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BILINGUAL INST. v. RILEY

June 27, 1996

THE BILINGUAL INSTITUTE, INC., Plaintiff,
v.
RICHARD RILEY, Secretary of the United States Department of Education, Defendant.



The opinion of the court was delivered by: FRIEDMAN

 During the summer of 1993, the Bilingual Institute, Inc., a post-secondary vocational school, lost its eligibility to participate in federal guaranteed student loan programs because the Department of Education determined that Bilingual's students had defaulted on their student loans at excessive rates. Bilingual's appeal of the Department of Education's decision was incomplete and procedurally defective; thus the school's loss of eligibility was declared final by the Department as of September 23, 1993.

 The Bilingual Institute took advantage of the retroactive right to appeal its loss of eligibility. It also requested the Department of Education to reinstate its eligibility to participate in the federal guaranteed student loan programs pending the Secretary's decision on the merits of the appeal. The Department of Education accepted the appeal, but refused to reinstate the school's eligibility pending resolution of the appeal on the ground that Bilingual was ineligible to participate in the federal loan programs at the time it instituted the appeal.

 Bilingual filed this action seeking declaratory and injunctive relief. The parties have filed cross motions for summary judgment and agree that the material facts in this case are not in dispute. Because the only issues to be resolved are legal issues, this case is susceptible to resolution on summary judgment. See Bell v. Colonial Parking, Inc., 807 F. Supp. 796, 797 (D.D.C. 1992).

 I. FACTUAL BACKGROUND

 A. Bilingual's Loss of Eligibility to Participate in Loan Programs

 The Bilingual Institute, Inc., operates two accredited, state-licensed, post-secondary vocational schools in New Jersey. A high percentage of Bilingual's students are low income racial or ethnic minorities. Affidavit of Eduardo L. Gonzalez, Sr. P 8. By participating in federal guaranteed student loan programs, known collectively as the Federal Family Education Loan ("FFEL") program, Bilingual enabled its students to apply for and obtain loans to pay expenses relating to their attendance at the school. Over fifty percent of Bilingual's operating income and revenues have come from the federal guaranteed student loans received by its students. Id.

 On August 13, 1993, Bilingual received a letter from the Department of Education dated July 1993, terminating its eligibility to participate in the FFEL program. Def.'s Ex. 1. The letter explained that during fiscal years 1989, 1990 and 1991, the school's former students defaulted on their loans at rates beyond the "cohort default rate" ("CDR") threshold established by the HEA. Def.'s Ex. 1; see 20 U.S.C. § 1085(a)(3) (Supp. II 1990); 20 U.S.C. § 1085(a)(2) (Supp. *fn1" The CDR approximates the rate at which students entering repayment in a given fiscal year default in that same year. It is calculated by dividing the number of current or former students who enter the repayment period in a particular fiscal year by the number of students who default by the end of the following fiscal year. 20 U.S.C. § 1085(m)(1)(A)(Supp. 1995). The Department of Education calculates CDRs from information provided by loan guaranty agencies. A school loses its eligibility to participate in the FFEL program if its CDR for each of the three most recent fiscal years exceeds a certain percentage. 20 U.S.C. § 1085(a)(3) (Supp. II 1990); 20 U.S.C. § 1085(a)(2) (Supp. 1995). The July 1993 letter from the Department of Education to Bilingual constituted notice of ineligibility to participate in the FFEL program.

 The July 1993 letter advised Bilingual that it had a right to administratively appeal the termination of its eligibility and described the procedures and deadlines for appeals. Def.'s Ex. 1; see 20 U.S.C. § 1085(a)(3) (Supp. II 1990); 20 U.S.C. § 1085(a)(2) (Supp. 1995). Under Department of Education regulations, the Secretary of Education permits eligible schools that file complete and timely appeals to continue to participate in the FFEL program until the Secretary issues a decision on the appeal. 34 C.F.R. §§ 668.15(f)(7)(i), (ii) (1993); see also 34 C.F.R. §§ 668.17(c)(7)(i), (ii) (1995). *fn2" Bilingual timely sent written notice of its intent to appeal, but failed to submit a complete appeal within 30 days after receiving notice of ineligibility, as required by the relevant regulations. Id. By letter dated October 1, 1993, the Department of Education notified Bilingual that the school "failed to submit a complete written appeal by the thirty-day deadline" and that Bilingual's loss of eligibility to participate in the FFEL program therefore was final, "with no further appeal." Def.'s Ex. 4. The loss of eligibility was deemed effective September 23, 1993. Id.

 Under the HEA, an ineligible institution may not reapply for the right to participate in the FFEL program until the end of the second fiscal year following the fiscal year in which it lost eligibility. 20 U.S.C. § 1085(a)(3)(A) (Supp. II 1990); 20 U.S.C. § 1085(a)(2)(A) (Supp. 1995); see also 34 C.F.R. §§ 668.15(f)(3), (4)(1993); 34 C.F.R. §§ 668.17(c)(3), (4)(1995). If an ineligible school's CDR continues to remain above the statutory threshold for a fourth year the Department of Education extends the institution's ineligibility for an additional year, thereby enlarging the period of time before the institution may reapply to participate in the FFEL program. Declaration of I. Geneva Coombs PP 28-29. On August 11, 1994, the Department of Education sent Bilingual a letter notifying the school that its 1992 CDR exceeded the statutory threshold and that, as a consequence, its loss of eligibility would be extended for one additional year, until after September 30, 1996. Def.'s Ex. 9.

 B. Amendments to the Higher Education Act

 The December 1993 amendments to the Higher Education Act explicitly permit schools to include in their administrative appeals of a CDR-based loss of student loan program eligibility a defense based on improper loan servicing or collection. 20 U.S.C. § 1085(a)(3) (Supp. 1995). The improper servicing defense recognizes that the Secretary of Education must "exclude [from the calculation of the CDR] any loans which, due to improper servicing or collection [by the lenders or guaranty agencies], would result in an inaccurate or incomplete calculation of the cohort default rate." 20 U.S.C. § 1085(m)(1)(B) (Supp. 1995). See College of Med. and Den. Careers, Inc. v. Riley, 300 U.S. App. D.C. 157, 987 F.2d 821 D.C. Cir. 1993). The amendments were made applicable "with respect to the determination (and appeals from determinations) of cohort default rates for fiscal year 1989 and any succeeding fiscal year." Act of November 20, 1993, Pub. L. No. 103-208, § 5(b)(8), 107 Stat. 2488-89.

 C. Department of Education Implementing Regulations

 On April 29, 1994, the Department of Education published "interim final regulations" implementing the 1993 amendments to the HEA. 59 Fed. Reg. 22278 (April 29, 1994). The regulations became effective on July 18, 1994. 59 Fed. Reg. 36368 (July 18, 1994). The regulations permit institutions that receive notice of excessive CDRs issued during fiscal year 1994 and subsequent years to appeal the calculation based on allegations of improper servicing or collection within ten days of receiving notice of the excessive CDR. 34 C.F.R. §§ 668.17(f)(3)(i), (ii). The regulations also provide that "for cohort default rates issued by the Secretary for federal fiscal years from 1989 to 1991, the [new appeal procedures ...


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