Connecticut Student Loan Foundation v. Riley, 3:93 CV-2570 (JBA).
| Decision Date | 29 October 1996 |
| Docket Number | No. 3:93 CV-2570 (JBA).,3:93 CV-2570 (JBA). |
| Citation | 948 F.Supp. 156 |
| Court | U.S. District Court — District of Connecticut |
| Parties | The CONNECTICUT STUDENT LOAN FOUNDATION, Plaintiff, v. Richard RILEY and United States Department of Education, Defendants. |
Ralph G. Elliot, Tyler Cooper & Alcorn, Hartford, CT, for plaintiff Connecticut Student Loan Foundation.
William A. Collier, U.S. Attorney's Office, Hartford, CT, Shelia Lieber, Pamela Eppli, U.S. Department of Justice, Washington, DC, for defendants Richard Riley, U.S. Dept. of Education.
Upon careful review and pursuant to 28 U.S.C. § 636(b)(1)(B) and Rule 2 of the Local Rules for United States Magistrates (D.Conn.1994), this well-reasoned recommended ruling is APPROVED and ADOPTED as the ruling of this Court, absent any objection filed.
IT IS SO ORDERED.
RECOMMENDED RULING ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANTS' MOTION TO DISMISS THE COMPLAINT OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT
This is a declaratory judgment action brought by the Connecticut Student Loan Foundation ("CSLF") against the United States Department of Education and its Secretary (collectively, the "Secretary"). CSLF challenges the Secretary's interpretation of changes made to 20 U.S.C. § 1078(b)(1)(G) by the Student Loan Reform Act of 1993, Pub.L. 103-66 Title IV, Subtitle A. Specifically, CSLF seeks a declaration that the statute gives it discretion to guarantee student loans at any rate between 98 and 100% despite the Secretary's promulgation of regulations requiring CSLF to insure loans only at 98%.
CSLF has moved for summary judgment. The Secretary has moved to dismiss the complaint for lack of standing or, in the alternative, for summary judgment. For the reasons stated below, the court recommends that the plaintiff's motion for summary judgment and the defendants' motion to dismiss the complaint be DENIED and that the defendants' motion for summary judgment be GRANTED.
The Guaranteed Student Loan Program, 20 U.S.C. § 1071 et seq., was enacted as part of the Higher Education Act of 1965 to encourage lending by private banks to students by providing federal subsidies on interest rates and federal guarantees for repayment. Maine State Bd. of Educ. v. Cavazos, 956 F.2d 376, 377 (1st Cir.1992). Any state wishing to allow its students to obtain federally guaranteed loans must either establish a state guaranty agency or designate a private nonprofit guaranty agency to administer the loans. 20 U.S.C. § 1078(b)(1)(K). CSLF is a private, nonprofit corporation created by the State of Connecticut for that purpose.
The Guaranteed Student Loan Program works in three basic steps: (1) private lenders (usually banks) are authorized to make low-interest loans to eligible students; (2) the guaranty agency guarantees the loans by the private lenders; and (3) the Department of Education reinsures the loan by reimbursing the guaranty agency for all or part of their expenses in covering student defaults for private lenders. 20 U.S.C. § 1078(a)-(c). The rate at which the federal government reimburses the guaranty agency for defaults varies between 78%, 88% and 98% according to the guaranty agency's default rate. Id.
A guaranty agency's functions include advertising the program to banks, reimbursing banks for student defaults and collecting defaulted loans from students. Maine State Bd. of Educ., 956 F.2d at 377-78. In order to perform its role, a guaranty agency maintains "reserve funds." 34 C.F.R. § 682.410. Reserve funds consist of funds received from a variety of sources including collections from students on defaulted loans and reimbursements made to the agency by the federal government. 34 C.F.R. § 682.410(a)(2). By law, all money deposited in the reserve funds is the property of the United States, 20 U.S.C. § 1072(g), and may only be used for student loan program purposes as directed by the Secretary, 34 C.F.R. § 682.410(a)(2).
The Secretary not only has ultimate control over the reserve funds, but also has ultimate control over the guaranty agency's loans. If a guaranty agency's reserve funds are inadequate and placing the agency in danger of insolvency, or if the Secretary believes it is necessary to protect the government's fiscal interest, the Secretary may take over any or all of a guaranty agency's loans. 20 U.S.C. §§ 1078-9(c)(8) & 1082(o).
To participate in the program, all guaranty agencies are required to enter into several agreements with the Secretary in which the agency promises, among other things, to conform both to the existing federal statutes and regulations and to abide by new obligations that Congress or the Secretary might impose in the future. See Exhibits 2 & 3 to Defendants' Memorandum in Support of Its Motion to Dismiss Or, in the Alternative, for Summary Judgment; 20 U.S.C. § 1078(b); 34 C.F.R. § 682.400 et seq.
Pursuant to its agreements with the Secretary, a guaranty agency's failure to comply with any provisions of its contract or applicable law or regulations may result in the Secretary's withholding of reimbursements on defaulted loans. In addition, civil penalties may be imposed where the guaranty agency "has violated or failed to carry out any provision of this part or any regulation prescribed under this part...." 20 U.S.C. § 1082(g).
Originally, the Higher Education Act required guaranty agencies to insure "not less than 100 percent of the unpaid principal of loans insured under the program." 20 U.S.C. § 1078(b)(1)(G) (1965). The requirement changed in 1993, when Congress amended the statute. The amendment provided that 98 percent be substituted for 100 percent. The statute now requires guaranty agencies to insure "not less than 98 percent of the unpaid principal of loans insured under the program." The amendment also added an exception to the "not less than 98 percent" insurance requirement. The exception provides that guaranty agencies "shall insure 100 percent of the unpaid principal of loans" made by certain lenders to students who were considered to be at high risk of default. See 20 U.S.C. § 1078(b)(1)(G).
The Secretary interpreted the amendment to mean that guaranty agencies had to insure lenders at 98%, not more and not less. This interpretation was initially conveyed to the guaranty agencies by a letter dated November, 1993. New federal regulations published on November 30, 1994 codified this interpretation by requiring that "[t]he guaranty agency shall guarantee ... [n]ot more than 98 percent of the unpaid principal balance of each loan guaranteed for loans first disbursed on or after October 1, 1993." 34 C.F.R. § 682.401(b)(14) ( 59 F.R. 61424, 61428).1
At oral argument CSLF represented that it has abided by the Secretary's regulation and has insured lenders at 98%.
The first question raised is whether CSLF has standing to bring this declaratory judgment action. The Secretary argues that CSLF does not have standing to challenge the Secretary's interpretation of the 1993 amendments because CSLF cannot be injured by the Secretary's regulation.
Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). Limits are imposed upon the court's jurisdiction in order to avoid judicial decisions on abstract questions of public significance where other governmental institutions might be more competent to address the questions and where the court's intervention is unnecessary to protect individual rights. Id. at 500, 95 S.Ct. at 2205-06.
A three-pronged test is used to determine standing. First, a plaintiff must show that he has suffered an injury in fact that is both concrete in nature and particularized to him. Second, the injury must be traceable to the defendant's conduct. Third, the injury must be redressable by removal of the defendant's conduct. In re U.S. Catholic Conference, 885 F.2d 1020, 1023-24 (2d Cir.1989) (citations omitted), cert. denied, 495 U.S. 918, 110 S.Ct. 1946, 109 L.Ed.2d 309 (1990). The party invoking federal jurisdiction bears the burden of establishing that it has standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 2136-37, 119 L.Ed.2d 351 (1992).
The Secretary argues that CSLF can sustain no economic injury by its implementation of the Secretary's interpretation because a guaranty agency has no ownership interest in the reserve fund; pursuant to 20 U.S.C. § 1072(g), the fund is the property of the United States government. The Secretary further argues that even if CSLF had an interest in the reserve fund, it can sustain no economic injury. In support of this latter argument, the Secretary points out that by limiting the amount paid to lenders on defaulted loans to 98%, the loss to the reserve fund is reduced by up to 2%. By reducing losses to the reserve fund, the 98% limit on loan guarantees helps, rather than hurts, CSLF's economic interests.
CSLF asserts that it has a potential economic injury because the Secretary may refuse to reinsure CSLF's losses if it fails to abide by any statute or regulation. The Secretary replies that because CSLF has no property interest in the reserve fund, it cannot be harmed by such a sanction but, even if CSLF did have a property interest, CSLF cannot manufacture an injury by its own actions (citing Petro-Chem Processing Inc. v. EPA, 866 F.2d 433, 438 (D.C.Cir.), cert. denied, 490 U.S. 1106, 109 S.Ct. 3157, 104 L.Ed.2d 1020 (1989) and Doremus v. Board of Educ., 342 U.S. 429, 435, 72 S.Ct. 394, 397-98, 96 L.Ed. 475 (1952)).
Even if CSLF has no interest in the reserve fund which would establish standing, standing exists...
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