public service job" at the time each payment is made and at the time of forgiveness. 20 U.S.C. § 1087e(m)(1). For a payment to qualify, the borrower must also be enrolled in an approved repayment plan, such as an "income-based repayment plan" ("IBR plan"), id. , which permits a borrower facing financial hardship to make lower monthly payments capped at a percentage of her gross income, 20 U.S.C. § 1098e(a). A "public service job" is defined to cover "a full-time job in ... government ..., public education ..., public interest law services (including prosecution or public defense or legal advocacy on behalf of low-income communities at a nonprofit organization) ..., [and] public service for individuals with disabilities." 20 U.S.C. § 1087e(m)(3)(B).

2. The PSLF Regulation

In October 2008, the Department promulgated a regulation setting forth the procedures through which a borrower may apply for loan forgiveness. See 34 C.F.R. § 685.219. The regulation defines the statutory term "employed in a public service job," 20 U.S.C. § 1087e(m)(1)(B), to require that an eligible borrower be "hired and paid by a public service organization," 34 C.F.R. § 685.219(b). Thus, a borrower's eligibility for the PSLF Program is not determined by her job responsibilities, but rather by whether her employer qualifies as a "public service organization." Id. Under the regulation, "public service organization" includes any government organization, not-for-profit organization classified under Section 501(c)(3) of the Internal Revenue Code, or not-for-profit private organization that is not classified under Section 501(c)(3) so long as it "provides [qualifying] public services" and does not engage in certain disqualifying activities. 34 C.F.R. § 685.219(b). The qualifying "public services" include, among many others, "public interest law services," "public education," and "public service for individuals with disabilities and the elderly." Id.

During the negotiated rulemaking process leading to the promulgation of the regulation, the Department agreed to develop a form with "an employer certification section and instructions regarding supporting documentation that the Department [needs] to determine the borrower's eligibility for the forgiveness benefit." Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 73 Fed. Reg. 63,232, 63,241 –42 (Oct. 23, 2008); AR 45–46. The Department affirmed that the form would permit a borrower "to collect a certification from his or her employer either annually or at the close of the 120-payment qualifying period." 73 Fed. Reg. at 63,242 ; AR 46. Based on these commitments undertaken during the negotiated rulemaking, the Department developed a process through which a borrower may certify the eligibility of payments made during a particular period of employment at any time, long before she submits a loan forgiveness application upon completion of all 120 qualifying payments (the "ECF Process"). Oral Arg. Tr. at 25:1–11.

3. The ECF Process

According to the Department, the ECF Process allows borrowers to certify that their "employment and payments qualify for [the PSLF Program]." AR 178. Through the submission of an ECF, borrowers and their employers certify that the borrower was employed full-time for a qualifying public service organization when making monthly loan payments. See AR 152–53. In order to receive loan forgiveness under the program, borrowers must submit valid ECFs covering their "full-time public service employment while making the required 120 separate, qualifying monthly payments." AR 154. But, as noted above, borrowers may also submit ECFs before they are eligible to apply for loan forgiveness in order to "receive feedback on the eligibility of [a borrower's] employment and payments," AR 178, and to "verify that [a borrower's] employer qualifies as a public service organization," AR 152. The Department recommends that borrowers submit ECFs either annually or whenever the borrower changes employers. AR 154. A single ECF may cover loan payments made over any length of time, but the Department requires borrowers to submit separate ECFs for each employer. See AR 152–53. The ECF application must be signed by an authorized official from the relevant organization to verify that the borrower was a full-time employee...