Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-08-56154/USCOURTS-ca9-08-56154-0/pdf.json

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

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ANN CHAE, Individually and On 

Behalf of All Others Similarly

Situated; WILLIAM COAKLEY,

Individually and On Behalf of All

Others Similarly Situated; HOON

KOO, Individually and On Behalf

of All Others Similarly Situated;

CARLOS A. PINEDA, Individually No. 08-56154

and On Behalf of All Others

D.C. No. Similarly Situated,

Plaintiffs-Appellants,  2:07-cv-02319-

R-RC

v.

OPINION

SLM CORPORATION, DBA Sallie

Mae; SALLIE MAE SERVICING

CORPORATION; SALLIE MAE, INC.,

Defendants-Appellees,

and

UNITED STATES OF AMERICA,

Plaintiff-intervenor-Appellee. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

November 5, 2009—Pasadena, California

Filed January 25, 2010

1371

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Before: Ronald M. Gould and Carlos T. Bea, Circuit Judges,

and William T. Hart,* District Judge.

Opinion by Judge Gould

*The Honorable William T. Hart, Senior District Judge for the Northern

District of Illinois, sitting by designation. 

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COUNSEL

William J. Genego (argued), Nasatir, Hirsch, Podberesky &

Genego, Santa Monica, California; Michael D. Braun, Braun

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Law Group, P.C., Los Angeles, California; Andrew Friedman

and Victoria Nugent, Cohen, Milstein, Sellers & Troll, Washington, D.C., for the plaintiffs-appellants.

S. Dawn Scaniffe, Mark B. Stern and Sydney Foster (argued),

Department of Justice, Washington, D.C., for the plaintiffintervenor-appellee.

Julia B. Strickland (argued), Lisa M. Simonetti, and David W.

Moon, Stroock & Stroock & Lavan LLP, Los Angeles, California, for the defendants-appellees.

OPINION

GOULD, Circuit Judge:

Appellants urge error in the district court’s grant of summary judgment rejecting student borrowers’ claims that challenge loan servicer methods of calculating interest, assessing

late fees and setting the repayment start date on their loans.

We must determine the preemptive scope of the statutes and

regulations governing lenders and third-party loan servicers

under the Federal Family Education Loan Program of the

Higher Education Act. We conclude that the student borrowers’ claims are preempted by this federal law and we affirm

the district court’s grant of summary judgment on that ground.

I

The Higher Education Act (HEA) of 1965, now codified at

20 U.S.C. §§ 1001-1155, was passed “to keep the college

door open to all students of ability, regardless of socioeconomic background.” Rowe v. Educ. Credit Mgmt. Corp., 559

F.3d 1028, 1030 (9th Cir. 2009) (internal quotation marks

omitted). As part of that effort, Congress established the Federal Family Education Loan Program (FFELP), a system of

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loan guarantees meant to encourage lenders to loan money to

students and their parents on favorable terms.1See 20 U.S.C.

§§ 1071-1087-4; Rowe, 559 F.3d at 1030. The Secretary of

the Department of Education (DOE) is authorized to “prescribe such regulations as may be necessary to carry out the

purposes” of the FFELP. 20 U.S.C. § 1082(a)(1). Under that

authority, the DOE has promulgated detailed regulations. See

34 C.F.R. §§ 682.100-682.800. We preliminarily review how

the FFELP operates, and thereafter explain the procedural history of this case.

A

The FFELP regulates a series of transactions related to student loans. The first layer of transactions occurs between

lenders and student or parent borrowers. Eligible banks, credit

unions, schools, government agencies, non-profits, and others

may make loans to students. 34 C.F.R. § 682.101(a). The

lenders must abide by the terms of the FFELP, and the DOE

may terminate the participation of any lender who does not

follow the rules. 34 C.F.R. §§ 682.700-.713. Lenders may

assign their loans to third-party loan servicers, in which case

the loan servicer must also abide by the FFELP regulations.

See 20 U.S.C. § 1082(a)(1); 34 C.F.R. §§ 682.203,

682.700(a).

A second layer of FFELP transactions involves “guaranty

agencies” that guarantee the lenders’ loans. A guaranty

agency is a “State or private nonprofit organization that has

an agreement with the Secretary under which it will administer a loan guarantee program under the Act.” 34 C.F.R.

1The FFELP governs loans made to students by private lenders. It was

formerly named the “Guaranteed Student Loan Program” before being

renamed in 1992. Higher Education Amendments of 1992, Pub. L. No.

102-325, § 411(a)(1), 106 Stat. 448, 510 (1992). The government operates

a parallel program through which it lends money to students directly, called the William D. Ford Federal Direct Loan Program. See 20 U.S.C.

§§ 1087a-1087j. 

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§ 682.200(b); see also 34 C.F.R. § 682.400 (requiring that a

guarantee agency enter into four specific agreements with the

DOE before it may participate in the FFELP). When a borrower defaults on his or her student loan and the lender is

unable to recover the amount despite due diligence, the lender

recoups its loss from the guarantor. 34 C.F.R. § 682.102(e)(7)

(“If a borrower defaults on a loan, the guarantor reimburses

the lender for the amount of its loss. The guarantor then collects the amount owed from the borrower.”).

A third level of FFELP transactions takes place between

the guaranty agencies and the DOE. Guaranty agencies must

enter agreements with the DOE in order to participate in the

FFELP. 20 U.S.C. § 1078(c). After an agreement is entered,

the DOE acts as a secondary insurer on the loans guaranteed

by the agency. 20 U.S.C. §§ 1071(a)(1)(D), 1078(c). When a

lender assigns its guaranty agency a defaulted loan, the guaranty agency must take diligent steps to recover the default

amount, but, having done so, may then recover up to one hundred percent of its losses from the DOE if it is unable to collect the debt. 34 C.F.R. §§ 682.404(a), 682.410(b)(6).

The FFELP governs four types of loans. Three of these are

at issue in this appeal.2 First, Stafford Loans are made to students, 20 U.S.C. §§ 1071(c), 1078, 1078-8, and may be either

subsidized or unsubsidized. For subsidized Stafford Loans,

the government pays interest on the loan during specified

periods, such as when the student borrower is attending

school on at least a part-time basis. 20 U.S.C. § 1078(a)-(b).

For unsubsidized Stafford Loans, the student is responsible

for all accrued interest from the time the loan is disbursed and

the government pays none of it. 20 U.S.C. § 1078-8(e)(3).

The second type of loan here involved is a Consolidation

Loan, which allows the borrower to consolidate multiple loan

2Also regulated by the FFELP, but not at issue on this appeal, are PLUS

Loans made to the parents of college students. See 20 U.S.C. § 1078-2. All

plaintiffs here were student borrowers; none had PLUS Loans. 

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obligations with one lender. See 20 U.S.C. § 1078-3(a). The

third type of loan falls under the Supplemental Loans to Students Program, which applied to periods of student enrollment

beginning before July 1, 1994, and has since been discontinued. 34 C.F.R. § 682.100(a)(2). 

Congress directs the DOE to issue common application

forms and promissory notes to be used by FFELP participants.

20 U.S.C. §§ 1082(m)(1)-(4). These common forms include a

free application form, master promissory note, and common

loan deferment form. Id. The purpose of the common forms

is to standardize the terms and formatting to help applicants

understand their loan obligations. Id. § 1082(m)(1)(B).

B

The plaintiffs in this diversity action—Ann Chae, William

Coakley, Hoon Koo, and Carlos A. Pineda—took out Stafford, Supplemental, and Consolidated Loans from various

lenders between 1993 and 2006. Sallie Mae, Inc. (Sallie Mae)

was the loan servicer for each of the plaintiffs’ loans.3 In its

capacity as a third-party servicer, Sallie Mae performed

administrative and servicing functions related to the loans,

such as issuing billing statements, collecting and processing

payments, assessing and collecting late fees, and giving

notices to borrowers required by FFELP regulations.

The plaintiffs sued Sallie Mae, on behalf of a purported

class of similarly-situated borrowers, complaining about three

practices Sallie Mae uses in servicing student loans. First, the

plaintiffs challenge Sallie Mae’s use of the “daily simple

interest” or “simple daily interest” method of calculating

interest. This calculation method applies a borrower’s pay3Sallie Mae argues that the other defendants—SLM Corporation and

Sallie Mae Servicing Corporation—are not proper parties. In light of our

holding that all the defendants were entitled to summary judgment, we

need not and do not reach this argument. 

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ment on the date the payment is received, not the date the

payment is due, such that interest accrues based on the number of days since the last payment. This means that borrowers

who make payments before the due date pay less overall interest, while borrowers who make payments after the due date

pay more overall interest. The plaintiffs claim that the terms

of the loan agreements prevent Sallie Mae from using the

daily simple method of calculating interest. Instead, the plaintiffs allege that their loan contracts require Sallie Mae to use

the “installment method.” Under the installment method, the

total amount of interest is fixed and does not vary depending

on the date when payment is remitted. The plaintiffs in their

complaint asserted that Sallie Mae’s failure to use the installment method conflicts with the FFELP statutes and regulations, offends the terms of the loan documents and otherwise

violates California law.

Second, the plaintiffs challenge Sallie Mae’s practice of

assessing late fees. When permitted by the borrower’s promissory note, Sallie Mae charges a late fee of up to six percent

of each installment remitted more than fifteen days after it is

due. The plaintiffs allege that California law prohibits Sallie

Mae from charging late fees, at least where Sallie Mae also

charges daily simple interest.

Third, the plaintiffs challenge Sallie Mae’s method of setting the first repayment date on a Consolidation or PLUS

loan. Sallie Mae charges interest on these loans from the day

they are disbursed and sets the borrower’s first repayment

date within sixty days after disbursement. Because Sallie Mae

charges interest during that period of up to sixty days, the

plaintiffs argue that Sallie Mae deceptively increases the cost

and life span of the loan.

All told, the plaintiffs allege and have argued that Sallie

Mae’s loan-servicing practices violate California business,

contract, and consumer-protection law.4 They request actual

4The plaintiffs pleaded five causes of action: (1) engagement in unlawful, unfair or fraudulent business practices as defined by the Unfair Com1380 CHAE v. SLM CORPORATION

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and punitive damages, restitution, and injunctive relief to prevent Sallie Mae from employing the challenged practices in

the future. The United States filed a motion to intervene as a

plaintiff seeking a declaratory judgment that the plaintiffs’

state law claims were preempted by federal law. The district

court granted the United States’ motion. The parties then

moved for summary judgment in whole or in part, and the

plaintiffs also moved to certify the class. 

The district court granted summary judgment in favor of

Sallie Mae. It held that all the plaintiffs’ claims were preempted by the HEA, and alternatively held that each claim

failed on the merits. The district court dismissed the remaining motions as moot and entered judgment in favor of Sallie

Mae. The plaintiffs timely appealed. 

We have jurisdiction under 28 U.S.C. § 1291. We review

the district court’s grant of summary judgment de novo.

Engine Mfrs. Ass’n v. S. Coast Air Quality Mgmt. Dist., 498

F.3d 1031, 1035 (9th Cir. 2007).

II

[1] The Supremacy Clause of the Constitution provides that

federal law “shall be the supreme Law of the Land.” U.S.

Const. art. VI, cl. 2.5“Consistent with that command,” the

United States Supreme Court has recognized that “state laws

petition Law at California Business & Professional Code § 17200; (2)

breach of contract; (3) breach of the implied covenant of good faith and

fair dealing; (4) violation of the Consumer Legal Remedies Act under California Civil Code § 1770(a); and (5) unjust enrichment. 

5Article VI, clause 2, states: “This Constitution, and the Laws of the

United States which shall be made in Pursuance thereof; and all Treaties

made, or which shall be made, under the Authority of the United States,

shall be the supreme Law of the Land; and the Judges in every State shall

be bound thereby, any Thing in the Constitution or Laws of any State to

the Contrary notwithstanding.” 

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that conflict with federal law are ‘without effect.’ ” Altria

Group, Inc. v. Good, 129 S. Ct. 538, 543 (2008) (quoting

Maryland v. Louisiana, 451 U.S. 725, 746 (1981)). We have

succinctly delineated the Supreme Court’s principles, holding:

“Federal preemption occurs when: (1) Congress enacts a statute that explicitly pre-empts state law; (2) state law actually

conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude

that Congress left no room for state regulation in that field.”

Tocher v. City of Santa Ana, 219 F.3d 1040, 1045 (9th Cir.

2000), abrogated on other grounds by City of Columbus v.

Ours Garage & Wrecker Serv., Inc., 536 U.S. 424, 431-34

(2002); see also Crosby v. Nat’l Foreign Trade Council, 530

U.S. 363, 372-73 (2000) (discussing express, conflict, and

field preemption); Cipollone v. Liggett Group, Inc., 505 U.S.

504, 516 (1992) (same). 

[2] Turning now to the issues before us, we have previously

held that field preemption does not apply to the HEA. See

Keams v. Tempe Technical Inst., Inc., 39 F.3d 222, 225-226

(9th Cir. 1994) (“It is apparent . . . that Congress expected

state law to operate in much of the field in which it was legislating.”); accord Armstrong v. Accrediting Council for Continuing Educ. and Training, Inc., 168 F.3d 1362, 1369 (D.C.

Cir. 1999) (affirming prior holding that “federal education

policy regarding [private lending to students] is not so extensive as to occupy the field”). Accordingly, under our precedent field preemption is off the table to resolve this case

involving the HEA and its attendant federal regulations. The

legal standards governing express preemption and conflict

preemption are the standards that control our decision.

III

[3] We focus first on the law of express preemption. The

Supreme Court has made clear that Congress may indicate its

intent to displace state law through express language. Altria

Group, 129 S. Ct. at 543. Where Congress enacts an express

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preemption provision, our task is to interpret the provision

and “identify the domain expressly pre-empted by that language.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 484 (1996)

(internal quotation marks omitted). We use the text of the provision, the surrounding statutory framework, and Congress’s

stated purposes in enacting the statute to determine the proper

scope of an express preemption provision. Id. at 485-86;

Cipollone, 505 U.S. at 516.

[4] Congress has enacted several express preemption provisions applicable to FFELP participants. See, e.g., 20 U.S.C.

§§ 1078(d), 1091a(a)(2)(B), 1091a(b)(1)-(3), 1095a(a),

1098g. These provisions expressly preempt the operation of

state usury laws, statutes of limitations, limitations on recovering the costs of debt collection, infancy defenses to contract

liability, wage garnishment limitations, and disclosure

requirements. This last provision, 20 U.S.C. § 1098g, is entitled, “Exemption from State disclosure requirements.” The

text of the statute reads: “Loans made, insured, or guaranteed

pursuant to a program authorized by Title IV of the Higher

Education Act . . . shall not be subject to any disclosure

requirements of any State law.” Id. The FFELP falls within

Title IV of the HEA, and is thus subject to its express preemption provision.

[5] We conclude that 20 U.S.C. § 1098g applies to, and

thus precludes, several of the plaintiffs’ state law claims. Two

of the plaintiffs’ Unfair Competition Law claims allege that

Sallie Mae employs “unfair” and “fraudulent” business practices by using billing statements and coupon books that trick

borrowers into thinking that interest is being calculated via

the installment method when Sallie Mae really uses a simple

daily calculation. See Cal. Bus. & Prof. Code § 17200. A similar allegation concerns Sallie Mae’s practice of using statements that set the first repayment date. Under California’s

Consumer Legal Remedies Act, the plaintiffs allege that the

billing statements and standardized loan applications “misrepresent[ ] that the Student Loans confer rights, remedies, and

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obligations” which do not exist, thereby constituting an unfair

or deceptive practice. See Cal. Civ. Code § 1770(a). 

At bottom, the plaintiffs’ misrepresentation claims are

improper-disclosure claims. The plaintiffs do not contend that

California law prevents Sallie Mae from employing any of the

three loan-servicing practices at issue. We consider these allegations in substance to be a challenge to the allegedlymisleading method Sallie Mae used to communicate with the

plaintiffs about its practices. In this context, the state-law prohibition on misrepresenting a business practice “is merely the

converse” of a state-law requirement that alternate disclosures

be made. See Cipollone, 505 U.S. at 527. 

[6] The plaintiffs dispute this characterization of their

claims, arguing that they do not seek specific disclosures, but

merely seek to stop Sallie Mae from fraudulently and deceptively misleading borrowers through the written documents.

But preemption cannot be avoided simply by relabeling an

otherwise-preempted claim. Id. (recognizing that a fraudulentmisrepresentation claim was a restated failure-to-warn claim

subject to express preemption). Under the very terms of the

FFELP, a “misleading” disclosure would be improper. See 20

U.S.C. § 1082(m)(1)(B) (requiring common forms to use

“clear, concise, and simple language to facilitate understanding of loan terms and conditions by applicants”); 34 C.F.R.

§ 682.205(a)(1), (b), (c)(1) (requiring lenders to make a series

of disclosures in “simple and understandable terms”). A

properly-disclosed FFELP practice cannot simultaneously be

misleading under state law, for state disclosure law is preempted by the federal statutory and regulatory scheme. We

conclude that the plaintiffs’ claims challenging the language

in Sallie Mae’s billing statements and coupon books are

restyled improper-disclosure claims, and are therefore subject

to express preemption under 20 U.S.C. § 1098g.6

6The plaintiffs argue that our holding will leave them without a means

to remedy Sallie Mae’s alleged misrepresentations. We disagree. The

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The plaintiffs’ remaining claims allege breach of contract,

unjust enrichment, breach of the implied covenant of good

faith and fair dealing, and the use of fraudulent and deceptive

practices apart from the billing statements. These claims are

not impacted by any of the FFELP’s express preemption provisions. We next examine whether principles of conflict preemption apply to bar any of those claims.

IV

[7] Addressing conflict preemption, we again may start

with a principle that has been declared by the United States

Supreme Court: A state law, whether arising from statute or

common law, is preempted if it creates an “obstacle to the

accomplishment and execution of the full purposes and objectives of Congress.” Crosby, 530 U.S. at 373 (quoting Hines v.

Davidowitz, 312 U.S. 52, 67 (1941)). We discern congressional objectives by “examining the federal statute as a whole

and identifying its purpose and intended effects.” Id. Congress

codified several explicit FFELP purposes at 20 U.S.C.

§ 1071(a)(1). The first is “to encourage States and nonprofit

private institutions and organizations to establish adequate

loan insurance programs for students in eligible institutions.”

Id. § 1071(a)(1)(A). Adequate loan insurance programs make

lending to college students a less-risky proposition. Two additional FFELP purposes—“to provide a Federal program of

student loan insurance,” and “to guarantee a portion of each

loan insured”—have the same effect. See id.

§§ 1071(a)(1)(B), (D). By covering student loans with layers

of insurance and guarantees, Congress encourages private

lenders to help fund higher education. The government argues

DOE has the power to institute informal compliance procedures against a

third-party servicer who is the subject of a complaint. 34 C.F.R.

§ 682.703. When stronger medicine is required, the DOE may file suit

against the servicer, impose civil penalties, and terminate the servicer’s

participation in the program. 20 U.S.C. §§ 1082(a)(2), (g)(1), (h)(1). If

Sallie Mae’s disclosures are misleading, the plaintiffs’ remedy is to complain about Sallie Mae to the DOE and to ask the agency to intervene. 

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that to accomplish the goal of encouraging such lending, Congress intended that the core aspects of the FFELP be uniform.

We examine the FFELP to evaluate whether it shows a preference for uniformity, and, if we find such intent demonstrated,

we will determine whether the plaintiffs’ claims conflict with

a policy of uniformity. 

We must be cautious about conflict preemption where a

federal statute is urged to conflict with state law regulations

within the traditional scope of the state’s police powers. When

we deal with an area in which states have traditionally acted,

the Supreme Court has told us to start with the assumption

that a state’s historic police powers will not be superseded

absent a “clear and manifest purpose of Congress.” Wyeth v.

Levine, 129 S. Ct. 1187, 1195 (2009). Contract and consumer

protection laws have traditionally been in state law enforcement hands. See, e.g., Fidelity Fed. Sav. & Loan Ass’n v. de

la Cuesta, 458 U.S. 141, 174 (1982); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 144 (1963); Cliff

v. Payco Gen. Am. Credits, Inc., 363 F.3d 1113, 1125 (11th

Cir. 2004). The Supreme Court has said that a “presumption

against preemption” may apply to preserve state law claims in

the face of preemption claims. See Medtronic, 518 U.S. at 485

(citing Cipollone, 505 U.S. at 518). Accordingly, we would

not lightly decide that the plaintiffs’ contract and consumer

protection claims under California law are preempted by conflict preemption with the HEA. Yet, it is our duty to consider

carefully what Congress was trying to accomplish in the HEA

and whether these state law claims create an “obstacle” to the

congressional purposes. See Crosby, 530 U.S. at 373.

A

[8] In determining Congress’s intent in enacting the

FFELP, “we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole

law.” See Gade v. Nat’l Solid Wastes Mgmt. Ass’n, 505 U.S.

88, 99 (1992) (quoting Pilot Life Ins. Co. v. Dedeaux, 481

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U.S. 41, 51 (1987) (alteration omitted)). After reviewing the

FFELP as a whole, we agree with the DOE that Congress

intended it to operate uniformly. That intent is shown by the

comprehensive framework that Congress set up to govern the

$2 billion per year program. See 20 U.S.C. § 1074. The statutes describe the nuts and bolts of the FFELP, defining the

required terms of each type of loan. See id. §§ 1078, 1078-2,

1078-3. The statutes go so far as to mandate specified repayment terms and specified insurance and guaranty requirements. Id. As one example, the FFELP sets the maximum

interest rate that a lender may charge, depending on the type

of loan and the date when it was taken out. Id. §§ 1077a. Such

precisely-detailed provisions show congressional intent that

FFELP participants be held to clear, uniform standards.

Congress’s direction to the DOE shows that it aimed for

uniformity of FFELP regulations. The DOE has the power to

prescribe regulations necessary “to establish minimum standards” for lenders and servicers. Id. § 1082(a)(1). In a subsection entitled, “Uniform administrative and claims

procedures,” Congress tells the DOE to develop standardized

forms and to require their use within the program. Id.

§ 1082(l)(1). Here is Congress: “The forms and procedures

[that the DOE must prescribe] shall include all aspects of the

loan process as such process involves eligible lenders and

guaranty agencies.” Id. § 1082(l)(2)(A) (emphasis added).

This is a clear command for uniformity. Yet another section,

this one entitled “Common forms and formats,” tells the DOE

to “prescribe common application forms and promissory

notes,” including forms used by FFELP participants for funding applications, payment deferrals, and loan reporting. Id.

§ 1082(m)(1)-(3). In the rules governing the Direct Loan Program, Congress created a policy of inter-program uniformity

by requiring that “loans made to borrowers [under the Direct

Loan Program] shall have the same terms, conditions, and

benefits, and be available in the same amounts, as loans made

to borrowers under [the FFELP].” Id. § 1087e(a)(1). Congress’s instructions to the DOE on how to implement the

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student-loan statutes carry this unmistakable command:

Establish a set of rules that will apply across the board.

Regulatory uniformity can be a helpful tool if Congress’s

objectives in passing the FFELP are to be realized fully. The

House Committee on Education and Labor discussed the need

for binding regulations during the major amendments to the

FFELP in 1992. H.R. Rep. No. 102-447, at 41-42 (1992),

reprinted in 1992 U.S.C.C.A.N. 334, 374-75. The Committee

emphasized the federal nature of the program, and sought

more thorough regulations that would, among other things,

“ensure the stability in the loan program.” Id. at 41. Stability

is necessarily affected by the continued participation of private lenders. One need not have an advanced degree in risk

management and financial practices to believe, as we have

previously suggested, that “exposure to lawsuits under fifty

separate sets of laws and court systems could make lenders

reluctant to make new federally-guaranteed student loans.”

Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260,

1264 (9th Cir. 1996). Thus we have held that the FFELP “requires uniformly administered . . . standards in order to

remain viable.” Id. at 1266. In this sense, were the law to

indulge the plaintiffs’ California state law claims, and thereby

to endorse the possibility of similar claims being asserted

under varying state laws in each of the fifty states, it would

impair and threaten the efficacy of the federal lending effort

for students.

The plaintiffs’ primary reply to the DOE’s uniformity argument is based on the Fourth Circuit’s decision in College

Loan Corp. v. SLM Corp., 396 F.3d 588 (4th Cir. 2005). In

that suit between two lenders, the plaintiff sought to use evidence that the defendant violated the FFELP regulations to

satisfy elements of various state law causes of action. Id. at

589, 597. The district court found the claims preempted insofar as they permitted a private entity to interpret and enforce

the HEA, because only the DOE was permitted to remedy

FFELP violations under the HEA, and permitting the state suit

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would therefore erect an obstacle to uniform FFELP enforcement. Id. at 593, 96-97. The Fourth Circuit reversed, explaining that it was “unable to confirm that the creation of

‘uniformity’ . . . was actually an important goal of the HEA.”

Id. at 597. 

College Loan is not the law of our circuit, and we do not

consider the plaintiffs’ argument based on it to be persuasive

for the reasons we set forth above. Permitting varying state

law challenges across the country, with state law standards

that may differ and impede uniformity, will almost certainly

be harmful to the FFELP. The costs of the program would go

up and either there would be fewer loans made or loans made

for lesser amounts or for higher interest, making it harder for

students to gain the loan funds they need to get the education

they want. 

Moreover, even if within the Fourth Circuit, we would not

apply College Loan because it is distinguishable from our

case. First, College Loan involved a contractual relationship

between lenders, which is not a relationship that the FFELP

is primarily designed to govern. The Fourth Circuit stressed,

“[i]mportantly, neither the district court nor the parties have

explained how [the FFELP’s] purposes would be compromised by a lender . . . pursuing breach of contract or tort

claims against other lenders or servicers.” Id. The situation

differs where student borrowers invoke state law principles

against lenders. To permit that would subject a national-level

lender to the potentially varying laws of fifty states, dissuading lenders from FFELP participation and contravening the

congressional purpose of facilitating student loans. Second,

the plaintiff in College Loan sought to enforce FFELP rules,

not to vary them. See id. at 591-94. The plaintiff’s liability

theory turned on the inter-lender contract that required HEA

compliance. Id. Using an FFELP violation there as an element

of the prima facie breach claim did not undermine the regulations, and posed no threat to accomplishment of congressional

purposes. See id. at 597-98. The situation faced by the Fourth

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Circuit is fundamentally different from that presented here,

where the plaintiffs ask us to hold that Sallie Mae cannot rely

on the FFELP statutes and regulations—at least not in California. The plaintiffs do not seek to buttress the FFELP

framework, but rather to alter it in their home state. The College Loan analysis is inapplicable. 

The plaintiffs also argue that uniformity cannot be a goal

of the FFELP because the regulations set only “minimum

standards” and permit flexibility within those standards. See,

e.g., 20 U.S.C. § 1082(a)(1) (authorizing the DOE to “establish minimum standards with respect to sound management

and accountability of programs under [the FFELP]”). In particular, the plaintiffs point to regulatory flexibility with regard

to the form of the billing statements and the decision about

whether or not to charge late fees. See 34 C.F.R.

§§ 682.202(f) (stating that a lender “may” charge a late fee),

682.205 (prescribing required disclosures but not a specific

billing or disclosure form). 

But the presence of some flexibility in the regulations does

not mean that regulatory uniformity is not vital to the

FFELP’s success. Federal regulators often include calculated

flexibility within their programs without violating congressional intent to have a federal program uniformly control. In

Geier v. American Honda Motor Co., 529 U.S. 861 (2000),

for example, a Department of Transportation regulation “deliberately provided [car manufacturers] with a range of

choices among different passive restraint devices” after determining that doing so would maximize the congressional

objective of road safety. Id. at 875. The flexibility in the regulation did not mean, as the plaintiffs would have us conclude

here, that state law could further restrict the car manufacturers’ choices. Rather, the flexible federal standard alone governed. Id. at 881. 

Fidelity Federal Savings and Loan Ass’n v. de la Cuesta,

458 U.S. 141 (1982), involved a similarly flexible regulation.

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There, the Federal Home Loan Bank Board issued a regulation permitting savings and loan associations to include a due

on sale clause in a mortgage contract “at its option.” Id. at

147. The flexible policy was critical to the financial stability

of the lending institutions, which in turn furthered the congressional purpose of encouraging associations to provide

affordable credit for home purchases. Id. at 168; see also 12

U.S.C. § 1464(a) (“The lending and investment powers conferred by this section are intended to encourage [Federal savings associations] to provide credit for housing safely and

soundly.”). Because the permissive policy was “essential to

the economic soundness of the thrift industry,” only the federal regulation, and not a stricter California-law rule, was permitted to operate. de la Cuesta, 458 U.S. at 170. 

Geier and de la Cuesta suggest that a uniform federal regulatory scheme can nevertheless contain a measure of flexibility within it. In this case, the DOE policy of permitting, but

not requiring, lenders to charge late fees does not automatically mean that state law may operate freely. The same can be

said for the disclosure requirements, which set out the mandatory elements but do not dictate the precise billing form Sallie

Mae must use. The measured flexibility embodied in the DOE

regulations does not contradict the overall purpose of nationwide regulatory uniformity that will be enhanced by a holding

that the federal statute and federal regulations exclusively

govern the uniform application of standards for the FFELP. 

[9] In sum, we agree with the DOE that Congress intended

uniformity within the program. The statutory design, its

detailed provisions for the FFELP’s operation, and its focus

on the relationship between borrowers and lenders persuade

us that Congress intended to subject FFELP participants to

uniform federal law and regulations. See Gade, 505 U.S. at

99.

B

Having determined that Congress intended the FFELP to

operate uniformly, we revisit and elaborate on whether the

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California state law claims would stand as an obstacle to the

FFELP’s uniform operation. The DOE contends that application of California law here to the FFELP is an obstacle. We

describe the agency’s regulations on interest calculation, late

fees, and the repayment start date, and then determine

whether to defer to the DOE’s view that permitting challenge

under California law creates an obstacle to the regulations’

uniform implementation.

The DOE’s position on late fees and the repayment start

date is straightforward. The FFELP regulations permit lenders

to charge a late fee of up to six percent, if permitted by the

borrower’s promissory note, when a borrower “fails to pay all

or a portion of a required installment payment within 15 days

after it is due.” 34 C.F.R. § 682.202(f)(2). The DOE contends

that the plaintiffs’ position—that California law prohibits the

imposition of a late fee when daily simple interest is used—

would create an obstacle to the uniform regulatory system that

permits late fees. The conflict does not vanish, according to

the DOE, merely because the regulation permits, but does not

require, late fees. See de la Cuesta, 458 U.S. at 155 (accepting

a nearly identical argument made by the Federal Home Loan

Bank Board). 

The DOE makes a similar argument about the repayment

start date. The plaintiffs challenge Sallie Mae’s practice of

setting the repayment start date “as close as possible” to sixty

days after disbursement, claiming that this practice allows

Sallie Mae unfairly to collect additional interest. The DOE

responds that Sallie Mae is authorized by statute and regulation to set the first repayment date up to sixty days out. See

20 U.S.C. §§ 1078-2(d)(1), 1078-3(c)(4); 34 C.F.R.

§§ 682.209(a). To the extent that California law may lessen

the sixty-day window, the DOE urges that state law would

create an obstacle to the uniform administration of the

FFELP. 

[10] To our thinking, the DOE position on late fees and the

repayment start date makes sense. If federal law permits late

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fees and gives up to sixty days for repayment, to say that state

law prohibits late fees and requires a prompter repayment

period is in conflict. We therefore agree with the DOE that the

plaintiffs’ claims create a conflict with federal law on these

two issues.

The DOE position on the interest charges is persuasive to

us. The parties dispute whether, and how, the FFELP could

work if participants were permitted to use varying methods of

calculating interest. The plaintiffs claim that nothing bars Sallie Mae from using the installment method to service their

loans, under which the interest amount is fixed at the beginning of the repayment period. The DOE counters that Sallie

Mae is required by the regulatory framework to use the daily

simple interest method. Although there is no regulation that

explicitly requires lenders and third-party servicers to use the

daily simple method, the DOE points to several sources that

make the daily method a practical requirement. In particular,

lenders must calculate the interest that the DOE pays on a

subsidized Stafford Loan based on a balance calculation for

“each day” in a given quarterly period. 34 C.F.R.

§ 682.304(b)-(c). That requirement would not be satisfied

merely through use of the installment method. The record

demonstrates that the DOE uses the daily method of calculation when it loans money to students directly, and also that the

statutorily-prescribed common forms for Consolidation Loans

require the consolidation lender to use the daily simple

method. When viewed as a whole, the DOE argues that the

FFELP scheme works only if all participants use the same

method of calculating interest.

[11] We are persuaded by the DOE’s view that the plaintiffs’ interest-rate claims, if successful, would create an actual

conflict with federal law. First, as noted earlier, Congress has

granted the DOE broad authority to implement the FFELP.

See 20 U.S.C. § 1082(a)-(p). Congress granted the DOE the

power to prescribe regulations, access lender records, audit

participants, impose civil penalties, suspend or terminate

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lenders from the program, and sue regulatory violators. Id. A

grant of “ample authority” to regulate a detailed legislative

scheme, such as the one administered by the DOE here, is evidence that Congress intended the agency to have the authority

to preempt state law. See de la Cuesta, 458 U.S. at 159. 

[12] Second, in explaining how the interest calculation and

transfer components of the FFELP work, the DOE is engaged

in interpreting its own regulations. An agency’s interpretation

of its own regulations is “controlling” unless “plainly erroneous or inconsistent with the regulation.” Auer v. Robbins, 519

U.S. 452, 461 (1997). The Supreme Court has described this

standard as “deferential,” id., and this deference is particularly

appropriate where the subject matter is technical and the relevant background complex. See Geier, 529 U.S. at 883. Under

such circumstances, “[t]he agency is likely to have a thorough

understanding of its own regulation and its objectives and is

uniquely qualified to comprehend the likely impact of state

requirements.” Id. (internal quotation marks omitted). Here,

the government intervened at the trial level to explain the “extensive and comprehensive regulations” governing the multilayered transactions taking place between borrowers,

lenders, private guaranty agencies, and the DOE. These

include the frequent payments of interest by borrowers and

the DOE. The DOE made clear that the imposition of fifty

sets of state law governing the calculation of interest would

threaten its ability to carry out the congressional objectives of

ensuring uniformity and stability within the program.

[13] Finally, the DOE contends that allowing states to

impose varying interest-calculation requirements would compromise related loan programs, operated by the government,

that depend on cross-program uniformity. These interpretations of the likely effect of state law on the FFELP are reasonable and within the DOE’s statutory grant of authority. See

Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158,

173-74 (2007). We therefore defer to them. 

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Our analysis is not altered by the fact that the DOE has not

promulgated a regulation explicitly stating the preemptive

effect of its regulations. “Where, as here, an agency’s course

of action indicates that the interpretation of its own regulation

reflects its considered views . . . we have accepted that interpretation as the agency’s own, even if the agency set those

views forth in a legal brief.” Id. at 171 (citing Auer, 519 U.S.

at 462). Deference can be appropriate even when an agency

position was developed in response to the litigation under

review, provided that the position does not prove to be a “post

hoc rationalization” that “does not reflect the agency’s fair

and considered judgment on the matter in question.” Id. (alteration and emphasis omitted). Here, there is no evidence that

the DOE’s position represents anything other than its considered view of the need for a uniform regulatory framework.

First, intervenor DOE was not named as a defendant in this

lawsuit, so it cannot be accused of creating a post hoc rationalization to avoid liability for itself. Second, the standardized

forms—signed by the plaintiffs—were promulgated by the

DOE long before this litigation arose. Those forms contain the

“simple interest” and “daily simple interest” language that the

DOE now cites in support of its position. Moreover, the DOE

itself uses the method of calculating interest that it claims Sallie Mae is bound by, and cites the detailed information about

interest calculations that it posts to its website and publishes

in a pamphlet available to borrowers. The DOE has consistently implemented its uniform policy, and there is nothing to

signal that deference to its position is unwarranted. “The failure of the Federal Register to address pre-emption explicitly

is thus not determinative.” Geier, 529 U.S. at 884. 

The plaintiffs argue that the DOE’s interpretation merits no

deference, citing to the Supreme Court’s recent opinion in

Wyeth v. Levine, 129 S. Ct. 1187 (2009). We do not agree that

Wyeth commands that we accord no weight to the DOE’s

view. In Wyeth, the Supreme Court evaluated the preamble to

a Food and Drug Administration (FDA) regulation which purported to preempt any contrary state law. Id. at 1200. The

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Court declined to defer to the conclusory statement of preemption embodied in the preamble, instead “perform[ing] its

own conflict determination, relying on the substance of state

and federal law and not on agency proclamations of preemption.” Id. at 1201. The Court’s independent review

revealed that all evidence of congressional intent pointed

away from preemption, and that the FDA had recently,

abruptly, and sweepingly changed its view about the preemptive role of its regulations. Id. at 1201-03.

No such circumstances are present here. Unlike the FDA’s

position in Wyeth, here the DOE’s position about the FFELP’s

purpose of uniformity is in harmony with the evidence of congressional intent. The plaintiffs have cited us to no evidence

of a “dramatic change in position” of the kind that concerned

the Supreme Court in Wyeth. See id. at 1203. Because our

independent review of the state and federal laws implicated

by this dispute leads us to agree with the DOE that the plaintiffs’ suit poses an obstacle to the uniform implementation of

the FFELP sought by Congress, we accord the agency interpretational deference. See id. at 1201 (citing Geier, 529 U.S.

at 883).

V

[14] In conclusion, the plaintiffs’ allegations that Sallie

Mae makes fraudulent misrepresentations in its billing statements and coupon books are expressly preempted by the

HEA, and conflict preemption prohibits the plaintiffs from

bringing their remaining claims because, if successful, they

would create an obstacle to the achievement of congressional

purposes. Having carefully considered the FFELP and the

purposes of Congress in the HEA, we conclude, beyond any

doubt, that subjecting the federal regulatory standards to the

potentially conflicting standards of fifty states on contract and

consumer protection principles would stand as a severe obstacle to the effective promotion of the funding of student loans.

Such an obstacle, which we consider hostile to the purposes

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of Congress in this program, must bow to the overriding principles of conflict preemption and federal law supremacy. 

AFFIRMED.

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