Bible v. United Student Aid Funds, Inc.

Dist. Ct. erred in granting defendant’s motion to dismiss plaintiff’s action alleging that defendant breached terms of plaintiff’s Federal Student Loan Master Promissory Note, when it assessed plaintiff over $4,500 in collection costs after plaintiff defaulted on her student loan, but then successfully entered into alternative repayment agreement. Dist. Ct. improperly found that instant contract claim was preempted by Higher Education Act (HEA), where federal law did not preempt or displace plaintiff’s state-law contract action that did not otherwise conflict with HEA or its associated regulations. Fact that HEA did not provide plaintiff with private cause of action did not preclude plaintiff from bringing state-law breach of contract action. Also, although HEA and its regulations impose collection costs on borrowers who default on their student loans under certain circumstances, plaintiff stated viable cause of action, where HEA regulations prohibited defendant from imposing collection costs, where plaintiff was first-time defaulter who entered into rehabilitation agreement within 60 days of notice that defendant had paid default claim of plaintiff’s lender, and where plaintiff had complied with rehabilitation agreement. Ct. rejected defendant’s argument that it retained discretion to assess collection costs whenever it wanted. (Dissent filed.)