Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-97-05316/USCOURTS-caDC-97-05316-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 2, 1998 Decided March 23, 1999

No. 97-5316

Vanessa Armstrong,

Appellant

v.

Accrediting Council for Continuing Education and

Training, Inc., et al.,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 91cv03135)

Michael E. Tankersley argued the cause for appellant.

With him on the briefs was Alan B. Morrison.

Anthony M. Alexis, Assistant U.S. Attorney, argued the

cause for appellee Accrediting Council for Continuing Education & Training, Inc., et al. With him on the brief were

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Wilma A. Lewis, U.S. Attorney, R. Craig Lawrence and Scott

S. Harris, Assistant U.S. Attorneys.

Henry S. Weinstock argued the cause and filed the brief

for appellees Bank of America, N.T. & S.A., et al.

Mark E. Shure argued the cause and filed the brief for

appellee Educational Credit Management Corporation.

Before: Henderson, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Concurring statement filed by Circuit Judge Henderson.

Tatel, Circuit Judge: In this case, we must decide whether

appellant, a student who attended a for-profit vocational

school with help from a federally guaranteed student loan,

may assert the school's alleged fraud and failure to provide

the education it promised as a defense against the lender's

effort to collect the loan. Although federal student loan

policy now recognizes school misconduct defenses against

lenders who have "referral relationships" with for-profit

schools, appellant obtained her loan in the late 1980s, a time

when federal policy protected lenders from such defenses.

Because we find no basis for applying the new standards

retroactively to appellant's loan, we affirm the district court's

dismissal of her claims for declaratory and injunctive relief.

I

Established by the Higher Education Act of 1965, the

Guaranteed Student Loan Program provides interest rate

subsidies and federal insurance for private lenders to make

student loans. See 20 U.S.C. s 1078(a), (c) (1994).* To raise

funds to make, i.e. "originate," additional loans, original lenders sell loans to other lenders on a secondary loan market.

__________

* The Guaranteed Student Loan Program has since been renamed the Federal Family Education Loan Program. See Higher

Education Act Amendments of 1992, Pub. L. No. 102-325, sec.

411(a)(1), s 1071, 106 Stat. 448, 510. Throughout this opinion, we

refer to the program as the GSLP, its name at the time appellant

borrowed in 1988; where relevant, we cite law in effect in 1988.

So-called "guaranty agencies" guarantee the loans, paying

loan holders the amounts due and taking assignment of the

loans if students default. See id. s 1078(c). The Secretary of

Education "reinsures" the loans and ultimately reimburses

guaranty agencies on a sliding scale. See id. s 1078(c)(1).

Although guaranteed student loans often change hands many

times, they are not considered negotiable instruments; neither repurchasers nor assignees become "holders in due

course." See Jackson v. Culinary Sch., 788 F. Supp. 1233,

1248 n.9 (D.D.C. 1992), rev'd on other grounds, 27 F.2d 573

(D.C. Cir. 1994), vacated, 515 U.S. 1139, on reconsideration,

59 F.3d 354 (D.C. Cir. 1995). Instead, subsequent holders

assume loans subject to all claims and defenses available

against original lenders. Cf. 34 C.F.R. s 682.508(c) (1988).

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Students may use federally guaranteed student loans to

attend "eligible" schools, including for-profit vocational

schools. See 20 U.S.C. s 1085(a)(1) (1988). To establish

eligibility, vocational schools must be accredited by a nationally recognized accrediting agency. See id. s 1085(c)(4). The

Secretary requires eligible schools to perform certain functions to facilitate student access to guaranteed loans, including giving students information on loan availability, certifying

student eligibility to participate in the federal loan program,

and forwarding applications to lenders. See 34 C.F.R.

ss 668.41-.43, 682.102(a), 682.603 (1988).

Federal student loan policy has undergone two significant

changes relevant to this case. The first began in 1979 when

Congress amended the Higher Education Act to encourage

lenders to market loans to for-profit vocational school students. See Higher Education Technical Amendments of 1979,

Pub. L. No. 96-49, 93 Stat. 351. The 1979 amendments

removed a ceiling on the federal interest subsidy paid to

participating GSLP lenders, "making proprietary school

loans, which had previously been considered as too risky,

more attractive." S. Rep. No. 102-58, at 6 (1991) ("Senate

Report"). Later amendments removed other limitations on

student borrowers attending for-profit schools, increased aggregate loan limits, and allowed students who had not comUSCA Case #97-5316 Document #424617 Filed: 03/23/1999 Page 3 of 17
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pleted high school to use GSLP loans to attend accredited

postsecondary schools. See Education Amendments of 1980,

Pub. L. No. 96-374, 94 Stat. 1367; Higher Education Amendments of 1986, Pub. L. No. 99-498, sec. 425, s 1075(a), 100

Stat. 1268, 1359; id. sec. 481, s 1088, 100 Stat. 1268, 1476.

To further encourage private lenders to make vocational

school student loans, Congress excluded GSLP loans from the

Truth in Lending Act ("TILA"). See Pub. L. No. 97-320, sec.

701(a), s 1603, 96 Stat. 1469, 1538 (1982). As a result, the

Federal Trade Commission stopped enforcing various TILA

regulations against GSLP lenders, including the "Holder

Rule." Adopted by the FTC in 1976, the Holder Rule

requires purchase money loan agreements (loans supplying

money for the purchase of goods or services) arranged by

sellers to contain a notice to all loan holders that preserves

the borrower's ability to raise claims and defenses against the

lender arising from the seller's misconduct. See 16 C.F.R.

s 433.2(a) (1998). For example, if a used car dealer who

fraudulently sells a lemon also arranges the buyer's financing

through a bank, the buyer may rely on the dealer's fraud as a

defense against repaying the bank loan. Ending enforcement

of the Holder Rule with respect to GSLP loans thus had the

effect of protecting lenders from claims and defenses students

could raise against their schools.

This lender protection from student suits had one major

exception: where lenders delegated to schools "substantial

functions or responsibilities normally performed by lenders

before making loans." 51 Fed. Reg. 40,890 (1986); 34 C.F.R.

s 682.206(a)(2) (1988). In such cases, the Department of

Education's "origination policy" kicked in, treating the

schools--not the banks--as the lenders that had effectively

made the original loans. See 34 C.F.R. s 682.200(b) (1988).

As a result, all subsequent loan holders (remember, there are

no holders in due course) were subject to claims and defenses

that students could raise against their schools. Cf. id.

s 682.508(c). But so long as lenders avoided schoolorigination relationships, they could make and sell loans

without fear that students could assert school misconduct as a

defense against repaying their loans.

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These changes in the Guaranteed Student Loan Program

accomplished their purpose. Lending to for-profit school

students mushroomed, increasing more than six-fold between

1982 and 1988. See Senate Report at 6-7. The changes also

had unintended consequences. As a result of the GSLP's

easy source of funding, large numbers of for-profit schools

sprang up, admitted poorly prepared students, and offered

shoddy programs. See id. at 2-3, 8-13. Graduates of these

schools were often unable to get jobs. Default rates climbed

dramatically, rising as high as 39%. See id. at 2. Because

loan guaranty agencies were unable to keep up with growing

default rates, many had to be bailed out by the Secretary.

See, e.g., id. at 22.

In order to curb high default rates and protect students

from for-profit school abuses, Congress initiated a second

round of changes to the Guaranteed Student Loan Program

in 1992. One change directed the Secretary to terminate

GSLP eligibility of for-profit schools with consistently high

default rates. See Pub. L. No. 102-325, sec. 427(a), s 1085,

106 Stat. at 549 (redefining "eligible institution" to exclude

schools with excessive default rates). As a result, many forprofit schools were eliminated from the program.

Congress also directed the Secretary to develop a "Common Guaranteed Student Loan Application Form and Promissory Note" specifying the contractual terms governing

guaranteed student loans, and to study the possibility of permitting students to raise fraud-based state law defenses

against repayment of student loans. See id. s 425(e), 106

Stat. at 546; id. s 1403, 106 Stat. at 817. Responding to

these directives, the Secretary prepared a common promissory note and included in it a provision modeled on the FTC

Holder Rule that was directed specifically at lenders affiliated with for-profit schools. See U.S. Dep't of Educ., Application and Promissory Note for Federal Stafford Loans

(Subsidized and Unsubsidized) and Federal Supplemental

Loans for Students (SLS) (1993) ("Common Promissory

Note"). In fact, one year earlier the FTC had renewed

enforcement of the Holder Rule with respect to GSLP loans.

See, e.g., Letter from Jean Noonan, Associate Director for

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Credit Practices, Federal Trade Commission, to Jonathan

Sheldon, National Consumer Law Center (July 24, 1991)

("FTC Opinion").

Treating GSLP lenders like banks that allow used car

dealers to arrange financing, the Holder Rule notice the

Secretary included in the common promissory note, together

with the FTC's renewed enforcement policy, made GSLP loan

holders "subject to all claims and defenses" that the student

borrower could raise against the school. Common Promissory Note. The notice applies where the loan is "used to pay

tuition and charges of a for-profit school that refers loan

applicants to the lender or that is affiliated with the lender by

common control, contract or business arrangement." Id.

(emphasis added). According to the Department, "refers"

means that a school, with a lender's knowledge, goes beyond

"giv[ing] its students information on the availability of student loans" and "recommend[s] that the applicants seek loans

from [a particular] lender." U.S. Dep't of Educ., Overview,

Federal Trade Commission (FTC) Holder Rule 2, 3 (July 2,

1993) ("Overview, FTC Rule"). A school also "refers" loan

applicants when it "contact[s] a particular lender to inquire

whether that lender would be willing to make loans for its

own students, and later include[s] this lender (if it responded

positively) on its information list of lenders." Id. at 2. No

referral relationship exists where a school simply "obtain[s]

its lender information from third-party sources ... or from a

more generalized school inquiry to a lender (e.g., asking

merely whether the lender is generally willing to make loans

to trade school students in a particular state.)." Id. Although the common promissory note's Holder Rule notice

expands lender liability beyond that authorized by the Department's origination policy, the Department has made clear

that even under the notice's lower threshold lenders may

protect themselves from school misconduct defenses by limiting their cooperation with schools to the few obligations

mandated by the Higher Education Act and implementing

regulations (i.e., providing students with information on loan

availability, certifying student eligibility, and forwarding applications to lenders). See Dep't of Educ., Federal Trade

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Commission (FTC) Holder Rule: Questions/Answers 4 (July

27, 1993); 34 C.F.R. s 682.206 (1997).

The loan at issue in this case was made in 1988, during the

time when federal student loan policy encouraged lenders to

make GSLP loans to vocational school students and prior to

inclusion of the Holder Rule notice in GSLP promissory

notes. Appellant Vanessa Armstrong was recruited by National Business School, a for-profit vocational school operating

in Washington, D.C., to enroll in its automobile mechanic

training program. With help from the school, Armstrong

obtained a $4,000 GSLP loan from the First Independent

Trust Company of California ("FITCO"). One of the largest

sources of loans for students attending for-profit schools in

the late 1980s, FITCO was singled out for its abuse of the

Guaranteed Student Loan Program during the hearings that

led to the 1992 revamping of federal student loan policy. See

Senate Report at 21-24, 28.

According to Armstrong, a National Business School representative prepared her loan application, specified the type of

loan, determined the loan amount, prepared the promissory

note, selected FITCO as the lender, presented the loan

agreement to Armstrong to sign, and forwarded the loan

application and promissory note to FITCO. See Am. Compl.

pp 22, 24. Printed on standard forms provided by FITCO's

guaranty agency, the promissory note contained a choice of

law clause that subjected the loan contract to the laws of the

state of the lender, in this case California. Like other

student loan promissory notes issued at the time, the note

contained no Holder Rule notice. Armstrong alleges that the

school and its accrediting agency, the Accrediting Council for

Continuing Education & Training, Inc. ("ACCET"), represented that the school offered a nationally accredited program

in 1988; in fact, she claims, its accreditation had expired a

year earlier. See id. pp 2, 29-34.

Armstrong claims that National Business School failed to

provide the promised training, equipment, and job placement

services, "leaving [her] and other students to repay student

loans for an education that they never received." Id. p 2; see

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also id. p 77. The school closed its doors in 1990 and filed for

bankruptcy. Although the school had charged each student

over $5,000, Armstrong and other former students who filed

claims in the bankruptcy proceedings each recovered only

$900. See Compl. p 26.

Armstrong filed suit in the United States District Court for

the District of Columbia, asserting federal claims based on

the FTC Holder Rule and the Department's schoolorigination policy, as well as pendant state law claims based

on the District of Columbia Consumer Credit Protection Act

("CCPA") and common law contract doctrines. The complaint sought damages, restitution, and declaratory relief

against ACCET and each of the entities that could enforce

the loan, all appellees in this case: Bank of America,

N.T. & S.A. (the current loan holder); California Student

Loan Financing Corporation (a corporation that acquires

student loans on the secondary market and which directed

Bank of America to purchase Armstrong's loan as its trustee);

the Secretary of Education (who assumed the guarantee of

Armstrong's loan after the original guarantor became insolvent); and Educational Credit Management Corporation (a

corporation created by the Department to manage loan guarantees assumed by the Secretary). Dismissing her federal

claims, the district court held that no cause of action arises

under the Department's school-origination policy or the FTC

Rule. See Armstrong v. Accrediting Council for Continuing

Educ. & Training, Inc., 832 F. Supp. 419, 432 (D.D.C. 1993)

("Armstrong I"). Armstrong now concedes this point. The

district court also dismissed Armstrong's state law claims

except her common law fraud and misrepresentation claims

against ACCET. See id. at 425-26, 434.

On appeal, this court found that the district court, having

dismissed the federal claims, failed to "expressly exercise its

discretion to maintain or decline jurisdiction over the pendant

claims under 28 U.S.C. s 1367." Armstrong v. Accrediting

Council for Continuing Educ. & Training, Inc., 84 F.3d 1452

(D.C. Cir. 1996) (unpublished table decision), 1996 WL

250412, at *1. We remanded to the district court for further

proceedings.

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Exercising its discretion, the district court again dismissed

Armstrong's claims as to all defendants except ACCET

(which subsequently settled with Armstrong and is no longer

involved in these proceedings). See Armstrong v. Accrediting Council for Continuing Educ. & Training, Inc., 980

F. Supp. 53 (D.D.C. 1997) ("Armstrong II"). The district

court held that Armstrong had no claim under the District of

Columbia CCPA because the choice of law clause made

California law applicable. It rejected her argument that the

so-called "public policy exception" in choice of law doctrine

required D.C. courts to override the choice of law clause and

to apply the District's more protective consumer protection

statute instead. See id. at 59-60. As to Armstrong's mistake

and illegality claims, the district court found that the school

had not lost its GSLP eligibility until after she enrolled, and

that at any rate federal Higher Education Act policy

preempted state law defenses based on lack of school accreditation. See id. at 61-64.

Appealing again, Armstrong reasserts her state law claims,

arguing: (1) that the Holder Rule notice should be implied

into her loan contract; (2) that the school's loss of accreditation rendered it ineligible to participate in the GSLP program, making her loan unenforceable on grounds of mistake

or illegality; and (3) that the district court should not have

applied the choice of law clause because it conflicts with D.C.

public policy enacted to protect District citizens. With respect to the last claim, Armstrong asks us alternatively to

certify the choice of law question to the District of Columbia

Court of Appeals. Our review is de novo. See Systems

Council EM-3 v. AT&T Corp., 159 F.3d 1376, 1378 (D.C. Cir.

1998).

II

We begin with Armstrong's implied contract claim. Relying on the FTC Holder Rule, she argues that National

Business School had a "referral relationship" or "affiliation"

with FITCO, thus permitting her to treat subsequent lenders

as "standing in the shoes" of the school and to assert the

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school's misconduct as a defense against loan repayment. As

the government acknowledged at oral argument, had Armstrong signed her loan contract after the 1992 amendments to

the Higher Education Act, at which point the Secretary

incorporated the Holder Rule notice into the common promissory note, she might well have a claim. Armstrong's allegation that the school gave her a loan application preprinted

with FITCO's name as the chosen lender would support a

Holder Rule notice claim because the school "recommend[ed]

that the applicants seek loans" from FITCO, and FITCO

either supplied the preprinted forms itself or "kn[e]w that a

loan applicant was referred by [the] school." Overview, FTC

Rule at 2, 3.

Acknowledging that her pre-1992 loan agreement contained

no Holder Rule notice, Armstrong argues that the FTC's

Holder Rule nevertheless required the notice's inclusion and

that the court should therefore enforce it as an implied

contractual term. She relies on the common law principle

that contracts incorporate the law in force at the time of the

agreement. See United Van Lines, Inc. v. United States, 448

F.2d 1190, 1195 (D.C. Cir. 1971) ("Because the regulation was

in existence at the time [the party] entered on performance, it

became, in effect, a part of the contract between the parties."); see also Ballarini v. Schlage Lock Co., 226 P.2d 771,

773-74 (Cal. 1950) ("The settled law of the land at the time a

contract is made becomes a part of it and must be read into

it."). Appellees disagree. They argue that the FTC Holder

Rule did not apply to student loans made in 1988 and that

even if it did, its terms cannot be implied into Armstrong's

agreement.

We think appellees have the better of this argument.

Although the Truth in Lending Act, the source of the Holder

Rule, originally covered GSLP lending, Congress expressly

exempted student loans from the Act in 1982. At that point

the FTC stopped enforcing the Holder Rule with respect to

GSLP loans. Not until after Armstrong obtained her loan

from FITCO did the FTC again begin enforcing the Holder

Rule in GSLP loans, and not until after that did the Secretary

incorporate the notice into the common promissory note. See

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supra at 4, 5. Facing circumstances very much like those

presented in this case, the Seventh Circuit, relying on the

1982 TILA Amendments, expressly held the Holder Rule

inapplicable to guaranteed student loans obtained prior to

renewal of Holder Rule enforcement. See Veal v. First Am.

Sav. Bank, 914 F.2d 909, 914 (7th Cir. 1990).

To be sure, both the FTC and the Secretary have since

suggested that the Holder Rule did in fact apply to guaranteed student loans during the period when Armstrong obtained her loan. See FTC Opinion at 2-3 (rejecting its

previous "literal interpretation" exempting GSLP loans from

the Holder Rule and claiming that Congress did not mean to

exclude such loans from the Rule's coverage when it exempted them from TILA); Overview, FTC Rule at 1 (concluding

that "the FTC Holder Rule notice must be included in the

common application/promissory note."). In our view, however, these later developments are insufficient to overcome the

clear implications of the 1982 TILA Amendments and the

FTC's nonenforcement policy. Moreover, even if there were

some ambiguity as to the Holder Rule's applicability to

student loans during the late 1980s, we would not imply the

terms of the notice into Armstrong's loan for one simple

reason: No one could reasonably argue that in 1988 appellees, the purchasers and assignees of Armstrong's note (which

contained no Holder Rule notice), should have known that the

Holder Rule nevertheless applied to GSLP loans at that time.

Lenders still operated under a federal program that encouraged them to make loans for attendance at virtually any

accredited school, no matter how deficient or disreputable.

While Congress and the Department have since changed the

rules, we think it would be unfair to apply the new rules to

old loans.

Relying on contract-based theories of mistake and illegality, Armstrong next claims that her loan is void and unenforceable because National Business School had lost its accreditation in 1987 and was therefore not an institution

"eligible" for participation in the federal student loan program. See 20 U.S.C. s 1085(a), (c) (1988). The district court

rejected this claim, holding that schools do not lose their

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GSLP eligibility until after a hearing before an administrative

law judge; in this case the hearing did not occur until 1989, a

year after Armstrong received her loan. Armstrong now

argues that the district court mistakenly relied on regulatory

instead of statutory eligibility rules. She points out that

under statutory rules, "the effective date of a loss of eligibility

by reason of the failure of an institution, its location, or its

program to satisfy the applicable definitions continues to be

the date on which the failure first occurred." 55 Fed. Reg.

32,181 (1990) (Secretary's explanation of the effects of failure

to meet statutory requirements). We need not resolve this

dispute to decide this case, for regardless of when National

Business School lost its GSLP eligibility, we agree with the

Secretary that federal student loan policy preempts Armstrong's claims.

Federal preemption can be express or implied. See Cippollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992). Nothing

in the Higher Education Act expressly preempts state law

claims of the kind raised by Armstrong. Implied preemption

occurs either "where the scheme of federal regulation is

sufficiently comprehensive to make reasonable the inference

that Congress 'left no room' for supplementary state regulation" (known as field preemption) or "in those areas where

Congress has not completely displaced state regulation, ...

to the extent [state law] actually conflicts with federal law"

(known as conflict preemption). California Fed. Sav. & Loan

Ass'n v. Guerra, 479 U.S. 272, 281 (1987) (internal quotation

omitted). In Jackson v. Culinary School, we held that federal education policy regarding GSLP lending is not so extensive as to occupy the field. See Jackson v. Culinary Sch., 27

F.3d 573, 580-81 (D.C. Cir. 1994), vacated on other grounds,

515 U.S. 1139, on reconsideration, 59 F.3d 354 (D.C. Cir.

1995). Jackson also recognized that the Higher Education

Act preempts D.C. laws that "actually conflict" with federal

law. Id. at 581 (stating but declining to reach the conflict

preemption issue). Although Jackson was later vacated on

other grounds, we believe that it correctly stated and applied

federal preemption standards.

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"Actual conflict" between Armstrong's contract claims and

Higher Education Act regulations is precisely what has occurred here. If accepted, Armstrong's claim that she may

void her student loan based on the school's alleged GSLP

ineligibility would frustrate specific federal policies regarding

the consequences of losing or falsely certifying accreditation.

For example, it is the Secretary and guaranty agencies--not

students--who enforce statutory and regulatory requirements, including those concerning accreditation and school

misrepresentation. See 20 U.S.C. s 1094(c) (1988); 34 C.F.R.

ss 668.71-.75, 682.700-.710 (1988). Reinforcing this point,

the preamble to the final rule regarding institutional eligibility says this:

[The Department] considers the loss of institutional eligibility to affect directly only the liability of the institution

for Federal subsidies and reinsurance paid on those

loans.... [T]he borrower retains all the rights with

respect to loan repayment that are contained in the

terms of the loan agreements, and [the Department] does

not suggest that these loans, whether held by the institution or the lender, are legally unenforceable merely

because they were made after the effective date of the

loss of institutional eligibility.

58 Fed. Reg. 13,337 (1993). Moreover, the Department expressly permits lenders to rely in good faith on eligibility

representations by students and schools so long as the schools

did not "originate" the loans. See 34 C.F.R. s 682.206(a)(2)

(1988). Allowing mistake and illegality claims based on

GSLP eligibility requirements to void student loan repayment

obligations would "stand[ ] 'as an obstacle to the accomplishment and execution of the full purposes and objectives of

Congress.' " Guerra, 479 U.S. at 281 (quoting Hines v.

Davidowitz, 312 U.S. 52, 67 (1941)).

This brings us finally to Armstrong's claim under the

District of Columbia Consumer Credit Protection Act. She

relies on section 28-3809, which provides:

(a) A lender who makes a direct installment loan for the

purpose of enabling a consumer to purchase goods or

services is subject to all claims and defenses of the

consumer against the seller arising out of the purchase of

the goods or service if such lender acts at the express

request of the seller, and--

(1) the seller participates in the preparation of the

loan instruments....

D.C. Code Ann. s 28-3809 (1981). Characterizing her guaranteed student loan as a "direct installment loan," Armstrong

argues that National Business School's marketing of FITCO

loans through preprinted application forms, along with its

assistance in filling out loan applications, brings her loan

within the CCPA's protection. According to appellees, the

district court properly dismissed Armstrong's CCPA claim on

the ground that the promissory note's choice of law clause

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made California law applicable. See Armstrong II, 980

F. Supp. at 58-60.

We need not determine whether D.C. courts would set

aside the choice of law clause as contrary to D.C. public policy

or whether, alternatively, to certify this question to the D.C.

Court of Appeals, because we again agree with the Secretary

that Armstrong's state law cause of action conflicts with pre1992 federal policy governing guaranteed student loans. As

we have noted, pre-1992 federal student loan policy was

intended to make student loans attractive to private lenders

by protecting them from the financial consequences of student default. Although the Department's school-origination

policy certainly allows students to raise school misconduct

defenses in limited circumstances, the Department expressly

warned that the policy was "not intended to create any other

rights for student borrowers or to suggest that borrowers are

excused from repaying loans" except where there is a schoolorigination relationship. 58 Fed. Reg. 13,337 (1993). Allowing student borrowers to raise CCPA defenses based on

school misconduct against lenders who do no more than

permit schools to "participate[ ] in the preparation of the loan

instruments" at the schools' "request," D.C. Code Ann.

s 28-3809(a), would extend lender liability beyond schoolorigination relationships. In letter rulings discussing circumstances closely mirroring the facts of this case, the Secretary

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assured lenders that they do not risk falling within the scope

of the school-origination policy merely by "market[ing] GSL

lending by sending combined application/promissory note/

disclosure forms ... with the lender's name preprinted thereon, directly to the school," and allowing schools to assist

students in completing loan applications on those forms.

Letter from John E. Dean, Clohan & Dean, to Larry Oxendine, Director, Division of Policy and Program Development,

U.S. Dep't of Educ. (Dec. 14, 1990); Letter from Larry

Oxendine to John E. Dean (Feb. 20, 1991). Permitting

Armstrong to raise CCPA defenses against repayment of her

pre-1992, pre-common promissory note loan would subject

appellees to risks neither anticipated by them nor intended

by the Guaranteed Student Loan Program.

Nothing in United States v. Griffin, 707 F.2d 1477 (D.C.

Cir. 1983), requires a different result. There, we found no

preemption of state law defenses by a different student loan

program under which the federal government insures GSLP

loans made directly by schools. Because under that program

the student borrowed directly from the school, the Department's school-origination policy squarely applied, and the

asserted state law claims did not expand lender risk beyond

that contemplated by federal policy. Moreover, allowing

students to raise school misconduct defenses against the

federal government could have had no impact on the private

lending that Congress considered so critical to the operation

of the pre-1992 Guaranteed Student Loan Program.

III

We acknowledge that denying relief to Armstrong may

seem unfair. Lenders that permitted schools to abuse the

Guaranteed Student Loan Program and that profited enormously prior to the 1992 changes are protected by federal

preemption. Owners of schools that profited from student

loans while failing to provide promised training and resources

are protected by bankruptcy laws. Only the students, the

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very people the Guaranteed Student Loan Program was

intended to benefit, are left holding the bag.

The 1992 changes in the federal student loan program went

a long way toward eliminating this unfairness for students

who borrowed after 1992. The Secretary has even established loan discharge procedures for two categories of pre1992 borrowers: those whose for-profit schools closed while

they were in attendance, and those whose own GSLP eligibility (not the school's eligibility) was falsely certified. See 34

C.F.R. s 682.402(d), (e) (1997). These procedures provide no

relief for students like Armstrong, whose schools falsely

represented their accreditation or engaged in other misconduct. We have no authority to protect such students, but we

think the Secretary does. See 20 U.S.C.A. ss 1082(a), 1087-0

(Supp. 1998).

So ordered.

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Karen LeCraft Henderson, Circuit Judge, concurring:

I concur in the result but neither agree with nor deem

appropriate the concluding two paragraphs of the opinion.

The student loan program may have its flaws but there is no

basis to wring our hands over this one, especially when

defaulting student loan borrowers constitute a significant

national problem in the administration of the program.

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