Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-01806/USCOURTS-ca7-14-01806-0/pdf.json

Parties Involved:
Bryana Bible
Appellant
United States Department of Education
Amicus Curiae
United Student Aid Funds, Inc.
Appellee

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 14-1806 

BRYANA BIBLE,

Individually and on Behalf of the 

Proposed Class, 

Plaintiff-Appellant, 

v.

UNITED STUDENT AID FUNDS, INC., 

Defendant-Appellee. 

____________________ 

Appeal from the United States District Court for the 

Southern District of Indiana, Indianapolis Division. 

No. 13-CV-00575-TWP-TAB — Tanya Walton Pratt, Judge. 

____________________ 

ARGUED OCTOBER 2, 2014 — DECIDED AUGUST 18, 2015 

____________________ 

Before FLAUM, MANION, and HAMILTON, Circuit Judges. 

HAMILTON, Circuit Judge. Plaintiff Bryana Bible obtained a 

student loan under the Federal Family Education Loan Program. She defaulted in 2012 but promptly agreed to enter 

into a rehabilitation agreement that required her to make a 

series of reduced monthly payments. She timely made all of 

the payments that were required of her under this agreeCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
2 No. 14-1806 

ment, and she remains current on her loan payments. Although Bible complied with her obligations under the repayment agreement, a guaranty agency assessed over $4,500 

in collection costs against her. 

The terms of Bible’s loan were governed by a form document known as a Federal Stafford Loan Master Promissory 

Note (MPN). This form has been approved by the U.S. Department of Education and is used in connection with many 

student loans across the country. The MPN incorporates the 

Higher Education Act and its associated regulations. In pertinent part, the MPN provides that Bible must pay “reasonable collection fees and costs, plus court costs and attorney 

fees” if she defaults on her loan. As we will see, “reasonable 

collection fees and costs” are defined by regulations issued 

by the Secretary of Education under the authority expressly 

conferred by the Higher Education Act. The MPN provided 

that Bible would owe only those collection costs that are 

permitted by the Higher Education Act and its regulations. 

Bible sued the guaranty agency (defendant United Student Aid Funds, Inc.) alleging breach of contract and a violation of the Racketeer Influenced and Corrupt Organizations 

Act (RICO), 18 U.S.C. § 1961 et seq. Her breach of contract 

theory is that the MPN incorporated federal regulations that 

prohibit the guaranty agency from assessing collection costs 

against her because she timely entered into an alternative 

repayment agreement and complied with that agreement. 

Her RICO claim alleges that the guaranty agency, in association with a debt collector and a loan service provider, committed mail fraud in violation of 18 U.S.C. § 1341 and wire 

fraud in violation of 18 U.S.C. § 1343 when it assessed collection costs of more than $4,500 against her despite its repreCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 3

sentations that her “current collection cost balance” and 

“current other charges” were zero and that these costs 

would be “reduced” once she completed the rehabilitation 

process. 

The district court granted the guaranty agency’s motion 

to dismiss Bible’s first amended class action complaint (we 

call this the “amended complaint”) under Federal Rule of 

Civil Procedure 12(b)(6) for failure to state a claim for relief. 

The district court held that both claims were “preempted” 

by the Higher Education Act. It reasoned that both claims 

depend on alleged violations of the Act and should not be 

permitted because the Act does not provide a private right of 

action. The district court held in the alternative that the 

amended complaint failed to state a claim that is plausible 

on its face. It concluded that the breach of contract claim 

failed because both the MPN and the Higher Education Act 

expressly permit imposing collection costs against borrowers 

who default on their loans. The district court also concluded 

that the RICO claim failed because Bible’s amended complaint “has not shown participation in a scheme to defraud; 

commission of an act with intent to defraud; or the use of 

mails or interstate wires in furtherance of a fraudulent 

scheme.” Bible v. United Student Aid Funds, Inc., No. 1:13-CV00575-TWP-TAB, 2014 WL 1048807, at *10 (S.D. Ind. Mar. 14, 

2014). 

We reverse. Neither of Bible’s claims is preempted by the 

Higher Education Act. Bible’s state law breach of contract 

claim is not preempted because it does not conflict with federal law. The contract at issue simply incorporates applicable 

federal regulations as the standard for compliance. Accordingly, the duty imposed by the state law is precisely congruCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
4 No. 14-1806 

ent with the federal requirements. A state law claim that 

does not seek to vary the requirements of federal law does 

not conflict with federal law. 

We apply the Secretary of the Education’s interpretation 

of the applicable statutes and regulations, which is consistent with Bible’s. (The Secretary accepted our invitation to 

file an amicus brief addressing the question.) The Secretary 

interprets the regulations to provide that a guaranty agency 

may not impose collection costs on a borrower who is in default for the first time but who has timely entered into and 

complied with an alternative repayment agreement. Nor is 

Bible’s RICO claim preempted. RICO is a federal statute and 

thus is not preempted by another federal statute, and we see 

no conflict between RICO and the Higher Education Act. On 

the merits, both the breach of contract and RICO claims satisfy the plausibility standard under Rule 12(b)(6). 

I. Factual and Procedural Background 

We review de novo a district court’s decision to grant a 

motion to dismiss under Rule 12(b)(6). E.g., CEnergyGlenmore Wind Farm No. 1, LLC v. Town of Glenmore, 769 F.3d 

485, 487 (7th Cir. 2014). We accept as true all factual allegations in the amended complaint and draw all permissible 

inferences in Bible’s favor. E.g., Fortres Grand Corp. v. Warner 

Bros. Entertainment Inc., 763 F.3d 696, 700 (7th Cir. 2014). To 

avoid dismissal under Rule 12(b)(6), Bible’s amended complaint “must contain sufficient factual matter, accepted as 

true, to ‘state a claim to relief that is plausible on its face.’” 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), quoting Bell Atlantic 

Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial 

plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the deCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 5

fendant is liable for the misconduct alleged.” Id. “Plausibility” is not a synonym for “probability” in this context, but it 

asks for “more than a sheer possibility that a defendant has 

acted unlawfully.’” Olson v. Champaign County, 784 F.3d 1093, 

1099 (7th Cir. 2015), quoting Iqbal, 556 U.S. at 678. 

In deciding a Rule 12(b)(6) motion, the court may consider documents attached to a complaint, such as contract documents, without converting the motion into one for summary judgment. See Fed. R. Civ. P. 10(c). Bible attached the 

following documents to her amended complaint: (1) the 

promissory note or MPN, (2) an April 12, 2012 letter to Bible 

from General Revenue Corp. (GRC), which we call the “default letter,” (3) an application for loan rehabilitation sent by 

GRC on April 27, 2012, which we call the “rehabilitation 

agreement,” (4) a copy of Bible’s payment history with the 

defendant guaranty agency United Student Aid Funds, Inc., 

and (5) a copy of a contract between USA Funds and Sallie 

Mae Corp.1

 1 Bible also attached to her amended complaint a legal brief filed by 

the Secretary of Education in Educational Credit Mgmt. Corp. v. Barnes, No. 

NA 00-0241-C-B/S (S.D. Ind.); GRC’s interrogatory responses in Bible v. 

General Revenue Corp., No. 12-CV-01236 (D. Minn.), and a June 26, 2008 

newspaper article from The Chronicle of Higher Education concerning a 

contract between USA Funds and Sallie Mae. The brief was included as 

persuasive authority on a legal question. These two exhibits are not evidence, of course. When offered by a party opposing a Rule 12(b)(6) motion, however, and without converting the motion to one for summary 

judgment, such documents may be used to illustrate facts the party 

would be prepared to prove at the appropriate stage of the proceedings. 

A party opposing such a motion is free to elaborate upon the facts in a 

brief. See, e.g., Chavez v. Illinois State Police, 251 F.3d 612, 650 (7th Cir. 

2001) (court reviewing dismissal under Rule 12(b)(6) will consider new 

factual allegations on appeal provided they are consistent with comCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
6 No. 14-1806 

A. The Higher Education Act and Regulatory Background 

Congress enacted the Higher Education Act of 1965 (HEA 

or the Act), now codified as amended at 20 U.S.C. § 1001 et 

seq., “to keep the college door open to all students of ability, 

regardless of socioeconomic background.” Rowe v. Educational Credit Management Corp., 559 F.3d 1028, 1030 (9th Cir. 2009) 

(citation and internal quotation marks omitted); see also 20 

U.S.C. § 1070(a) (identifying purpose of the statute). Among 

other things, the Act created the Federal Family Education 

Loan Program (FFELP), “a system of loan guarantees meant 

to encourage lenders to loan money to students and their 

parents on favorable terms.” Chae v. SLM Corp., 593 F.3d 936, 

938–39 (9th Cir. 2010) (footnote omitted). The Secretary of 

Education administers the FFELP and has issued regulations 

to carry out the program. 

In general, the FFELP regulates three layers of student 

loan transactions: (1) between lenders and borrowers, (2) between borrowers and guaranty agencies, and (3) between 

guaranty agencies and the Department of Education. See 

Chae, 593 F.3d at 939. Under the program, lenders use their 

own funds to make loans to students attending postsecondary institutions. These loans are guaranteed by guar-

 

plaint); American Inter-Fidelity Exchange v. American Re-Insurance Co., 17 

F.3d 1018, 1022 (7th Cir. 1994) (plaintiff may point to facts consistent 

with complaint to show ability to prevail); Early v. Bankers Life & Casualty 

Co., 959 F.2d 75, 79 (7th Cir. 1992) (plaintiff may allege additional facts 

without evidentiary support to oppose motion to dismiss). There is no 

reason she may not also add even non-evidentiary materials (such as 

newspaper articles) to illustrate what she plans to prove, especially in 

light of the post-Iqbal uncertainty about the federal pleading standard of 

“plausibility.” 

Case: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 7

anty agencies and reinsured by the federal government. See 

20 U.S.C. § 1078(a)–(c). Because of the reinsurance commitment, the federal government serves as the ultimate guarantor on each loan. 

This lawsuit deals primarily with the second layer of 

transactions—the relationship between a student borrower 

who has defaulted for the first time and her guaranty agency. When a borrower defaults on a loan and the lender is unable to recover the amount despite due diligence, the lender 

notifies the guaranty agency of the default and the guaranty 

agency purchases the loan from the lender. See Chae, 593 

F.3d at 939. Once the lender has transferred the debt to the 

guaranty agency, that agency may recover its losses from the 

Department of Education. See 20 U.S.C. § 1078(c)(1)(A), (E); 

34 C.F.R. § 682.406(a). The guaranty agency must then take 

numerous steps to collect the defaulted student loan. The 

regulations at issue here relate to this stage of the process. 

To understand these regulations, some background is 

helpful. In the mid-1980s, Congress grew concerned that 

federal taxpayers were effectively footing the bill for the 

costs of collecting defaulted student loans. In 1986 Congress 

amended the HEA to require guaranty agencies to assess collection costs against borrowers to prevent these costs from 

being passed on to federal taxpayers. See Black v. Educational 

Credit Mgmt. Corp., 459 F.3d 796, 799 (7th Cir. 2006). The relevant statutory provision provides simply that “a borrower 

who has defaulted on a loan ... shall be required to pay ... 

reasonable collection costs.” 20 U.S.C. § 1091a(b)(1). Congress chose not to define the meaning of “reasonable collection costs” in the statute and instead “left it up to the Secretary [of Education] to interpret that term through regulaCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
8 No. 14-1806 

tions.” Black, 459 F.3d at 799; 20 U.S.C. § 1082(a)(1) (delegating authority to the Secretary of Education to “prescribe 

such regulations as may be necessary to carry out the purposes” of FFELP). 

The regulations define “reasonable collection costs.” Two 

regulations are central to this lawsuit.2 We describe these 

regulations in detail below, and we ultimately agree with the 

interpretation of the Secretary of Education, which is consistent with Bible’s. In short, 34 C.F.R. § 682.405 provides that 

guaranty agencies must create loan rehabilitation programs 

for all borrowers who have enforceable promissory notes, 

and 34 C.F.R. § 682.410 establishes fiscal, administrative, and 

enforcement requirements that a guaranty agency must satisfy to participate in the FFELP. One requirement is that a 

guaranty agency must give a borrower who has defaulted 

notice and the opportunity to enter into a repayment agreement before it assesses collection costs or reports the default 

to a consumer reporting agency. 34 C.F.R. 

§ 682.410(b)(5)(ii)(D). The guaranty agency is not permitted 

to charge collection costs to the borrower if (1) this is the first 

time the borrower has defaulted, (2) she enters into a repayment agreement within 60 days of receiving notice that the 

guaranty agency has paid the default claim, and (3) she 

 2 The FFELP regulations have been revised several times since 2006, 

when Bible signed the MPN. Her MPN provides that any amendment to 

the HEA and its associated regulations “governs the terms of any loans 

disbursed on or after the effective date of such amendment, and such 

amended terms are hereby incorporated into this MPN.” App. 122. The 

amended complaint does not specify when disbursements to Bible took 

place. In the absence of any dispute, and because Bible defaulted in 2012, 

we apply the regulations that were in effect between July 1, 2010 and 

June 30, 2014. 

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No. 14-1806 9

complies with that agreement. Imposing collection costs on a 

borrower under these circumstances would be “unreasonable” within the meaning of 20 U.S.C. § 1091a(b)(1). 

B. Bible’s Loan, Default, and Decision to Enter into the Rehabilitation Agreement 

In June 2006, Bible obtained a student loan. The written 

agreement governing her loan is the Federal Stafford Loan 

Master Promissory Note (MPN), which identifies Citibank as 

the “Lender” and defendant United Student Aid Funds 

(USA Funds) as the “Guarantor, Program, or Lender.” The 

MPN expressly incorporates the Higher Education Act and 

its associated regulations into the terms of the contract: 

“Loans disbursed under this MPN are subject to the annual 

and aggregate loan limits specified in the Higher Education 

Act of 1965, as amended, 20 U.S.C. [§] 1070, et seq., and applicable U.S. Department of Education regulations (collectively referred to as the ‘Act’).” 

The contract term covering “late charges and collection 

costs” states: 

The lender may collect from me: (i) a late 

charge for each late installment payment if I 

fail to make any part of a required installment 

payment within 15 days after it becomes due, 

and (ii) any other charges and fees that are permitted by the Act for the collection of my loans. If I 

default on any loans, I will pay reasonable collection fees and costs, plus court costs and attorney fees. 

(Emphasis added.) The “governing law and notices” term 

provides: “The terms of this MPN will be interpreted in acCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
10 No. 14-1806 

cordance with the applicable federal statutes and regulations, and the guarantor’s policies. Applicable state law, except as preempted by federal law, may provide for certain 

borrower rights, remedies, and defenses in addition to those 

stated in this MPN.” 

In 2012, Citibank determined that Bible was in default 

and transferred the debt to USA Funds, which paid Citibank’s default claim. To comply with its obligations under 

the HEA and its associated regulations, USA Funds, through 

its agent General Revenue Corp. (GRC), mailed Bible a form 

letter dated April 12, 2012 saying that her loan was in default 

and identifying several options for resolving her debt, including the opportunity for loan rehabilitation. This default 

letter included a table with the following information: 

Current 

Principal

Current 

Interest

Current 

Collection 

Cost Balance

Current 

Other 

Charges

Current 

Interest 

Rate

Citibank, 

N.A. 

6556.64 32.94 0.00 0.00 6.800% 

Citibank, 

N.A. 

6934.09 34.83 0.00 0.00 6.800% 

Citibank, 

N.A. 

2186.35 11.07 0.00 0.00 6.800% 

Citibank, 

N.A. 

2295.07 11.61 0.00 0.00 6.800% 

Case: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 11

The letter noted that Bible’s current total amount due was 

$18,062.60. 

Between April 12 and April 25, Bible and her attorney 

spoke to GRC on the phone three times to negotiate a loan 

rehabilitation agreement. Bible and GRC agreed on a rehabilitation plan requiring monthly payments of $50. On April 

27, GRC faxed Bible a form rehabilitation agreement. Bible 

promptly signed the agreement and returned it by fax on 

April 30, 2012. 

The rehabilitation agreement included another table, 

identical to the one displayed in the default letter except for 

the current interest column: 

Current 

Principal

Current 

Interest

Current 

Collection 

Cost Balance

Current 

Other 

Charges

Current 

Interest Rate

Citibank, 

N.A. 

6556.64 51.24 0.00 0.00 6.800% 

Citibank, 

N.A. 

6934.09 54.18 0.00 0.00 6.800% 

Citibank, 

N.A. 

2186.35 17.22 0.00 0.00 6.800% 

Citibank, 

N.A. 

2295.07 18.06 0.00 0.00 6.800% 

The agreement also said that Bible’s current total amount 

due was $18,112.85. Accumulating interest accounted for the 

$50.25 increase in Bible’s total balance. The figures for her 

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12 No. 14-1806 

“current collection cost balance” and “current other charges” 

remained at all times $0. 

Five paragraphs above the signature line, toward the end 

of the rehabilitation agreement, the following language appears: 

Once rehabilitation is complete, collection costs 

that have been added will be reduced to 18.5% 

of the unpaid principal and accrued interest 

outstanding at the time of Loan Rehabilitation. 

Collection costs may be capitalized at the time 

of the Loan Rehabilitation by your new lender, 

along with outstanding accrued interest, to 

form one new principal amount. 

The paragraph immediately above the signature line states: 

“By signing below, I understand and agree that the lender 

may capitalize collection costs of 18.5% of the outstanding 

principal and accrued interest upon rehabilitation of my 

loan(s).” 

After signing the rehabilitation agreement, Bible made 

nine on-time payments of $50. Although she fully complied 

with her obligations under this agreement, USA Funds assessed collection costs against her in the amount of $4,547.44. 

It applied her monthly payments toward the collection costs 

rather than the principal. When Bible filed this lawsuit, she 

had not completed the rehabilitation process. (Her loan had 

not yet been sold to an eligible lender.) She remains current 

on her loan under the terms of the rehabilitation agreement. 

C. Procedural History 

Bible filed a complaint individually and on behalf of a 

proposed class of other borrowers who had entered into loan 

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No. 14-1806 13

agreements under the HEA but defaulted, later entered into 

similar rehabilitation agreements, and were assessed collection costs. She moved to certify the class and then filed an 

amended complaint alleging breach of contract under Indiana law and a violation of RICO, 18 U.S.C. § 1962(c). USA 

Funds moved to dismiss. The district court granted the motion to dismiss and entered a final judgment dismissing both 

claims with prejudice. It also denied as moot Bible’s motion 

for class certification. Bible appeals the district court’s decision regarding both claims. After oral argument, we invited 

the Secretary of Education to file an amicus brief addressing 

his interpretation of the relevant statutory framework and 

federal regulations. He did so, and the parties have responded to those views. 

II. Analysis 

We conclude that (A) Bible has stated a viable breach of 

contract claim under Indiana law; (B) federal law does not 

preclude Bible from pursuing this state-law claim; and (C) 

Bible has stated a viable RICO claim under federal law, 

though it remains to be seen whether she can support that 

claim with evidence of fraudulent intent. 

A. Breach of Contract Claim 

“Under Indiana law, the elements of a breach of contract 

action are the existence of a contract, the defendant’s breach 

thereof, and damages.” U.S. Valves, Inc. v. Dray, 190 F.3d 811, 

814 (7th Cir. 1999), citing Fowler v. Campbell, 612 N.E.2d 596, 

600 (Ind. App. 1993). The parties agree that the MPN is a valid contract and that it governs the terms of Bible’s loan, including the consequences of her default. They disagree, 

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14 No. 14-1806 

however, about whether the amended complaint has adequately pled a breach of the MPN and resulting damages.3

1. Breach 

a. Incorporation by Reference

Bible alleges that USA Funds breached the MPN by assessing collection costs even though she timely entered into 

a repayment agreement and complied with her obligations 

under that agreement. She argues that the MPN incorporated federal regulations that prohibit guaranty agencies 

from imposing collection costs against first-time defaulters 

who promptly agree to repay their loans within 60 days of 

receiving notice from the guaranty agency that it has paid 

the lender’s default claim and who have complied with that 

agreement. She relies on 34 C.F.R. §§ 682.405 and 682.410 and 

language in the MPN to the effect that the guaranty agency 

can collect from the borrower only “charges and fees that are 

permitted by the Act.” 

We agree with Bible that the MPN incorporated the HEA 

and its associated regulations. “Other writings, or matters 

contained therein, which are referred to in a written contract 

may be regarded as incorporated by the reference as a part 

of the contract and, therefore, may properly be considered in 

the construction of the contract.” I.C.C. Protective Coatings, 

Inc. v. A.E. Staley Mfg. Co., 695 N.E.2d 1030, 1036 (Ind. App. 

1998); see also, e.g., Jones v. City of Logansport, 436 N.E.2d 

1138, 1148 (Ind. App. 1982) (contract incorporated federal 

 3 USA Funds argues that the rehabilitation agreement is not a valid 

contract because it was not supported by consideration. We do not reach 

this issue because Bible’s breach of contract claim alleges a breach of the 

MPN, not the rehabilitation agreement. 

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No. 14-1806 15

occupational safety and health regulations). The page of the 

contract that sets out the terms of the loan refers to the HEA 

and its regulations no fewer than 16 times, though once 

would be enough. In addition to the more general governing 

law provision, which provides that the terms of the contract 

“will be interpreted in accordance with the applicable federal statutes and regulations,” the specific term covering “late 

charges and collection costs” states that “[t]he lender may 

collect from me ... any other charges and fees that are permitted by the Act.” And the contract defines “the Act” as the 

HEA “and applicable U.S. Department of Education regulations.” 

USA Funds relies on a sentence in the MPN granting it 

the right to impose “reasonable collection fees and costs, 

plus court costs and attorney fees.” USA Funds reads this 

language in isolation to mean that it can impose collection 

costs at any time after the borrower has defaulted. This interpretation fails to give weight to the preceding sentence, 

which limits the lender’s power to impose only those charges and fees “that are permitted by the Act.” Basic principles 

of contract law require a court to consider a contract’s provisions together and in a way that harmonizes them. E.g., Hinc 

v. Lime–O–Sol Co., 382 F.3d 716, 720 (7th Cir. 2004) (Indiana 

law). If USA Funds charged Bible collection costs in violation 

of the HEA and its regulations, then it breached the contract. 

b. Requirements for Imposing Collection Costs

Bible has plausibly alleged a breach of the MPN by alleging that USA Funds assessed collection costs that were not 

authorized by the Higher Education Act and its regulations. 

This conclusion is supported by two independent grounds. 

The author of this opinion agrees with the Secretary of EduCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
16 No. 14-1806 

cation and Bible that under the best interpretation of the 

statutes and regulations, the collection costs assessed here 

were prohibited. Cf. Perez v. Mortgage Bankers Ass’n, 575 U.S. 

—, 135 S. Ct. 1199, 1208 n.4 (2015) (“Even in cases where an 

agency’s interpretation receives Auer deference, however, it 

is the court that ultimately decides whether a given regulation means what the agency says.”). 

Second, this author and Judge Flaum agree that even if 

this were not the best interpretation of the statutes and accompanying regulations, it is at least a reasonable one, and 

we defer to that interpretation because it reflects the reasoned position of the Secretary of Education, who is tasked 

with administering the program. See Chevron, U.S.A., Inc. v. 

Natural Resources Defense Council, Inc., 467 U.S. 837, 843 

(1984); Auer v. Robbins, 519 U.S. 452, 461 (1997). 

i. The Statutory and Regulatory Requirements

Beginning with interpretation without deference to the 

agency, Bible acknowledges that guaranty agencies are required to impose collection costs on borrowers who have defaulted in certain circumstances. Both the HEA itself and the 

implementing regulations make this clear. See 20 U.S.C. 

§ 1091a(b)(1) (“[A] borrower who has defaulted on a loan ... 

shall be required to pay ... reasonable collection costs.”); id. 

§ 1078-6(a)(1)(D)(i)(II)(aa) (upon successful rehabilitation, a 

guaranty agency may, in order to defray collection costs, 

“charge to the borrower an amount not to exceed 18.5 percent of the outstanding principal and interest at the time of 

the loan sale”); 34 C.F.R. § 682.410(b)(2) (“[T]he guaranty 

agency shall charge a borrower an amount equal to reasonaCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 17

ble costs incurred by the agency in collecting a loan.”).4 Bible 

argues, however, that the regulations prohibit USA Funds 

from imposing collection costs in her circumstances: a firsttime defaulter who she promptly agreed to enter into a rehabilitation agreement within 60 days of receiving notice 

that USA Funds had paid her lender’s default claim, and 

who has complied with that agreement. She contends that 

imposing collection costs in these circumstances is “unreasonable” under 20 U.S.C. § 1091a(b)(1). 

Two key regulations define the phrase “reasonable collection costs” in § 1091a(b)(1). The first regulation, 34 C.F.R. 

§ 682.405, requires guaranty agencies to create loan rehabilitation programs for all borrowers that have enforceable 

promissory notes. These programs are designed to give eligible borrowers an opportunity to rehabilitate defaulted 

loans so that, upon successful rehabilitation, the loans may 

be purchased by eligible lenders and removed from default 

status. 34 C.F.R. § 682.405(a).5

A loan is considered rehabilitated only after two requirements are met: (1) the borrower has timely made nine 

out of ten payments required under a monthly repayment 

agreement, and (2) the loan has been sold to an eligible lender. 34 C.F.R. § 682.405(a)(2)(i)–(ii). Subsection (b) of this regulation then establishes specific requirements for terms that 

 4 Again, this opinion cites and quotes the versions of the statutes and 

regulations applicable to Bible’s loan. For example, the 18.5% cap on collection costs has since been reduced to 16%. 

5 Some loans, such as loans for which a judgment has already been 

obtained, are exempted from this provision. See 34 C.F.R. § 682.405(a)(1). 

None of these exemptions is relevant here. 

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18 No. 14-1806 

must be included in the rehabilitation agreement. For example, the guaranty agency must provide the borrower with a 

written statement confirming the borrower’s “reasonable 

and affordable payment amount” and “inform[ing] the borrower of the amount of the collection costs to be added to the 

unpaid principal at the time of the sale.” 34 C.F.R. 

§ 682.405(b)(1)(vi). 

The second regulation, 34 C.F.R. § 682.410, is even more 

specific. It establishes fiscal, administrative, and enforcement 

requirements that a guaranty agency must satisfy to participate in the FFELP. Paragraph (b)(2) addresses collection 

costs: 

Collection charges. Whether or not provided 

for in the borrower’s promissory note and subject to any limitation on the amount of those 

costs in that note, the guaranty agency shall 

charge a borrower an amount equal to reasonable costs incurred by the agency in collecting 

a loan on which the agency has paid a default 

or bankruptcy claim. These costs may include, 

but are not limited to, all attorney’s fees, collection agency charges, and court costs. [Subject 

to certain exceptions not relevant here], the 

amount charged a borrower must equal the 

lesser of— 

(i) The amount the same borrower 

would be charged for the cost of collection under the formula in 34 C.F.R. [§] 

30.60; or 

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No. 14-1806 19

(ii) The amount the same borrower 

would be charged for the cost of collection if the loan was held by the U.S. Department of Education. 

34 C.F.R. § 682.410(b)(2). This paragraph makes clear that 

guaranty agencies must charge a borrower reasonable collection costs, and it establishes a cap on the maximum amount

that can be charged by the guaranty agency. Paragraph 

(b)(2), however, does not specify the circumstances under 

which these costs may be assessed. That issue is addressed 

by other portions of § 682.410, which create procedural safeguards for student borrowers. 

First, some context. Guaranty agencies have two primary 

ways of pushing student-borrowers to repay their defaulted 

loans: (1) reporting the delinquent account to a consumer 

reporting agency (which lowers the borrower’s credit rating) 

and (2) assessing collection costs against the borrower. Because the Department of Education was concerned about recent graduates facing these adverse consequences without 

first being given an opportunity to cure their defaults, it created protections in § 682.410(b)(5)(ii). It provides that guaranty agencies must take certain actions before either reporting the default or assessing collection costs: 

The guaranty agency, after it pays a default 

claim on a loan but before it reports the default to 

a consumer reporting agency or assesses collection 

costs against a borrower, shall, within the 

timeframe specified in paragraph (b)(6)(ii) of 

this section, provide the borrower with— 

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20 No. 14-1806 

(A) Written notice that meets the requirements of paragraph (b)(5)(vi) of 

this section regarding the proposed actions; 

(B) An opportunity to inspect and copy 

agency records pertaining to the loan 

obligation; 

(C) An opportunity for an administrative review of the legal enforceability or 

past-due status of the loan obligation; 

and 

(D) An opportunity to enter into a repayment agreement on terms satisfactory to the agency. 

34 C.F.R. § 682.410(b)(5)(ii) (emphasis added). 

This provision does not specify a particular timeframe for 

these actions, but it includes two cross-references that do. 

First, subparagraph (b)(6)(ii) requires the guaranty agency to 

send the written notice mentioned in (b)(5)(ii) within 45 days 

of the date it pays the lender’s default claim. Second, subparagraph (b)(5)(iv)(B) requires the agency to give the borrower at least 60 days from the date of the initial notice to 

request administrative review of the loan. 

Subparagraph (b)(5)(ii) effectively creates a safe harbor 

for borrowers who find themselves in default for the first 

time. When a borrower is first notified that a guaranty agency has paid a default claim on her loan, she has a 60-day 

window to request administrative review of the debt or to 

enter into a repayment agreement with the agency. If she 

does not take either action, the guaranty agency can then 

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No. 14-1806 21

take collection actions against her, report her default to a 

consumer reporting agency, and assess collection costs 

against her in the amount specified by § 682.410(b)(2). 

To be sure, subparagraph (b)(5)(iv)(B) mentions the opportunity to request administrative review of the loan obligation, not the opportunity to enter into a repayment agreement with the agency. But that is not a problem for Bible. 

Her point is that subparagraph (b)(5)(ii) requires the guaranty agency to provide the borrower with all four things before 

reporting the debt to a consumer reporting agency or assessing collection costs, and one of those things (administrative review) triggers a waiting period of at least 60 days. The 

regulations do not force the borrower to choose between requesting administrative review and entering into a repayment program. The borrower has a right to request administrative review and then to decide whether to enter into a repayment agreement. Accordingly, the borrower has at least 

60 days to enter into an alternative repayment agreement. 

That Bible did not request administrative review of her loan 

obligation in this case is beside the point; she had at least 60 

days to do so, and before that time ran out, she entered into 

the rehabilitation agreement. 

This understanding is confirmed by § 682.410(b)(6)(ii), 

which requires the guaranty agency to inform the borrower 

“that if he or she does not make repayment arrangements 

acceptable to the agency, the agency will promptly initiate 

procedures to collect the debt,” such as garnishing her wages, filing a civil suit, or taking her income tax refunds. 34 

C.F.R. § 682.410(b)(6)(ii). What would be the point of warning the borrower that declining to make repayment arrangements would trigger costly debt collection activities if 

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the guaranty agency could initiate these procedures and assess those costs regardless of whether she agrees to repay? 

That the regulations create this sort of safe harbor is not 

surprising. Under USA Funds’ interpretation of the regulations, a guaranty agency could assess collection costs against 

a borrower even though it was never forced to “initiate procedures to collect the debt.” This would allow the guaranty 

agency to charge for costly actions that it might never need 

to take, such as wage garnishment or filing a civil suit. This 

case illustrates the point. USA Funds assessed over $4,500 in 

collection costs even though it merely sent one letter, sent 

and received one fax, spoke to Bible and her attorney on the 

phone several times, and cashed Bible’s monthly checks. 

The safe harbor of subparagraph (b)(5)(ii) also creates an 

incentive for first-time defaulters to rehabilitate their loans 

by voluntary repayment. If first-time defaulters knew that 

they would face collection costs regardless of whether they 

agree to repay, they would have less incentive to enter into 

the repayment program voluntarily. These regulations are 

designed to reward cooperation. 

This concept of providing a borrower with notice and an 

opportunity to resolve the default before being subject to 

adverse consequences, such as credit reporting or collection 

costs, is not new. When the Department first incorporated 

this concept into the FFELP regulations in 1992, it was actually borrowing from a requirement that had been imposed 

on guaranty agencies back in 1986 under the federal tax refund offset program. Under that program, guaranty agencies 

were required to provide borrowers with notice of the proposed offset and an opportunity to avoid that offset by entering into a satisfactory repayment agreement. See Letter from 

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No. 14-1806 23

Lynn B. Mahaffie, Dep’t of Education, Dear Colleague Letter 

Gen-15-14, at 2–3 (July 10, 2015). The disputed regulations 

here are based on that same model: the defaulted borrower 

must be given an opportunity to avoid the adverse consequences by promptly agreeing to repay the debt voluntarily. 

The intent to create this safe harbor is further shown by a 

related statutory provision dealing with credit reporting. 

Under the HEA, Congress expressly provided that before 

reporting the default to a consumer reporting agency, the 

guaranty agency must provide the borrower with notice that 

the loan will be reported as in default “unless the borrower 

enters into repayment.” 20 U.S.C. § 1080a(c)(4) (emphasis 

added). “[I]f the borrower has not entered into repayment 

within a reasonable period of time,” then the guaranty agency must report the default. Id. The clear implication of 

§ 1080a(c)(4) is that if the borrower timely enters into repayment, then the guaranty agency may not report the loan 

as in default. 

The Secretary of Education issued the disputed regulation here, 34 C.F.R. § 682.410(b)(5), to implement this statutory requirement found in § 1080a(c)(4). See Letter from Lynn 

B. Mahaffie, Dep’t of Education, Dear Colleague Letter Gen15-14, at 2 (July 10, 2015), citing 57 Fed. Reg. 60280, 60355–56 

(Dec. 18, 1992). Subparagraph (b)(5)(ii) discusses credit reporting and the assessment of collection costs in the exact 

same way: “but before it reports the default to a consumer 

reporting agency or assesses collection costs against a borrower ... .” USA Funds has given us no persuasive reason to 

treat one of the stated adverse consequences of default (a 

bad credit report) differently from the other (collection 

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costs). Yet that is precisely what its interpretation of the statutory framework and related regulations would do. 

This conclusion is based on the text of the applicable 

statutory provisions, regulations, and the MPN itself. USA 

Funds does not squarely address the textual basis of Bible’s 

claim but responds with three arguments. First, it argues 

that § 682.410(b)(2) allows it to impose collection costs, and 

the regulations do not explicitly prohibit the imposition of 

collection costs against a borrower who has defaulted but 

promptly entered into a repayment agreement. This argument is not persuasive. Paragraph (b)(2) merely establishes 

the background rule that the guaranty agency must assess 

“reasonable collection costs” against the borrower and establishes the cap on the maximum amount of costs that can be 

charged. It does not say anything about the circumstances 

under which these costs can be imposed. As explained, other 

parts of the regulation such as subparagraph (b)(5)(ii) impose more specific requirements about the circumstances in 

which collection costs may be assessed. 

Second, USA Funds contends that Bible’s interpretation 

of § 682.410(b)(5)(ii)(D) ignores the fact that the repayment 

agreement must be “on terms satisfactory to the agency.” It 

appears to argue that under this language the guaranty 

agency retains the discretion to assess collection costs whenever it wants. But this interpretation is inconsistent with the 

introductory paragraph of the regulation, which makes clear 

that the agency must provide the borrower an opportunity 

to enter into a repayment agreement before collection costs 

are assessed. Guaranty agencies do not have unfettered disCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 25

cretion to impose whatever collection costs they want, 

whenever they want, as the argument suggests.6

Contrary to USA Funds’ arguments, Bible’s interpretation 

still gives meaning to the phrase “on terms satisfactory to the 

agency.” Under her theory, USA Funds retained the discretion to set the terms of the repayment agreement. After all, it 

transmitted the form document to Bible that became the rehabilitation agreement. It could have insisted on higher 

monthly payments, for example. USA Funds had the power 

to set the initial terms of its offer and to reject any proposed 

counteroffer. It did not have the power, though, to impose 

collection costs in contravention of § 682.410(b)(5)(ii). 

Third, USA Funds points to another provision in the 

MPN: “If I default, the guarantor may purchase my loans 

and capitalize all then-outstanding interest into a new principal balance, and collection fees will become immediately 

due and payable.” This provision, however, does not displace the guaranty agency’s obligations under 34 C.F.R. 

§ 682.410. The collection fees become “immediately due and 

payable” only after the guaranty agency has first provided 

the borrower with (1) written notice that meets the require-

 6 A “rehabilitation” agreement is one type of authorized “repayment 

agreement.” See 34 C.F.R. § 682.405(a)(2) (a loan is “rehabilitated” after 

the borrower has voluntarily “made and the guaranty agency has received nine of the ten payments required under a monthly repayment 

agreement”) (emphasis added); see also 20 U.S.C. § 1078-6(a)(4) (provision 

authorizing loan rehabilitation refers to borrower making “scheduled 

repayments”); accord, Letter from Lynn B. Mahaffie, Dep’t of Education, 

Dear Colleague Letter Gen-15-14, at 5 (July 10, 2015) (“Thus, a rehabilitation agreement is simply a specific form of a satisfactory repayment 

agreement.”). 

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26 No. 14-1806 

ments spelled out in subparagraph (b)(5)(vi), (2) an opportunity to inspect and copy agency records pertaining to the 

loan obligation, (3) an opportunity for administrative review 

of the enforceability or past-due status of the loan obligation, 

and (4) an opportunity to enter into a repayment agreement. 

See 34 C.F.R. § 682.410(b)(5)(ii)(A)–(D). Interpreting the provision as USA Funds suggests would contradict 

§ 682.410(b)(5)(ii). Recall, moreover, that USA Funds had 

told Bible that she owed zero collection costs when she first 

defaulted. It was not until after she signed the rehabilitation 

agreement that she finally learned about the costs. 

ii. Deference to the Secretary of Education’s Interpretation 

Even if the preceding analysis does not provide the best 

interpretation of the statutory framework and accompanying 

regulations, the author and Judge Flaum agree the same result would still be correct based on the deference we owe to 

the Secretary of Education, who is tasked with administering 

the FFELP and issuing the implementing regulations. 

Because the HEA does not define “reasonable collection 

costs,” Congress “explicitly left a gap for the agency to fill,” 

Chevron, U.S.A., Inc. v. Natural Resource Defense Council, Inc., 

467 U.S. 837, 843 (1984), and delegated to the Secretary of 

Education authority to “prescribe such regulations as may 

be necessary to carry out the [Act’s] purposes.” 20 U.S.C. 

§ 1082(a)(1). The Secretary exercised that expressly delegated 

authority by issuing 34 C.F.R. § 682.410, “which establishes 

the basic rules for the assessment of collection costs against 

borrowers who have defaulted on their student loans.” See 

Black v. Educational Credit Mgmt. Corp., 459 F.3d 796, 800 (7th 

Cir. 2006). The Secretary’s reasonable interpretation of the 

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No. 14-1806 27

Act is entitled to substantial deference. See Chevron, 467 U.S. 

at 843–44. And the agency’s interpretation of its own regulations is “controlling” unless it is (1) plainly erroneous or inconsistent with the regulation, (2) does not reflect the agency’s fair and considered judgment on the matter in question, 

or (3) represents a post hoc rationalization advanced by the 

agency seeking to defend past agency action against attack. 

Christopher v. SmithKline Beecham Corp., 567 U.S. —, 132 S. Ct. 

2156, 2166 (2012), citing Auer v. Robbins, 519 U.S. 452, 461–62 

(1997) (some citations omitted). 

The Secretary’s interpretation of “reasonable collection 

costs” in 20 U.S.C. § 1091a(b)(1) is reasonable. The Secretary 

interprets “reasonable” to mean that similar costs must be 

assessed against borrowers who are at similar stages of delinquency. Under the Secretary’s view, a borrower who 

promptly enters into a voluntary repayment agreement and 

complies with that agreement, thereby obviating the need 

for the guarantor to initiate costly debt collection procedures, is not similarly situated to someone who does not, 

thereby forcing the guarantor to undertake costly debt collection procedures. 

Even if we thought the interpretation urged by USA 

Funds were better in the abstract, “a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an 

agency.” Chevron, 467 U.S. at 844 (footnote omitted); see also 

Michigan v. EPA, 576 U.S. —, 135 S. Ct. 2699, 2707 (2015) 

(“Chevron directs courts to accept an agency’s reasonable 

resolution of an ambiguity in a statute that the agency administers.”); Chemical Mfrs. Ass’n v. Natural Resources Defense 

Council, Inc., 470 U.S. 116, 125 (1985) (“This view of the agenCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
28 No. 14-1806 

cy charged with administering the statute is entitled to considerable deference; and to sustain it, we need not find that it 

is the only permissible construction that EPA might have 

adopted but only that EPA’s understanding of this very 

‘complex statute’ is a sufficiently rational one to preclude a 

court from substituting its judgment for that of EPA.”). 

USA Funds has not shown that the Secretary’s interpretation is unworthy of deference. The Secretary’s decision to interpret 34 C.F.R. § 682.410(b)(5)(ii) as creating a safe harbor 

for borrowers in Bible’s position is not plainly erroneous or 

inconsistent with the regulation. It reflects the agency’s fair 

and considered judgment on the question. And it does not 

represent a post hoc rationalization by the agency seeking to 

defend past agency action against attack. There is no indication from the record that the Secretary has ever taken a contrary position since the regulation was first adopted in 1992. 

And as explained above, when the Department of Education 

first issued this regulation, it was merely borrowing from a 

requirement that had previously been imposed on guaranty 

agencies under the federal tax refund offset program. See 

Letter from Lynn B. Mahaffie, Dep’t of Education, Dear Colleague Letter Gen-15-14, at 2–3 (July 10, 2015) (explaining 

history of the “notice and opportunity to resolve” concept). 

In addition, the Secretary took this same position in a legal brief filed in an earlier case in this circuit, Educational 

Credit Mgmt. Corp. v. Barnes, 318 B.R. 482 (S.D. Ind. 2004), 

aff’d sub nom. Black v. Educational Credit Mgmt. Corp., 459 F.3d 

796 (7th Cir. 2006), interpreting § 682.410(b)(5) in the same 

manner it does here. Both its reasoning and its conclusion 

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No. 14-1806 29

have remained exactly the same.7 Cf. Christopher, 132 S. Ct. at 

2165–68 (no Auer deference where agency’s interpretation 

would have imposed “massive liability” for conduct that occurred before the announcement of the interpretation, agency’s announcement was preceded by long period of acquiescence to industry practice, and agency materially changed its 

reasoning during course of litigation). 

To summarize, Bible has alleged sufficiently that USA 

Funds breached its contract with her by assessing over 

$4,500 in collections costs after she timely entered into and 

complied with a monthly repayment agreement, in violation 

of the applicable regulations that were incorporated into the 

parties’ contract.

2. Damages

We next address whether Bible has adequately pled 

damages. USA Funds argues she has not because she defaulted on her loan and continues to owe money on that obligation. This argument is meritless. Of course Bible continues to owe money under her loan obligation. That does not 

mean she has not been damaged by USA Funds’ imposing 

over $4,500 in unauthorized collection costs. These costs represent new charges that have been added to her accrued interest and principal, thereby increasing the total amount she 

 7 See App. 54–55 (“Department rules require the guarantor who acquires a loan by reason of the default of the borrower ... to charge collection costs only after providing the debtor an opportunity to contest the 

debt and to enter into a repayment arrangement for the debt. ... The regulations therefore direct guarantors to charge collection costs only to 

those debtors who cause the guarantor to incur collection costs by failing 

to agree promptly to repay voluntarily. ... Only those defaulters who 

ignore this opportunity face collection cost charges.”) (emphases added). 

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30 No. 14-1806 

owes on her account. Because these charges were not permitted by her contract, she has plausibly alleged damages, even 

if the remedy might take the form of a credit to her account 

rather than cash in her pocket. Bible has plausibly alleged a 

viable breach of contract claim under state law. 

B. Preemption & the “Disguised Claim” Theory

We next examine whether federal law preempts or otherwise displaces Bible’s state law claim. “Preemption can 

take on three different forms: express preemption, field 

preemption, and conflict preemption.” Aux Sable Liquid 

Products v. Murphy, 526 F.3d 1028, 1033 (7th Cir. 2008). USA 

Funds relies on conflict preemption. It also argues that the 

breach of contract claim is nothing more than a “disguised 

claim” for a violation of the Higher Education Act and is 

thus “preempted” by the HEA. Neither theory has merit. 

Federal law does not preempt or otherwise displace Bible’s 

breach of contract claim. 

1. Conflict Preemption 

Conflict preemption can occur in two situations: (1) when 

“it is impossible for a private party to comply with both state 

and federal requirements,” or (2) when “state law stands as 

an obstacle to the accomplishment and execution of the full 

purposes and objectives of Congress.” Freightliner Corp. v. 

Myrick, 514 U.S. 280, 287 (1995) (citations and internal quotation marks omitted). USA Funds does not contend that it 

would be impossible, without violating federal law, for it to 

comply with the state law duty Bible’s suit seeks to impose. 

Instead, it invokes the second species of conflict preemption 

known as “obstacle” preemption. USA Funds argues that 

entertaining Bible’s breach of contract claim would frustrate 

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No. 14-1806 31

Congress’s goal of “uniformity” because it would require 

many state and federal courts to interpret HEA regulations 

in potentially inconsistent ways. We reject this contention. 

This argument proves far too much. Under this theory, 

conflict preemption would occur any time a court would be 

required to interpret a regulation to decide a case arising 

under the common law or other sources of law independent 

of the regulation itself. But courts interpret federal regulations all the time without triggering preemption concerns. 

The mere possibility that a court would need to interpret a 

regulation does not itself establish preemption. See CSX 

Transportation, Inc. v. Eastwood, 507 U.S. 658, 664 (1993) (“To 

prevail on the claim that the regulations have pre-emptive 

effect, petitioner must establish more than that they ‘touch 

upon’ or ‘relate to’ that subject matter ... .”), citing Morales v. 

Trans World Airlines, Inc., 504 U.S. 374, 383–84 (1992); English 

v. General Electric Co., 496 U.S. 72, 87 (1990) (“Ordinarily, the 

mere existence of a federal regulatory or enforcement 

scheme, even one as detailed as § 210 [of the Energy Reorganization Act of 1974], does not by itself imply pre-emption 

of state remedies.”); Hillsborough County v. Automated Medical 

Laboratories, Inc., 471 U.S. 707, 717 (1985) (“To infer preemption whenever an agency deals with a problem comprehensively is virtually tantamount to saying that whenever a 

federal agency decides to step into a field, its regulations will 

be exclusive.”); Keams v. Tempe Technical Institute, Inc., 39 F.3d 

222, 226–27 (9th Cir. 1994) (holding that detailed regulatory 

scheme under the HEA did not imply preemption of state 

tort remedies against accreditors). That is the very point of 

34 C.F.R. § 682.410(b)(8), which provides that paragraphs 

(b)(2), (5), and (6)—the provisions at issue here—preempt 

only “State law ... that would conflict with or hinder satisfacCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
32 No. 14-1806 

tion of the requirements of these provisions.” (Emphasis 

added.) 

The real question is whether entertaining Bible’s breach 

of contract claim actually conflicts with the HEA and its associated regulations. It does not. We begin with Wigod v. 

Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), where we 

dealt with a nearly identical issue in the context of the federal Home Affordable Mortgage Program (HAMP). In Wigod, 

the plaintiff brought state law claims against her mortgage 

service provider, including a breach of contract claim alleging that the defendant breached a written agreement that incorporated the HAMP requirements. Like USA Funds in this 

case, the defendant in Wigod argued that the state law claims 

were preempted by the federal guidelines under principles 

of conflict preemption. We rejected the argument. 673 F.3d at 

577–81. 

Although Wigod dealt with a different regulatory framework, its reasoning applies directly here. Bible’s claim is that 

USA Funds breached the MPN by acting contrary to the federal regulations incorporated into the contract. Just as in 

Wigod, “the state-law duty allegedly breached is imported 

from and delimited by federal standards.” Wigod, 673 F.3d at 

579. In this situation, federal law simply provides the standard of compliance, and the parties’ duties are actually enforced under state law. See id. at 579–80. There is no conflict. 

The Fourth Circuit reached the same conclusion regarding the HEA in College Loan Corp. v. SLM Corp., 396 F.3d 588 

(4th Cir. 2005). In that case, the plaintiff sued Sallie Mae and 

its affiliates under state law, alleging that they had a contract 

that incorporated the requirements of the HEA and its regulations. The district court held that the state law claims were 

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No. 14-1806 33

preempted. The Fourth Circuit reversed. The court held that 

the plaintiff’s state law claims were not preempted even 

though they relied on establishing a violation of the HEA 

and its regulations: 

This point is particularly obvious in relation to 

[plaintiff’s] contract claim. As parties to the 

Agreement, [the parties] voluntarily included 

federal standards (the HEA) in their bargainedfor private contractual arrangement. Both expressly agreed to comply with the HEA. In that 

context, [defendants’] argument that enforcement of the Agreement’s terms is preempted by 

the HEA boils down to a contention that it was 

free to enter into a contract that invoked a federal standard as the indicator of compliance, 

then to proceed to breach its duties thereunder 

and to shield its breach by pleading preemption. In this case at least, federal supremacy 

does not mandate such a result. 

Id. at 598 (citations omitted). The Fourth Circuit’s reasoning 

applies with equal force here. 

Unable to distinguish Wigod or College Loan Corp. in 

meaningful ways, USA Funds seeks help from Chae v. SLM 

Corp., 593 F.3d 936 (9th Cir. 2010). But Chae actually reinforces our conclusion. There, borrowers sued Sallie Mae under 

state law for its handling of their student loans. Applying 

principles of conflict preemption, the Ninth Circuit held that 

the claims were preempted by the HEA because 

“[p]ermitting varying state law challenges across the country, with state law standards that may differ and impede uniformity” would pose an obstacle to Congress’s purpose in 

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34 No. 14-1806 

creating the FFELP. Chae, 593 F.3d at 945. The Ninth Circuit, 

however, carefully distinguished College Loan Corp. on 

grounds directly applicable here, saying that the plaintiff in 

College Loan Corp. had “sought to enforce FFELP rules, not to 

vary them.” Id. at 946, citing 396 F.3d at 591–94. In Chae, 

though, the plaintiffs were “not seek[ing] to buttress the 

FFELP framework, but rather to alter it in their home state.” 

Id. They were asking the court to impose a higher standard of 

compliance than was required by federal law. Such claims 

are preempted, held Chae, but that reasoning does not apply 

here. 

Like the plaintiff in College Loan Corp. and unlike those in 

Chae, Bible is not attempting to require more of the defendant than was already required by the HEA and its regulations. She seeks only to enforce the federal standards that the 

parties agreed to in their contract. This case is therefore not 

different from Wigod, where we held that state law claims 

attempting to enforce the requirements of the HAMP guidelines were not preempted by federal law. In Wigod, College 

Loan Corp., and now this case, the plaintiffs’ state law claims 

were complementary to, not in conflict with, the federal requirements. Bible’s claim is not preempted by federal law. 

2. The “Disguised Claim” Theory

In addition to its formal preemption argument, USA 

Funds argues that Bible’s state law claim is “preempted” because it is nothing more than a “disguised claim” for a violation of the HEA, and the HEA does not provide a private 

right of action. We considered and rejected this same theory 

in Wigod. There the defendant-lender referred to it as an 

“end-run” theory rather than a “disguised claim” theory. 

The difference is merely semantic. The defense theory in 

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No. 14-1806 35

both cases is that the lack of a private right of action under a 

regulatory statute necessarily preempts or otherwise displaces a state law cause of action that makes the violation of 

that regulatory statute an element of the claim. This theory is 

mistaken at its core: “The absence of a private right of action 

from a federal statute provides no reason to dismiss a claim 

under a state law just because it refers to or incorporates 

some element of the federal law. To find otherwise would 

require adopting the novel presumption that where Congress provides no remedy under federal law, state law may 

not afford one in its stead.” Wigod, 673 F.3d at 581 (citation 

omitted). 

USA Funds attempts to distinguish Wigod on two 

grounds. First, it says there was no administrative enforcement scheme under the HAMP. That is simply not true as a 

matter of fact. See Spaulding v. Wells Fargo Bank, N.A., 714 

F.3d 769, 773–74 (4th Cir. 2013) (describing administrative 

enforcement scheme under HAMP); Wigod, 673 F.3d at 556–

57 (same). 

Second, USA Funds contends that Wigod is distinguishable because there the Secretary of the Treasury had issued a 

directive saying that the HAMP must be implemented in 

compliance with state common law and statutes. See Wigod, 

673 F.3d at 580. This does not distinguish Wigod either. We 

noted that the directive was additional evidence that federal 

law did not preempt state law. See id. (noting that Department of Treasury’s “tacit view of its program’s lack of 

preemptive force” was entitled to “some weight”). We did 

not suggest that our rejection of the end-run theory depended on this supplemental directive. (In fact, we discussed the 

supplemental directive in a different section in the opinion.) 

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36 No. 14-1806 

If anything, there is even less reason to find preemption in 

this case because USA Funds voluntarily agreed to comply 

with the only federal requirements that Bible is attempting 

to enforce. In Wigod, by contrast, the plaintiff had brought 

claims against the defendant under state tort law in addition 

to her breach of contract claim. 

We reiterate the lesson from Wigod. The absence of a private right of action under federal law provides no reason to 

dismiss a state law claim just because the claim refers to or 

incorporates some element of the federal law. Congress’s decision not to supply a remedy under federal law does not 

necessarily mean that it also intended to displace state law 

remedies. The lack of a private right of action under the HEA 

itself does not preclude Bible’s breach of contract claim. 

C. RICO Claim

We now turn to Bible’s civil RICO claim alleging a violation of 18 U.S.C. § 1962(c). Section 1962(c) makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly 

or indirectly, in the conduct of such enterprise’s affairs 

through a pattern of racketeering activity.” 18 U.S.C. 

§ 1962(c). A civil remedy is available under 18 U.S.C. § 1964. 

To establish a violation of § 1962(c), Bible must eventually 

prove four elements: (1) conduct (2) of an enterprise (3) 

through a pattern (4) of racketeering activity. E.g., Jennings v. 

Auto Meter Products, Inc., 495 F.3d 466, 472 (7th Cir. 2007). 

USA Funds contends that Bible has failed to allege plausibly 

the existence of an enterprise, racketeering activity, or a pattern. Whether or not detailed allegations of each element 

(other than the alleged fraud) are required at the pleading 

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No. 14-1806 37

stage, cf. Johnson v. City of Shelby, 574 U.S. —, 135 S. Ct. 346, 

347 (2014) (per curiam) (reversing dismissal for failure to invoke proper statute in complaint); Runnion v. Girl Scouts of 

Greater Chicago, 786 F.3d 510, 517–18, 528 (7th Cir. 2015) (reversing dismissal of complaint), we find that Bible’s allegations are sufficient. It remains to be seen whether she can 

marshal evidence to support her claim, but that’s a matter for 

further proceedings in the district court. 

1. Enterprise

RICO defines the term “enterprise” broadly to include 

“any individual, partnership, corporation, association, or 

other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. 

§ 1961(4). An association-in-fact does not require any structural features beyond “a purpose, relationships among those 

associated with the enterprise, and longevity sufficient to 

permit these associates to pursue the enterprise’s purposes.” 

Boyle v. United States, 556 U.S. 938, 946 (2009). But the definition does require that the defendant be a “person” that is 

distinct from the RICO enterprise. United Food & Commercial 

Workers Unions & Employers Midwest Health Benefits Fund v. 

Walgreen Co., 719 F.3d 849, 853–54 (7th Cir. 2013) (citations 

omitted). Under § 1962(c), the plaintiff must also establish 

that the defendant “person” participated in the operation or 

management of the distinct enterprise. Reves v. Ernst & 

Young, 507 U.S. 170, 179 (1993). 

Bible identifies USA Funds as the defendant “person” for 

purposes of RICO, and she defines the “enterprise” as an association-in-fact consisting of USA Funds, GRC, and Sallie 

Mae. She alleges that the members of the enterprise associated for the common purpose of maximizing revenue before, 

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38 No. 14-1806 

during, and after the loan rehabilitation process by unlawfully imposing collection costs on borrowers who had defaulted. USA Funds uses GRC as its debt collector, and Sallie 

Mae is the parent company of GRC. Although Sallie Mae 

and USA Funds are “technically independent,” Sallie Mae 

has purchased a number of USA Funds’ departments and 

exerts “extensive financial and operational control” over 

USA Funds. Am. Compl. ¶ 95. 

Our cases have distinguished between two situations: a 

run-of-the-mill commercial relationship where each entity 

acts in its individual capacity to pursue its individual selfinterest, versus a truly joint enterprise where each individual 

entity acts in concert with the others to pursue a common 

interest. See United Food & Commercial Workers, 719 F.3d at 

855 (“This type of interaction, however, shows only that the 

defendants had a commercial relationship, not that they had 

joined together to create a distinct entity for purposes of improperly filling ... prescriptions.”); Crichton v. Golden Rule 

Ins. Co., 576 F.3d 392, 400 (7th Cir. 2009) (distinguishing 

“garden-variety marketing arrangement” comprised of distinct entities from RICO enterprise). This distinction is important. Without it, “every conspiracy to commit fraud that 

requires more than one person to commit is a RICO organization and consequently every fraud that requires more than 

one person to commit is a RICO violation.” Stachon v. United 

Consumers Club, Inc., 229 F.3d 673, 676 (7th Cir. 2000), quoting Bachman v. Bear, Stearns & Co., 178 F.3d 930, 932 (7th Cir. 

1999) (footnote and internal quotation marks omitted). 

Mindful of this distinction, we conclude that Bible has 

pled more than a run-of-the-mill commercial relationship. 

Bible alleges a number of facts permitting the reasonable inCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 39

ference that, with respect to managing accounts before, during, and after the loan rehabilitation process, USA Funds, 

GRC, and Sallie Mae work as a single enterprise. 

First, she alleges an unusual degree of economic interdependence among the entities. According to the amended 

complaint, USA Funds agreed to place all defaulted loans 

with Sallie Mae for portfolio management. Sallie Mae was 

then authorized to refer a large number of the defaulted 

loans to its “affiliates” or subsidiary debt collectors such as 

GRC. In addition, USA Funds committed to sell at least half 

of its rehabilitated loans to Sallie Mae. Under this arrangement, USA Funds not only paid Sallie Mae directly to manage its portfolio but also compensated Sallie Mae indirectly 

by using its affiliates and subsidiaries for debt collection and 

by agreeing to sell a large chunk of rehabilitated loans to Sallie Mae. 

Second, Bible alleges that the entities do not operate as 

completely separate entities in managing the loan rehabilitation process. For example, she alleges that: the printout on 

top of the rehabilitation agreement indicates that it was sent 

from a Sallie Mae fax machine; in answers to interrogatories 

in another lawsuit, GRC identified five Sallie Mae officials 

who had approved and provided input into the wording of 

GRC’s collection correspondence, including the correspondence at issue in this case; Sallie Mae assumes responsibility 

for compliance with some of USA Funds’ statutory duties, 

including the delivery of privacy policies to borrowers; Sallie 

Mae has agreed to a marketing plan under which Sallie Mae 

will promote USA Funds as a guaranty agency; Sallie Mae 

has agreed not to use another guaranty agency unless, despite Sallie Mae’s best efforts, a school or lender insists; assoCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
40 No. 14-1806 

ciate counsel at Sallie Mae recently appeared at a settlement 

conference in a Fair Debt Collection Practices Act lawsuit 

against GRC purporting to have settlement authority on behalf of GRC; and in another FDCPA lawsuit, GRC negotiated 

a settlement release that covered Sallie Mae and other entities “related to” Sallie Mae, including USA Funds, despite 

the fact that neither Sallie Mae nor USA Funds were named 

as defendants in the case. 

These allegations distinguish this case from cases like 

United Food & Commercial Workers, 719 F.3d at 854–55 (noting 

that complaint failed to allege “that officials from either 

company involved themselves in the affairs of the other”), 

and Crichton, 576 F.3d at 400 (noting that plaintiff’s claim 

“begins and ends” with the fraud allegedly committed by 

individual entity, not enterprise). Taken together, Bible’s allegations indicate a common purpose, relationships among 

the three entities associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purposes. See, e.g., Sykes v. Mel Harris & Associates, 

LLC, 757 F. Supp. 2d 413, 426–27 (S.D.N.Y. 2010) (complaint 

plausibly alleged RICO enterprise comprised of debt-buying 

company, debt collection agency, process service company, 

and others). 

USA Funds contends that even if there is an enterprise, 

USA Funds’ own alleged actions could not amount to participation in the operation or management of the enterprise’s 

affairs because USA Funds did not operate or manage the 

collection efforts related to Bible’s defaulted loans. We disagree. Bible alleges that USA Funds “directed GRC to unlawfully and fraudulently impose collection costs [on] borrowers,” Am. Compl. ¶ 88, and that “GRC carried out these inCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 41

structions.” Id., ¶ 89. She also alleges that GRC secured a release for USA Funds and Sallie Mae in the FDCPA case mentioned above because “both [USA Funds] and Sallie Mae 

were intimately involved in GRC’s debt collection activities.” 

Id. ¶ 105. 

USA Funds points out that merely performing a service 

for another entity is not sufficient to establish this element. 

That is correct as far as it goes. See Goren v. New Vision Int’l, 

Inc., 156 F.3d 721, 728 (7th Cir. 1998) (“Indeed, simply performing services for an enterprise, even with knowledge of 

the enterprise’s illicit nature, is not enough to subject an individual to RICO liability under § 1962(c); instead, the individual must have participated in the operation and management of the enterprise itself.”). But that principle does 

not help USA Funds. If we were to apply it here, it might 

mean that GRC did not participate in the operation or management of the enterprise’s affairs since GRC was hired by 

USA Funds to perform the debt collection activities. But the 

same cannot be said for USA Funds, which hired GRC, directed it to impose the collection costs at issue, and was “intimately involved” in GRC’s debt collection activities more 

generally. Bible’s amended complaint pleads factual content 

permitting the reasonable inference that USA Funds, in conjunction with Sallie Mae, actually directed the enterprise’s 

debt collection activities even though GRC was the entity 

that dealt with the borrower most directly. She has plausibly 

alleged that USA Funds conducted or participated in the enterprise’s affairs. 

2. Racketeering Activity and Fraudulent Intent

USA Funds next argues that Bible has not plausibly alleged racketeering activity. “Racketeering activity” is defined 

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42 No. 14-1806 

in 18 U.S.C. § 1961(1)(B) to include mail fraud in violation of 

18 U.S.C. § 1341 and wire fraud in violation of 18 U.S.C. § 

1343. “The elements of mail fraud ... are: ‘(1) the defendant’s 

participation in a scheme to defraud; (2) defendant’s commission of the act with intent to defraud; and (3) use of the 

mails in furtherance of the fraudulent scheme.’” Williams v. 

Aztar Indiana Gaming Corp., 351 F.3d 294, 298–99 (7th Cir. 

2003), quoting United States v. Walker, 9 F.3d 1245, 1249 (7th 

Cir. 1993). The elements of wire fraud are the same except 

that it requires use of interstate wires rather than mail in furtherance of the scheme. E.g., United States v. Green, 648 F.3d 

569, 577–78 (7th Cir. 2011). 

Bible alleges both mail and wire fraud. Her allegations 

are subject to Federal Rule of Civil Procedure 9(b), which requires her to plead fraud with particularity. E.g., Slaney v. 

Int’l Amateur Athletic Federation, 244 F.3d 580, 597 (7th Cir. 

2001). As a result, Bible “must, at a minimum, describe the 

two predicate acts of fraud with some specificity and state 

the time, place, and content of the alleged false representations, the method by which the misrepresentations were 

communicated, and the identities of the parties to those misrepresentations.” Id.

Bible’s fraud allegations are based on the form default letter and rehabilitation agreement. According to the amended 

complaint, USA Funds, through its agent GRC, mailed the 

default letter telling Bible that her loan was in default. The 

letter said that her “current collection cost balance” and 

“current other charges” were zero. Like the default letter, the 

rehabilitation agreement, which was faxed, said that her 

“current collection cost balance” and “current other charges” 

were zero. She alleges that USA Funds uses form documents 

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No. 14-1806 43

substantially similar to the default letter and rehabilitation 

agreement in its dealings with thousands of other borrowers 

who have defaulted on their loans. 

Bible’s theory of fraud is that the statements in the default letter and rehabilitation agreement that her “current 

collection cost balance” and “current other charges” were 

zero were false, misleading, or contained material omissions. 

They implied that collection costs would not be assessed 

against her if she promptly agreed to enter into a repayment 

program. According to the amended complaint, these statements were designed to deceive her into entering into the 

rehabilitation program by concealing the fact that thousands 

of dollars in collection costs would be imposed by the guaranty agency before she had completed the rehabilitation 

process. 

USA Funds argues that Bible has not plausibly alleged 

fraud because the collection costs were permitted by federal 

regulations and because she has failed to allege that USA 

Funds intended to deceive her. Neither argument can justify 

dismissal under Rule 12(b)(6). Whether Bible can eventually 

come forward with evidence of fraudulent intent is a question for the district court on remand. 

As discussed above, the collection costs were not permitted by federal regulations, at least as interpreted by the Secretary of Education. In addition, even if the costs had been 

permitted by the regulations, Bible alleges that USA Funds 

misled her in its correspondence leading to her agreeing to 

the repayment program. We recognize that the correspondence to Bible signaled that collection costs could be assessed 

in the future. Yet that same correspondence said that she 

owed no collection costs, which could reasonably be underCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
44 No. 14-1806 

stood as implying that there would be nothing to add in the 

future. A Rule 12(b)(6) motion to dismiss is not a suitable 

procedure for determining that these documents could not 

possibly have been misleading to Bible or other borrowers 

like her. 

The question of USA Funds’ intent also cannot be decided on the pleadings. At this stage of the litigation, Bible has 

plausibly alleged that USA Funds intended to deceive her. 

See Fed. R. Civ. P. 9(b) (fraudulent intent “may be alleged 

generally”). She alleges that it sent her a form saying that her 

collection costs were zero and that it made this representation intending to induce her to enter into a repayment program by hiding that she would be forced to pay over $4,500 

in collection costs if she did. These representations could be 

deemed literally false. Even if they could avoid literal falsity, 

omission or concealment of material information can be sufficient to constitute mail or wire fraud. See United States v. 

Morris, 80 F.3d 1151, 1161 (7th Cir. 1996) (“We reiterated, 

moreover, that the statutes apply not only to false or fraudulent representations, but also to the omission or concealment 

of material information, even where no statute or regulation 

imposes a duty of disclosure.”); Emery v. American General 

Finance, Inc., 71 F.3d 1343, 1348 (7th Cir. 1995); United States v. 

Biesiadecki, 933 F.2d 539, 543 (7th Cir. 1991); United States v. 

Keplinger, 776 F.2d 678, 697 (7th Cir. 1985). 

The rehabilitation agreement warned Bible that collection 

costs could be capitalized at the time of rehabilitation by the 

new lender. See App. 139 (“Collection costs may be capitalized at the time of the Loan Rehabilitation by your new 

lender, along with outstanding accrued interest, to form one 

new principal amount.”); id. (“By signing below, I underCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 45

stand and agree that the lender may capitalize collection 

costs of 18.5% of the outstanding principal and accrued interest upon rehabilitation of my loan(s).”). One straightforward reading of this language is that it authorized the new 

lender—not the guaranty agency—to capitalize existing collection costs, not to impose new ones, and then only after rehabilitation is complete (i.e., after the guaranty agency has 

sold the loan to a private lender). 

At this preliminary pleading stage, we do not know USA 

Funds’ state of mind when it sent the default letter or rehabilitation agreement. Bible has plausibly alleged that the 

statements in the default letter and the rehabilitation agreement were designed to induce her to enter into the repayment agreement while concealing that she would be assessed over $4,500 in collection costs if she did so. Her allegations of racketeering activity should survive the Rule 

12(b)(6) motion to dismiss.8

3. Pattern

We turn next to USA Funds’ argument that Bible has 

failed to allege a pattern of racketeering activity. “A pattern 

of racketeering activity consists, at the very least, of two 

 8 On the RICO claims, USA Funds repeats the same argument it 

made on Bible’s breach of contract claim, contending that she has failed 

to allege an injury. For the same reasons, we reject this contention. Bible’s alleged injury is that she made monthly payments for costs she did 

not owe, which constitutes a financial loss. Nothing more is required to 

plead an injury under § 1962(c). See Haroco, Inc. v. American Nat’l Bank & 

Trust Co. of Chicago, 747 F.2d 384, 398 (7th Cir. 1984) (holding that plaintiffs’ allegations of excessive interest charges resulting from defendants’ 

alleged fraudulent scheme to overstate the prime rate satisfied the injury 

requirement), aff’d, 473 U.S. 606 (1985). 

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46 No. 14-1806 

predicate acts of racketeering committed within a ten-year 

period.” Jennings v. Auto Meter Products, Inc., 495 F.3d 466, 

472 (7th Cir. 2007), citing 18 U.S.C. § 1961(5). To prove a pattern, Bible will need to satisfy the “continuity plus relationship” test, which requires that the predicate acts be related to 

one another (the relationship prong) and that they pose a 

threat of continued criminal activity (the continuity prong). 

Id. at 473, quoting Midwest Grinding Co. v. Spitz, 976 F.2d 

1016, 1022 (7th Cir. 1992). The relationship prong is satisfied 

“if the criminal acts ‘have the same or similar purposes, results, participants, victims, or methods of commission, or 

otherwise are interrelated by distinguishing characteristics 

and are not isolated events.’” DeGuelle v. Camilli, 664 F.3d 

192, 199 (7th Cir. 2011), quoting H.J. Inc. v. Northwestern Bell 

Telephone Co., 492 U.S. 229, 240 (1989). The continuity prong 

is satisfied by showing either that the criminal behavior, although it has ended, was so durable and repetitive that it 

“carries with it an implicit threat of continued criminal activity in the future,” Midwest Grinding Co., 976 F.2d at 1023, or 

that the past conduct “by its nature projects into the future 

with a threat of repetition,” H.J. Inc., 492 U.S. at 241. 

Whether or not Bible needed to plead details of her pattern theory, cf. Runnion v. Girl Scouts, 786 F.3d at 528, Bible’s 

allegations satisfy the relationship-plus-continuity test. She 

alleges that USA Funds, through its enterprise, unlawfully 

imposed collection costs on thousands of borrowers in default in the same manner it did to her. She alleges that USA 

Funds has sent the form document that became the rehabilitation agreement in this case more than 100,000 times over a 

period of several years. Bible also alleges that the conduct at 

issue is USA Funds’ standard operating procedure and that 

it is continuous and ongoing. These allegations satisfy the 

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No. 14-1806 47

relationship-plus-continuity test. See, e.g., Corley v. Rosewood 

Care Center, Inc., 142 F.3d 1041, 1050 (7th Cir. 1998) (relationship-plus-continuity test satisfied where plaintiff alleged defendant systematically overcharged residents at several 

nursing homes). 

4. Preemption

We have one last loose end to tie up: the district court determined that Bible’s RICO claim was “preempted” by the 

Higher Education Act. See Bible v. United Student Aid Funds, 

Inc., 2014 WL 1048807, at *10. It is well settled that federal 

law does not preempt a federal law claim alleging a violation of another federal statute. Preemption is limited to conflicts between federal and state law. The alleged preclusion 

of a cause of action under one federal statute by the provisions of another federal statute is another issue entirely. See 

POM Wonderful LLC v. Coca-Cola Co., 573 U.S. —, 134 S. Ct. 

2228, 2236 (2014). 

Realizing that the HEA does not preempt the RICO 

claim, USA Funds argues instead that the absence of a private right of action under the HEA precludes Bible’s RICO 

claim because Bible’s RICO theory alleges only a violation of 

the HEA. USA Funds relies principally on McCulloch v. PNC 

Bank Inc., 298 F.3d 1217, 1226–27 (11th Cir. 2002) (per curiam), and United Food & Commercial Workers Unions & Employers Midwest Health Benefits Fund v. Walgreen Co., No. 12 C 204, 

2012 WL 3061859, at *4 (N.D. Ill. July 26, 2012), aff’d on other 

grounds, 719 F.3d 849 (7th Cir. 2013), for the proposition that 

non-compliance with a regulatory statute that does not itself 

provide a private right of action necessarily forecloses any 

RICO claim based on that non-compliance. 

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48 No. 14-1806 

We are skeptical of this legal principle (our court has 

never adopted it), but we need not decide that question now 

because it is not presented by Bible’s allegations. USA Funds’ 

argument simply mischaracterizes Bible’s theory. Her RICO 

claim is not based on regulatory non-compliance. It is based 

on alleged misrepresentations and deception in the default 

letter and the rehabilitation agreement. Even if the regulations permitted USA Funds to assess the collection costs, Bible alleges that USA Funds committed fraud by concealing 

that these collection costs would be imposed when it sent the 

default letter and the rehabilitation agreement. Thus, Bible’s 

RICO claim does not necessarily require her to prove that 

USA Funds violated the HEA or its regulations, even if such 

proof might strengthen her claims.9 Even if we agreed with 

McCulloch and the district court in United Food & Commercial 

Workers on this issue, neither decision considered this alternative theory Bible is pursuing. See McCulloch, 298 F.3d at 

1226–27 (lenders’ failure to comply with HEA disclosure obligations was not actionable under RICO); United Food & 

Commercial Workers, 2012 WL 3061859, at *4 (noting that 

plaintiff’s RICO claim depended on violation of regulatory 

statutes referenced in complaint). The absence of a private 

 9 Suppose discovery or a former employee showed that USA Funds 

included certain language in the default letter or rehabilitation agreement to hide the extent of its non-compliance with the regulations. That 

might indicate that USA Funds intended to defraud borrowers, who 

might have reasonably relied on the regulatory framework to protect 

them. The point for our purposes, though, is that a violation of the HEA 

and its regulations is not essential to Bible’s fraud claims. Even if the collection costs were permitted by the regulations, Bible’s theory is that 

statements in the form documents sent to her were misleading. 

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No. 14-1806 49

right of action under the HEA itself does not preclude Bible’s 

RICO claim. 

Conclusion

Neither of Bible’s claims is preempted or otherwise displaced by federal law, and she has plausibly alleged all of 

the elements of both claims. The judgment of the district 

court is REVERSED and the case is REMANDED for further 

proceedings. 

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50 No. 14-1806 

FLAUM, Circuit Judge, concurring in part and concurring 

in the judgment. 

I join in full Judge Hamilton’s analysis of USA Funds’ 

preemption argument and Bible’s RICO claim. With respect 

to Bible’s breach of contract claim, I agree with the portion of 

the analysis that defers to the Secretary of Education’s interpretation of the statute and corresponding regulations. 

However, I am unable to join subsection II.A.1.b.i of Judge 

Hamilton’s opinion, which offers an alternative ground for 

holding that USA Funds was prohibited from assessing collection costs against Bible—that is, that the text of the regulations unambiguously supports Bible’s interpretation of the 

statutory and regulatory scheme. Instead, I find the regulatory landscape sufficiently complex to merit deference to the 

agency’s reasonable interpretation. 

In order to bring Bible’s rehabilitation agreement within 

the purview of 34 C.F.R. § 682.410(b)(5)(ii)’s prohibition on 

the imposition of collection costs, we are necessarily required to infer that Bible’s rehabilitation agreement qualifies 

as a “repayment agreement on terms satisfactory to the 

[guaranty] agency.” And while Judge Hamilton assumes 

from the outset that “rehabilitation agreement” and “repayment agreement” are overlapping concepts, in my view, this 

is no small inferential leap. 

Judge Manion, in his dissent, makes a strong case for the 

proposition that the two concepts are separate and distinct, 

and thus, that the repayment agreement provisions of 

§ 682.410(b)(5)(ii) do not apply to the loan rehabilitation 

program described in 34 C.F.R. § 682.405. Indeed, the Department of Education’s website lists “Loan Repayment” and 

“Loan Rehabilitation” as independent options for “getting 

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No. 14-1806 51

your loan out of default.” Fed. Student Aid, U.S. Dep’t of 

Educ., Getting out of Default, https://studentaid.ed.gov/sa/ 

repay-loans/default/get-out (last visited Aug. 5, 2015). Moreover, there is no cross-reference or other textual indication in 

the regulations suggesting that the rehabilitation agreements 

described in § 682.405 constitute repayment agreements “on 

terms satisfactory to the agency” under § 682.410(b)(5)(ii), 

such that a rehabilitation agreement might fall within the 

scope of § 682.410(b)(5)(ii)’s exception to the general rule that 

collection costs will be assessed against borrowers in default. 

Rather, the sole reference to collection costs in § 682.405 appears to assume the assessment of collection costs in the rehabilitation context. See § 682.405(b)(1)(vi)(B) (explaining 

that the guaranty agency must inform a borrower entering 

into a rehabilitation agreement “[o]f the amount of any collection costs to be added to the unpaid principal of the loan 

when the loan is sold to an eligible lender, which may not 

exceed 18.5 percent of the unpaid principal and accrued interest on the loan at the time of the sale”). 

Further, it is unsurprising that a rehabilitation agreement 

may not qualify as “satisfactory” to a guarantor. The language of § 682.410(b)(5)(ii) suggests that a guaranty agency 

retains discretion in determining which terms render a repayment agreement “satisfactory.” Under § 682.405, however, guaranty agencies have almost no discretion in setting the 

terms of rehabilitation agreements: the regulation requires 

that a borrower’s monthly repayment amount be 

“[r]easonable and affordable,” § 682.405(b)(1)(i), and sets 

forth specific guidelines to which a guarantor must adhere 

in calculating that amount. See § 682.405(b)(1)(iii) (“The 

guaranty agency initially considers the borrower’s reasonable and affordable payment amount to be an amount equal 

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52 No. 14-1806 

to 15 percent of the amount by which the borrower’s Adjusted Gross Income (AGI) exceeds 150 percent of the poverty 

guideline amount applicable to the borrower’s family size 

and State, divided by 12, except that if this amount is less 

than $5, the borrower’s monthly rehabilitation payment is 

$5.”). The regulation also specifies that “[t]he agency may 

not impose any other conditions unrelated to the amount or 

timing of the rehabilitation payments in the rehabilitation 

agreement.” § 682.405(b)(1)(vi). It is therefore no great leap 

to conclude that rehabilitation agreements and repayment 

agreements “on terms satisfactory to the agency” are mutually exclusive concepts. 

On the other hand, Judge Hamilton’s position that the rehabilitation agreements described in § 682.405 are a subset of 

the repayment agreements referenced in § 682.410(b)(5)(ii) is 

intuitively appealing. After all, just like other forms of loan 

repayment, rehabilitation offers borrowers a path back to 

good standing, and does not permit them to avoid eventual 

repayment in full. See § 682.405(b)(4) (explaining that “[a]n 

eligible lender purchasing a rehabilitated loan must establish 

a repayment schedule that meets the same requirements that 

are applicable to other FFEL Program loans of the same loan 

type as the rehabilitated loan”). 

Moreover, I am skeptical of the dissent’s assertion that 

the regulations shield from collection costs only those borrowers who agree to immediate repayment of the full outstanding balance of their defaulted loans. The repayment 

agreement provision, § 682.410(b)(5)(ii), was clearly drafted 

with the intent to permit borrowers who have lapsed into 

default the opportunity to regain good standing and to 

avoid many of the adverse consequences—i.e., report to a 

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No. 14-1806 53

credit bureau and assessment of collection costs—associated 

with default. Yet to make that opportunity available only to 

those borrowers capable of immediately paying their outstanding loan balance in full would render this second 

chance illusory. Practically speaking, it would be impossible 

for the vast majority of borrowers in default—who presumably have defaulted on their loans as a result of their inability to make far lower monthly payments—to eliminate the 

entirety of their student debt (which could easily reach into 

the tens of thousands of dollars) in a single payment. And I 

think it unlikely that, in drafting this regulation, the Secretary sought to exclude nearly every borrower in default from 

its purview. 

In sum, while I question certain aspects of each of my respected colleagues’ positions, they both offer plausible readings of this complex and ambiguous regulatory scheme. I 

therefore believe the appropriate course of action is to accept 

the guidance that we sought from the Secretary of Education. Under the Supreme Court’s decision in Auer v. Robbins, 

519 U.S. 452, 461 (1997), it is generally appropriate to defer to 

an agency’s interpretation of its own regulations, even when 

that interpretation is informally announced. See Christopher v. 

SmithKline Beecham Corp., 132 S. Ct. 2156, 2159 (2012) (“Auer

ordinarily calls for deference to an agency’s interpretation of 

its own ambiguous regulation, even when that interpretation 

is advanced in a legal brief ... .”). Here, the Secretary has unequivocally advanced the position that the applicable regulations do not permit a guaranty agency to assess collection 

costs against a first-time defaulted borrower who timely enters into a rehabilitation agreement and fully complies with 

that agreement. Given the regulations’ lack of clarity with 

respect to this issue, I cannot conclude that the Secretary’s 

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54 No. 14-1806 

position is either plainly erroneous or inconsistent with the 

regulations. See L.D.G. v. Holder, 744 F.3d 1022, 1029 (7th Cir. 

2014). Accordingly, I join that portion of Judge Hamilton’s 

analysis that relies on administrative deference. I note, however, that while the Secretary’s amicus filing has proven 

helpful in resolving this dispute, an unambiguous regulatory scheme is preferable to soliciting the agency’s interpretive 

guidance. Thus, while I accept the Secretary’s proffered interpretation here, perhaps the Department might consider reexamining and revising the language of the regulations. 

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No. 14-1806 55 

MANION, Circuit Judge, concurring in part and dissenting 

in part. 

I agree with the court’s conclusion that Bible’s claims are 

not preempted, but I disagree that she pleaded a valid 

breach of contract or RICO claim. As a matter of law, United 

Student Aid Funds, Inc., did not breach the Master Promissory Note (MPN) and did not commit the fraud upon which 

Bible’s RICO claim is predicated. Bible’s entire theory is 

erected atop an erroneous equivocation, that the loan rehabilitation agreement of 34 C.F.R. § 682.405 is the same as the 

repayment agreement of § 682.410. I say Bible’s theory because it truly is her own contrivance. There is no evidence to 

suggest that the Department of Education ever interpreted 

the regulations in the manner advanced by Bible prior to our 

request for an amicus brief in this case. In fact, the record reflects that the Department agreed with USA Funds’ interpretation and had no cause to question USA Funds’ regulatory 

compliance, that is, until the Department filed its amicus 

brief. Applying the Department’s post hoc rule to USA Funds 

is both wrong and unjust. The fraud is on the guarantors 

and, because the Department ultimately guarantees the 

loans, on the taxpayer. For this and for the detailed reasons 

that follow, I respectfully dissent. 

A. Background 

Before setting out my analysis and rebuttal to Bible’s arguments and the court’s opinion, it is important to understand what this case is about and how the court and I came 

to disagree. I provide the following background as a means 

of presenting the big picture. 

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To obtain a student loan, Bible entered into a loan agreement with Citibank. At some point she quit making payments. After about nine months of nonpayment (270 days), 

Citibank declared her loan in default. USA Funds, the guarantor, stepped forward and “bought” the loan. USA Funds’ 

agent, General Revenue Corp. (GRC), offered Bible several 

options.1 The first option was to pay the loan in full. Unable 

to pay the full amount, she declined that option. The second 

option, which was offered at the same time, would have given her a new payment plan that perhaps would have lowered her monthly payments and stretched out the repayment 

period, or she could have negotiated a lower amount. Had 

she exercised the first option, she would not have incurred 

costs nor would have the credit reporting agencies been notified of her default. Had she exercised the second option, she 

would have incurred costs, but would have avoided notification to the credit reporting agencies of her default. As with 

the first option, Bible did not have the wherewithal to exercise the second option. The third option, which was offered 

at the same time as the first two that she refused, was to enter into a rehabilitation agreement whereby USA Funds 

would sell her loans to a new lender who would establish a 

new repayment schedule, her default would be eliminated, 

and her costs capped at 18.5% of her outstanding balance. 

Bible and her lawyers chose the third option and entered 

into negotiations for a loan rehabilitation agreement. After 

 1 I am referring to the options GRC provided to rectify Bible’s default. GRC also offered Bible opportunities to review the records pertaining to her loans and to request an administrative review of the legal enforceability or past-due status of her loans. She did not take advantage of 

these opportunities, and they are not the subject of this litigation. 

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several days of negotiations, Bible agreed to enter into the 

loan rehabilitation process by signing an agreement to do so. 

At the time of signing, Bible had accrued no collection costs. 

That is why the chart in the court’s opinion shows zero costs. 

But from that time forward, costs would accrue. 

To show her good-faith intention to rehabilitate her loans, 

Bible agreed to make monthly payments in the amount of 

$50.00 for a period of nine or ten months. At the end of that 

period, she would have shown her good faith and willingness to abide by a new repayment schedule. It should be 

noted that the $50.00 payments were by no means sufficient 

to cover the amount due each month. Rather, the payments 

could only cover about one-half of the interest that accrued 

over the rehabilitation period. After the nine- or ten-month 

period of good-faith payments, Bible was eligible for a new 

loan repayment schedule for an amount that included outstanding principal and accumulated interest and costs. The 

latter amounts would be capitalized into the new loan total 

when USA Funds sold the loan to a new lender. As best we 

know at this juncture, Bible’s loans were sold to a new lender 

and, according to the court, she is current on payments under the new schedule. 

The dispute in this case is confined to the issue of costs. 

As indicated above, when she entered into the rehabilitation 

agreement no costs had yet accrued. However, from that 

time forward, costs accrued. Presumably these costs resulted 

from USA Funds “buying” Bible’s loans from Citibank, corresponding and negotiating with Bible over several days, 

preparing her loans for resale, finding a buyer, and finalizing 

the sale of her loans. Presumably, this process occurred durCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
58 No. 14-1806 

ing the nine or ten months that Bible was making the goodfaith payments of $50.00. 

Bible now insists that USA Funds should not have 

charged her costs for this process. But that flies in the face of 

the statute, which expressly permits costs so long as they are 

limited to 18.5% of the new loan total. She relies instead on a 

novel theory that would grant her a complete exemption 

from costs despite the plain language of the statute. Based 

on her interpretation, Bible claims that USA Funds breached 

her loan contract and committed fraud sufficient to violate 

the RICO Act. But as I will demonstrate in detail below, there 

was no breach of contract and absolutely no fraud committed when she accepted loan rehabilitation. There is certainly 

no RICO violation. The court implies this by its very mild 

recognition of the RICO claim simply because it was recited 

in the complaint. 

The only saving grace that the court falls back on, if there 

is such a thing in this case, is that the Department has submitted, at the court’s invitation, an amicus brief. But that 

brief establishes a brand new interpretation that was not 

present when the events of this case unfolded. Aside from 

the fact that the law is not ambiguous and the Department’s 

interpretation is unreasonable, the fact that there was no notice and opportunity to oppose the Department’s substantial 

“revision” gives us a very good reason not to defer to the 

Department’s interpretation. 

B. Bible’s theory relies on two fundamental errors. 

With the big picture now before us, I start my analysis 

with the Department’s new interpretation, that is, Bible’s 

theory. Section 682.410(b)(2) requires the guarantor to 

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No. 14-1806 59

“charge a borrower an amount equal to reasonable costs incurred by the agency in collecting a loan.” Bible’s interpretation, now endorsed by the Department, is that a guarantor 

must charge a borrower “reasonable costs” except when the 

borrower agrees to loan rehabilitation within 60 days of being offered the opportunity and honors the agreement. Bible 

relies on the regulation’s requirement that the guarantor not 

charge collection costs until it offers the borrower certain 

opportunities, chief among them the “opportunity to enter 

into a repayment agreement on terms satisfactory to the 

agency.” § 682.410(b)(5)(ii)(D). 

There are two fundamental errors with Bible’s theory. 

First, the regulation’s waiting period for charging costs applies to a different kind of repayment agreement than a rehabilitation agreement. Second, the regulation does not contain an exception to charging costs for any kind of repayment agreement, let alone a rehabilitation agreement. Only 

by relying on these errors is it possible for Bible to argue that 

USA Funds’ assessment of collection costs was a breach of 

contract and that USA Funds’ letter reporting Bible’s current 

collections costs as zero was fraudulent. 

The correct interpretation is this: the rehabilitation 

agreement is not the same as the “repayment agreement on 

terms satisfactory to the agency” mentioned in the administrative regulation. The two are separate, and the regulations 

governing each are also separate, even though the guarantors’ current practice is to offer a defaulted borrower a rehabilitation agreement at the same time they offer her a repayment agreement. To avoid collection costs and a report of 

default, the borrower must choose the repayment agreement 

and either pay her balance in full or come to “terms satisfacCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
60 No. 14-1806 

tory to the agency” that do not include collection costs. The 

alternative rehabilitation agreement is not a “repayment 

agreement on terms satisfactory to the agency,” and accepting it does not allow the borrower to escape collection costs 

and default reporting. Rather, by agreeing to loan rehabilitation instead of loan repayment the borrower incurs costs and 

her default is reported, but her costs will be capped at 18.5% 

and her default will be cleared from her credit report if she 

successfully completes loan rehabilitation. 

C. Loan repayment, not loan rehabilitation, offers defaulted borrowers the opportunity to avoid collection costs and default reporting. 

Although Bible accepted neither loan repayment in full 

nor repayment through another agreement, it is necessary to 

review how loan repayment works in order to understand 

Bible’s errors. Once a borrower is in default, by failing to 

make a monthly payment for nine months (270 days), 20 

U.S.C. § 1085(l); 34 C.F.R. § 682.200(b)(1), the lender hands 

the loan over to the guarantor who pays the default claim. 

Under 34 C.F.R. § 682.410, the guarantor then has 45 days to 

provide the borrower with a written notice and opportunities to inspect the loan records, request an administrative review, and “enter into a repayment agreement on terms satisfactory to the agency.” § 682.410(b)(5)(ii) & (6)(ii). The guarantor may not assess any collection costs against the borrower or report the borrower’s default to the credit reporting 

agencies until it provides the borrower with the notice and 

opportunities. § 682.410(b)(5)(ii). The notice must, among 

other things, “[d]emand that the borrower immediately 

begin repayment of the loan,” explain “that all costs incurred 

to collect the loan will be charged to the borrower,” and exCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
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plain the opportunity “to reach an agreement on repayment 

terms satisfactory to the agency to prevent the agency from 

reporting the loan as defaulted to consumer reporting agencies.” § 682.410(b)(5)(vi)(D), (E) & (G). Sixty days after the 

guarantor has sent the notice, if the borrower has not 

“reach[ed] an agreement on repayment terms satisfactory to 

the agency to prevent the agency from reporting the loan as 

defaulted,” then the guarantor “shall” report the borrower’s 

default to all national credit reporting agencies. 

§ 682.410(b)(5)(i); cf. 20 U.S.C. § 1080a(c)(4) (requiring only a 

30-day wait before reporting default). 

If the borrower agrees to a repayment agreement sufficiently acceptable to the guarantor for the guarantor to not 

report the default, then the guarantor will not report the borrower’s default to all the national credit reporting agencies. 

34 C.F.R. § 682.410(b)(5)(vi)(G); 20 U.S.C. § 1080a(c)( 4). Although the borrower may avoid the report of her default in 

this way, she is still in default and therefore must pay collection costs: “a borrower who has defaulted on a loan made 

under this subchapter ... shall be required to pay ... reasonable collection costs[.]” 20 U.S.C. § 1091a(b)(1). So, although 

the guarantor is prevented from charging collection costs before it provides the notice and opportunities, 34 C.F.R. 

§ 682.410(b)(5)(ii), it is required to charge collection costs afterwards. Again, “the guaranty agency shall charge a borrower an amount equal to reasonable costs incurred by the 

agency in collecting.” § 682.410(b)(2). That said, the guarantor has the discretion to not charge collection costs under a 

repayment agreement because the repayment agreement is 

“on terms satisfactory to the agency.” § 682.410(b)(5)(ii)(D). 

Thus, the borrower may avoid collection costs either by ensuring that the guarantor does not incur collection costs, that 

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is, by paying the loan balance in full upon the guarantor’s 

demand for payment, or by coming to “terms satisfactory to 

the agency” that do not include collection costs. Id. 

Obviously, a “repayment agreement on terms satisfactory 

to the agency” requires, at most, payment in full of the outstanding balance and, at least, terms that actually stand a 

chance of paying off the loan. § 682.410(b)(5)(ii)(D). If the 

borrower pays her outstanding balance in full, then she 

avoids the report of default and collection costs. If she is unable to pay in full, but comes to terms that do not include 

collection costs, then she also avoids the report of default 

and collection costs. If she cannot reach such favorable terms 

but can still reach a repayment agreement, then she avoids 

the report of default but not collection costs. Finally, if the 

borrower declines to accept a repayment agreement (perhaps she cannot afford one), then, according to the regulations, the guarantor reports the borrower’s default to the national credit reporting agencies and charges collection costs. 

§ 682.410(b)(5)(i); § 682.410(b)(2). 

D. Loan rehabilitation is a separate opportunity, after a 

borrower has rejected loan repayment, to remove 

the loan from default status and erase the report of 

default. 

Yet, for a borrower like Bible who cannot afford repayment there is a way out: loan rehabilitation. Loan rehabilitation is a separate program, § 682.405, for those borrowers 

who are unable to meet the stricter repayment obligations of 

§ 682.410. It requires only payments that the borrower can 

afford; it removes the loan from collection, clears the default 

from the borrower’s credit history, and limits collection costs 

to 18.5% (now 16%) of the loan’s outstanding balance and 

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accrued interest. 20 U.S.C § 1078-6; 34 C.F.R. § 682.405. It is a 

lengthy process and takes as long as it took to get into default (nine months) but it allows the borrower time to get 

back on her feet. Id. However, loan rehabilitation will incur 

the report of default and collection costs. This is because it is 

only available to a borrower whose default has been (or will 

be) reported and whose loan is in collection, in other words, 

a borrower who has rejected a repayment agreement satisfactory to the guarantor. 

While the post-2006 regulations may describe loan rehabilitation as a type of monthly repayment agreement (explained below), it is not “a repayment agreement on terms 

satisfactory to the agency” because it is not a repayment 

agreement that can repay the loan. § 682.410(b)(5)(ii)(D). 

Loan rehabilitation requires that the borrower voluntarily 

make nine out of ten monthly payments (which can be as 

little as $5.00) to demonstrate the borrower’s good-faith intention to repay the loan. § 682.405(b)(1)(iii). The nine token 

payments alone are insufficient to rehabilitate the loan, because the loan must be sold to a new lender for it to be considered rehabilitated. § 682.405(a)(2)(ii). Only after the loan 

is sold to a new lender who establishes a new repayment 

schedule is the loan rehabilitated and back in a standard repayment status. § 682.405(b)(4). Thus, because a loan in the 

process of rehabilitation is still in default and under collection until it is sold to a new lender, “[a] guaranty agency 

may charge the borrower and retain collection costs in an 

amount not to exceed 18.5 percent of the outstanding principal and interest at the time of sale of a loan rehabilitated[.]” 

20 U.S.C. § 1078-6(a)(1)(C) (effective July 1, 2006). 

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E. Loan rehabilitation is not loan repayment. 

Central to Bible’s theory is her claim that the rehabilitation agreement of 34 C.F.R. § 682.405 is the repayment 

agreement in 34 C.F.R. § 682.410(b)(5)(ii)(D). It is not. Although § 682.405(a)(2) states that “[a] loan is considered to 

be rehabilitated only after [t]he borrower has made and the 

guaranty agency has received nine of the ten qualifying 

payments required under a monthly repayment agreement,” 

this is merely a description, not a definition. It does not allow the term “repayment agreement” in § 682.410 to be replaced with “rehabilitation agreement.” A rehabilitation 

agreement may be a type of repayment agreement, but it is 

not the “repayment agreement on terms satisfactory to the 

agency” required by § 682.410(b)(5)(ii)(D). 

There are several reasons why the two agreements are 

not the same. First, it is apparent from their differing levels 

of discretion. Section 682.410 requires that the guarantor offer a repayment agreement “on terms satisfactory to the 

[guaranty] agency.” § 682.410(b)(5)(ii)(D). Quite obviously, 

whether the terms of a particular agreement are satisfactory 

to the guarantor is largely a matter of the guarantor’s discretion. The Department agrees with this. Gov’t. Amicus Br. 8, 

15. On the other hand, the terms of a rehabilitation agreement are mandated by § 682.405(b)(1). The amount and timing of each payment are defined by the regulation, and 

“[t]he agency may not impose any other conditions unrelated to the amount or timing of the rehabilitation payments in 

the rehabilitation agreement.” § 682.405(b)(1)(i)–(vi). According to Bible, every rehabilitation agreement must be a repayment agreement satisfactory to the guarantor because the 

guarantor accepts each agreement. But even that is mandatCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
No. 14-1806 65

ed by the regulation: “A guaranty agency ... must enter into 

a loan rehabilitation agreement with the Secretary. The guaranty agency must establish a loan rehabilitation program for 

all borrowers with an enforceable promissory note for the 

purpose of rehabilitating defaulted loans ... .” 

§ 682.405(a)(1). 

Second, the history of the regulations also demonstrates 

that they are not the same. Section 682.405(a)(2) did not describe the rehabilitation agreement as a “repayment agreement” until September 8, 2006, but § 682.410 always used the 

term. 

Third, a guarantor is prevented from both charging collection costs and reporting the default until it provides the borrower with the opportunity to enter into a repayment 

agreement satisfactory to the guarantor. § 682.410(b)(5)(ii). If 

a rehabilitation agreement necessarily is a repayment 

agreement satisfactory to guarantor, so that the guarantor is 

prevented from charging collection costs, then the guarantor 

would also be prevented from reporting the default. Yet, one 

of the primary purposes of loan rehabilitation is to clear the 

report of default from the borrower’s credit history, including the default reported by the guarantor, which the guarantor must do once loan rehabilitation is complete. 

§ 682.405(b)(3)(i); 20 U.S.C. § 1078-6(a)(1)(C). If timely acceptance of a rehabilitation agreement prevented collection 

costs, then it should also prevent default reporting. But if it 

prevented default reporting, then one of the primary purposes of loan rehabilitation would be pointless. Obviously, 

Bible does not argue that the timely acceptance of loan rehabilitation prevents the report of default because it would be 

absurd. 

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66 No. 14-1806 

Fourth, it is unreasonable to hold that a rehabilitation 

agreement is “satisfactory to the agency” for actual repayment of the loan. Id. The loan rehabilitation’s “monthly repayment agreement” is only part of the agreement. The nine 

token payments are used to prove the borrower’s good-faith 

intention to repay the loan once it is purchased by a new 

lender, not to repay the loan to the guarantor. It is the new 

lender that sets the actual repayment schedule that will repay the rehabilitated loan. 34 C.F.R. § 682.405(a)(2)(ii), (b)(4). 

In Bible’s case the loan rehabilitation payments did not even 

cover the interest accruing on her loans. 

F. The Barnes/Black litigation does not support Bible’s 

theory that loan rehabilitation is loan repayment. 

The Department’s brief in Ed. Credit Mgmt. Corp. v. Barnes, 

318 B.R. 482 (S.D. Ind. 2004), aff’d sub nom. Black v. Educ. Credit Mgmt. Corp., 459 F.3d 796 (7th Cir. 2006), does not support 

Bible’s theory. Bible misrepresents the Department’s brief in 

Barnes just as she does the regulation’s description of a rehabilitation agreement. In Barnes, the Department intervened 

in a bankruptcy proceeding to defend 34 C.F.R. 

§ 682.410(b)(2), the section of the regulation that allows a 

guaranty agency to charge collection costs based on a flatrate formula. The Department was defending the regulation 

from the bankruptcy trustee’s challenge that the use of the 

flat-rate formula for charging collection costs was arbitrary 

and capricious. Bible relies on a particular passage from the 

Department’s brief: 

Department rules require the guarantor who 

acquires a loan by reason of the default of the 

borrower ( ... ) to charge collection costs only 

after providing the debtor an opportunity to contest 

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the debt and to enter into a repayment arrangement 

for the debt. 34 C.F.R. § 682.410(b)(5). The guarantor, moreover is not bound by the original 

loan repayment schedule, but can agree to any 

repayment arrangement that debtor can afford, 

regardless of the amount of time needed to pay 

the debt off under that arrangement. See 20 

U.S.C. § 1078-6(a) (defaulter may have loan rehabilitated and default status cured after 12 installment payments to the guarantor); § 1078-

6(b) (defaulter may regain eligibility for new 

student aid after six reasonable and affordable 

payments based on the borrower’s total financial circumstances). 

The regulations therefore direct guarantors 

to charge collection costs only to those debtors 

who cause the guarantor to incur collection 

costs by failing to agree promptly to repay voluntarily. 

Appellant’s App. 55 (emphasis added; last emphasis in original). 

As part of its much larger effort to prove that the regulation’s use of a flat-rate formula was reasonable, the Department briefly explained that the same regulation allowed borrowers to avoid collection costs if they promptly agreed to 

repay voluntarily. In its explanation, the Department was 

clearly referring to the repayment agreement of § 682.410, 

not the rehabilitation agreement of § 682.405, as is evident 

from the brief’s straightforward citation to § 682.410(b)(5). 

The Department went on to explain that the guarantor is not 

bound in a repayment agreement by the original repayment 

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schedule. According to Bible, because the Department supported this subsequent proposition with a citation to the 

loan rehabilitation statute, 20 U.S.C. § 1078-6, the Department was somehow explaining that a guarantor is prevented 

from charging collection costs if a borrower timely accepts a 

rehabilitation agreement. It was not.2 

When we affirmed Barnes, we held that the Higher Education Act (HEA) expressly allows a guarantor to impose 

collection costs on rehabilitated loans: 

Nothing in the HEA prohibits a guaranty agency from assessing collection costs as a flat-rate 

percentage upon rehabilitation. To the contrary, 

the statute explicitly provides that “[a] guaranty agency may charge the borrower and retain 

collection costs in an amount not to exceed 18.5 

percent of the outstanding principal and interest at the time of sale of a loan rehabilitated.” 

20 U.S.C. § 1078–6(a)(1)(C). Thus, even if 

Barnes’s loans could have been rehabilitated 

through his Chapter 13 proceeding, the 18.06% 

that ECMC charged Barnes for collection costs 

 2 The Department cited § 1078-6 with a “see” introductory signal, 

which is used when “there is an inferential step between the authority 

cited and the proposition it supports.” THE BLUE BOOK: A UNIFORM 

SYSTEM OF CITATION 58 (Columbia Law Review Ass’n et al. eds., 20th ed. 

2015). The citation’s inferential step is that repayment agreements are 

like rehabilitation agreements in that they are not bound by the original 

repayment schedule. Whereas, Bible would have the inferential step be 

that rehabilitation agreements are like repayment agreements in that the 

borrower can avoid collection costs. For that to be the case, the citation 

would have had to support the sentence before the one it did. 

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falls within the bounds of what is allowed under the HEA’s loan rehabilitation provisions. 

Black, 459 F.3d at 803. In so holding we did not disagree with 

the Department’s interpretation of its rules. On the contrary, 

we agreed with the Department, which then told us in its 

brief: 

Furthermore, the Trustee’s argument rests 

upon a mistaken assumption that rehabilitation 

would have enabled Barnes to pay lower collection costs. The Trustee suggests that, if 

Barnes has rehabilitated his loan, ECMC could 

not have assessed collection costs at a flat rate. 

According to the Trustee, ECMC could have 

recovered only the actual costs that it incurred 

in collecting Barnes’ student loan during the 

period leading up to rehabilitation. 

But the regulation governing rehabilitation 

plainly allows a guaranty agency to assess collection costs at a flat rate as long as the rate 

does “not exceed” 18.5 percent. See 34 C.F.R. § 

682.405(b)(1)(iv). 

Br. for Appellee Secretary of United States Department of 

Education, Black, 459 F.3d 796, 2005 WL 3738503, at 33 (citation omitted). Neither we nor the Department recognized a 

special exception that would have prevented a guarantor 

from charging a borrower collection costs on rehabilitated 

loans. We plainly said that “[n]othing in the HEA prohibits a 

guaranty agency from assessing collection costs as a flat-rate 

percentage upon rehabilitation.” Black, 459 F.3d at 803 (emphasis added). Nothing in the Barnes/Black litigation supCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
70 No. 14-1806 

ports the theory that Bible, and now the Department, advances.3 

 

3 In its brief before the district court in Barnes, the Department made 

clear that guarantors must charge collection costs or those costs will be 

borne by the taxpayer: 

To restate the problem which the regulation addresses: the student loan guarantor must recover enough 

to meet its collection costs, or those costs will be charged 

to the taxpayer—exactly what §484A [20 U.S.C. 1091a(b)] 

was intended to prevent. 

Appellant’s App. 66. The Department also disagreed that collection costs 

assessed by the flat-rate formula could be unreasonable if the costs are in 

excess of actual costs. Its argument concerned the costs incurred by a 

guarantor who uses a collection contractor, such as USA Funds used 

GRC: 

A debtor may object that a contractor incurred only 

modest costs in generating a particular payment, and 

that the contingent fee earned by the contractor for 

payment exceeds the “actual costs” of collecting that 

amount. Such an objection misses the point: the creditor 

incurs a negotiated contingent fee owed to the contractor 

for that payment, regardless of the effort needed by the 

contractor to secure that particular payment. The creditor must pay the contractor, and that cost is a real expense for the guarantor, and one incurred solely because 

the debtor previously has failed to pay the debt. Because 

the guarantor incurs that fee, the guarantor can, and 

must, pass that real cost on to the debtor. Debtors whose 

loans have been referred by guarantors to contingent fee contractors for collection action have no basis for objecting to liability for a contingent fee charged as a “flat rate” percentage of 

the payment recovered.

Appellant’s App. 60 (emphasis added). 

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G. The regulation’s collection-cost provisions contain 

no exemption for rehabilitated loans. 

Bible’s theory is contrary to the plain language of the 

statutes and regulations because nowhere do the statutes 

and regulations contemplate that “reasonable costs” equals 

“no costs” for borrowers who timely enter into a rehabilitation agreement. See 20 U.S.C. §§ 1078-6, 1091a; 34 C.F.R. 

§§ 682.405, 682.410. That is why we held in Black that 

“[n]othing in the HEA prohibits a guaranty agency from assessing collection costs as a flat-rate percentage upon rehabilitation.” Black, 459 F.3d at 803 (emphasis added). The regulation’s only exception for collection costs refers to limiting

collection costs to 18.5% on rehabilitated and consolidated 

loans. § 682.410(b)(ii)(2) (“Except as provided in §§ 

682.401(b)(18)(i) and 682.405(b)(1)(iv)(B)”). Plainly, collection 

costs cannot be limited on rehabilitated loans unless they are 

first allowed. 

Bible’s theory tries to explain this incongruity by saying 

that the regulations’ references to collection costs refer to 

those borrowers who fail to timely agree to loan rehabilitation, or fail to honor the agreement. This cannot be the case. 

First, the regulations’ references to collection costs do not refer to a borrower who fails to honor the rehabilitation 

agreement because the limitation applies “at the time of the 

loan sale,” 20 U.S.C. § 1078 6(a)(1)(D(i)(II)(aa), and the loan 

cannot be sold unless the borrower honors the rehabilitation 

agreement, § 1078-6(a)(1)(A). Second, and more importantly, 

the references do not refer to a borrower who fails to agree 

to loan rehabilitation within the 60-day deadline because 

there is no deadline for loan rehabilitation. 

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The regulatory scheme does not require that a guarantor 

offer loan rehabilitation, only that the guarantor have a program where “[a] borrower may request rehabilitation of the 

borrower’s defaulted loan held by the guaranty agency.” 

§ 682.405(b)(1) (emphasis added). It was not until 2010 that 

the regulation was amended to require guarantors to 

“[i]nform the borrower of the options that are available to the 

borrower to remove the loan from default, including an explanation of the fees and conditions associated with each option.” § 682.410(b)(5)(vi)(M) (effective July 1, 2010; emphasis 

added). When the Department finalized the regulations in 

2006, they said, “We believe the regulations accurately reflect 

the HEA and Congressional intent. Borrowers must request, or 

in some fashion initiate, loan rehabilitation so that the period 

during which the 9 qualifying payments must be made is 

clear for both the guaranty agency and the borrower.” 71 

Fed. Reg. 64389 (Nov. 1, 2006) (emphasis added). 

Thus, the regulations do not require a guarantor to offer 

rehabilitation, but merely to make rehabilitation available. If 

there is no requirement to offer rehabilitation, and therefore 

no deadline, then there is nothing to gauge whether a borrower has “timely” or “promptly” entered into a rehabilitation agreement. This is the whole reason for Bible’s equivocation between a rehabilitation agreement and a repayment 

agreement satisfactory to the guarantor. Bible needs the repayment agreement’s deadline to create the special category 

of borrowers who “promptly” enter into rehabilitation 

agreements. But as I have explained at length above, the rehabilitation agreement of § 682.405 is not a repayment 

agreement satisfactory to the guarantor of § 682.410. Without 

Bible’s fictitious special category, the regulations allow costs 

on rehabilitated loans without exception. 

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Simply put, nowhere do the statutes or regulations say 

that collection costs may be assessed except when, or unless, 

the borrower timely agrees to loan rehabilitation and honors 

that agreement. Bible’s interpretation would turn loan rehabilitation into a kind of at-will deferment. A borrower could 

make no payment on her loans for nine months and then 

make only token payments for another nine months, all 

without collection costs, only to have her loan purchased by 

a new lender and the default erased from her record. This 

was not what Congress intended. As explained by the Department in 2006: 

We believe the regulations accurately reflect 

the HEA and Congressional intent. ... Additionally, a reasonable and affordable payment 

amount needs to be established, and the consequences of loan rehabilitation, such as the addition of collection costs to the rehabilitated loan 

amount, the post-rehabilitation payment period 

and the likely increased payment amount, 

need to be explained to the borrower. 

71 Fed. Reg. 64389 (emphasis added). 

H. Bible takes advantage of the guarantors’ practice of 

offering loan rehabilitation at the same time as loan 

repayment. 

Bible obfuscates the regulations in another way. She takes 

advantage of the fact that USA Funds offered her loan rehabilitation at the same time as it offered her loan repayment. 

The regulations do not require that the guarantor immediately offer a defaulted borrower loan rehabilitation. Nevertheless, the current practice—at least as practiced by USA 

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74 No. 14-1806 

Funds in this case—appears to be for the guarantor to offer 

loan rehabilitation at the same time it offers loan repayment. 

The Department endorses this method of giving the borrower a choice. Its website states: 

You have several options for getting your loan 

out of default. These include 

• loan repayment 

• loan rehabilitation, and 

• loan consolidation. 

Addendum to Appellee’s Response to Gov’t Amicus Br. The 

Department clearly describes loan repayment and loan rehabilitation as separate options and gives the impression that 

they are options provided concurrently. (Loan consolidation 

is also a separate option, but is not at issue in this case.) The 

Department’s description of loan repayment does not mention collection costs, whereas its description of loan rehabilitation does. Id. (“Outstanding collection costs may be added 

to the principal balance.”). The Department’s description of 

loan rehabilitation includes collections costs because the 

regulations allow them. 71 Fed. Reg. 64389 (“the consequences of loan rehabilitation, such as the addition of collection costs to the rehabilitated loan amount ... need to be explained to the borrower”). 

When a guarantor offers loan rehabilitation at the same 

time as loan repayment there is an incentive for the borrower 

to choose loan rehabilitation because it is less expensive in 

the short term. But by choosing loan rehabilitation, the borrower necessarily rejects loan repayment. Because the borrower rejects loan repayment, the guarantor must report the 

default and assess collection costs. And, remember that the 

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No. 14-1806 75

guarantor is prohibited from charging collection costs before 

offering loan repayment. So, when the guarantor offers loan 

rehabilitation at the same time as loan repayment it is not 

allowed to assess collection costs until the borrower chooses 

loan rehabilitation, thereby rejecting loan repayment. If the 

borrower has not previously defaulted, then collection costs 

will be zero when loan rehabilitation is offered. 

This practice is entirely permissible under the regulations 

as long as the guarantor meets the separate requirements for 

each option. Borrowers are not harmed by the practice, so 

long as they receive the necessary warnings regarding collection costs and other consequences. As can be seen from an 

examination of GRC’s correspondence with Bible, this was 

the practice followed here. 

I. Bible fails to state a claim for either breach of contract or RICO because USA Funds and GRC complied with the regulations. 

The default letter sent by GRC to Bible stated: “Without a 

dispute, failure to pay the account in full, agree to a satisfactory repayment arrangement, or utilize another recovery option as outlined on the attached insert, may result in additional collection efforts.” Appellant’s App. 131. At the top of 

the attached insert was a call-out box which stated in bold 

type: “If you are unable to pay in full the outstanding balance on your defaulted loan(s), call a representative to find 

out which of the following additional options you qualify 

for.” Id. at 133. The insert then listed three additional options: 1) “Alternative Payment Arrangements,” 2) “Loan Rehabilitation,” and 3) “Loan Consolidation.” Id. 

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76 No. 14-1806 

The first option, “to pay in full the outstanding balance 

on [the] defaulted the loan(s)” and the additional option, 

“Alternative Payment Arrangements,” were both the “repayment agreement on terms satisfactory to the agency” of 

§ 682.410. By paying the outstanding balance in full, Bible 

would have avoided collection costs and the report of default.4 By choosing “Alternative Payment Arrangements,” 

Bible would have avoided the default but not collection 

costs. USA Funds’ description of the “Alternative Payment 

Arrangements” stated that “[a] portion of each payment received from you will be allocated to pay collection costs.” Id. 

But Bible chose neither of those options. Instead of choosing 

loan repayment, Bible chose loan rehabilitation, which USA 

Funds described as “the opportunity to resolve a loan default and improve your credit record by removing the guarantors’ report of your loan default.” Id. GRC also informed 

Bible that “[a]s part of your eligibility for loan rehabilitation, you 

will be assessed collection costs at a reduced rate of 18.5% of 

the outstanding balance at the time your loan is purchased 

by an eligible lender, and the purchasing lender may add 

these costs to your outstanding loan principal.” Id. (emphasis added). By choosing loan rehabilitation Bible rejected 

loan repayment, thereby incurring the collection costs permitted under the statutes and regulations. 

 4 Bible’s MPN included an acceleration clause that made the entire 

unpaid balance of Bible’s loan immediately due and payable in the event 

of default. Appellant’s App. 122. It also states that “the guarantor may 

purchase [her] loans and capitalize all then-outstanding interest into a 

new principal balance, and collection fees will become immediately due 

and payable.” Id. 

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No. 14-1806 77

Both the default letter and the loan rehabilitation application letter listed Bible’s current collection-cost balance on 

each of her four loans as zero because it was. Appellant’s 

App. 132, 137. USA Funds was prohibited from charging collection costs until Bible acted on its offer of loan repayment, 

or the offer expired. 34 C.F.R. § 682.410(b)(5)(ii). Had Bible 

paid her account in full she would have avoided collection 

costs, but she did not, she chose loan rehabilitation. When 

she chose loan rehabilitation she rejected loan repayment 

and collection costs began accruing. By choosing loan rehabilitation Bible agreed “that the lender may capitalize collection costs of 18.5% of the outstanding principal and accrued 

interest upon rehabilitation of my loan(s).” Appellant’s App. 

139. 

USA Funds abided by the statutes and regulations. USA 

Funds neither breached the contract nor committed fraud. 

For this reason, Bible’s breach of contract claim and RICO 

claim should be dismissed. 

J. We cannot give deference to the Department’s interpretation because the statutes and regulations unambiguously allow collection costs and because the 

Department’s interpretation is unreasonable, inconsistent with prior interpretations, and without warning. 

The Department—in response to our request for an amicus brief—claims that it has always interpreted its regulations to provide an exception to collection costs when a borrower promptly enters into a rehabilitation agreement and 

complies with that agreement. It also claims that its interpretation deserves deference under Chevron, U.S.A., Inc. v. NatuCase: 14-1806 Document: 48 Filed: 08/18/2015 Pages: 82
78 No. 14-1806 

ral Res. Def. Council, Inc., 467 U.S. 837 (1984), and Auer v. Robbins, 519 U.S. 452 (1997). 

The Department’s interpretation is not entitled to deference. First, Congress may have left it up to the Department 

to define “reasonable collection costs,” but the Department 

has already clearly defined the term, 34 C.F.R. 

§§ 682.410(b)(2)(i), 682.405(b)(1)(vi)(B), and we need look no 

further. The regulations define “reasonable collections costs” 

with a flat-rate formula that must be capped at 18.5% of the 

principal and accrued interest for rehabilitated loans. Id. See 

also Department’s letter to guaranty agency directors, infra at 

79. The definition the Department now advocates does not 

comport with those regulations. Instead, the Department’s 

interpretation amounts to a new rule that determines when

costs will be charged for rehabilitated loans, not what those 

costs will be. That was not a gap “explicitly left [] for the 

agency to fill.” Chevron, 467 U.S. at 843. Congress stated 

quite explicitly that a guarantor may charge the borrower 

collection costs on a rehabilitated loan. 20 U.S.C. § 1078-

6(a)(1)(D)(i)(II). We are not allowed “to permit the agency, 

under the guise of interpreting a regulation, to create de facto

a new regulation.” Christensen v. Harris Cnty., 529 U.S. 576, 

588 (2000). Because the regulation is not ambiguous regarding collection costs for rehabilitated loans, and because the 

Department’s interpretation is plainly erroneous and inconsistent with the regulation, it is not entitled to deference. Id.; 

Auer, 519 U.S. at 461. 

Moreover, the Department’s amicus brief demonstrates 

that its interpretation is entirely new and inconsistent with 

its prior interpretations. See Thomas Jefferson Univ. v. Shalala, 

512 U.S. 504, 515 (1994) (“an agency’s interpretation of a 

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No. 14-1806 79

statute or regulation that conflicts with a prior interpretation 

is entitled to considerably less deference than a consistently 

held agency view” (quotation marks omitted)). The Department’s reasoning appears to be taken wholesale from Bible’s 

briefs with supporting material that actually undermines its 

case. There is nothing in the record that demonstrates that 

the concept existed prior to Bible’s attorneys filing this class 

action. (As I explained above, the Department’s brief in 

Barnes did not advocate the position it now holds.) 

In an effort to provide some record that the Department 

developed this interpretation before Bible’s lawsuit, the Department provided two letters: a 1994 general letter to the 

directors of guaranty agencies and a 1997 letter to the vice 

president of Texas Guaranteed Student Loan Corporation. 

Although the excerpts are long, I include them to show how 

unreasonable and inconsistent the Department’s interpretation is. From the 1994 general letter addressed to the guaranty agency directors: 

[W]e have concluded that the amount of the 

collection costs currently assessed borrowers as 

reasonable under 34 CFR 682.410(b)(2) is not 

reasonable when the borrower has shown the 

initiative to address the default through one of 

these two programs [loan rehabilitation and 

loan consolidation]. Therefore, the Department 

has decided to modify its earlier policy guidance to restrict the amount of collection costs that 

will be considered “reasonable” under these circumstances to be an amount that does not exceed 18.5 

percent of the outstanding amount of principal and 

accrued interest on the loan at the time the agency 

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80 No. 14-1806 

arranges the lender purchase to rehabilitate the loan

or certifies the pay-off amount to the consolidating lender. This percentage is consistent 

with the percentage a guaranty agency is allowed to retain under the loan rehabilitation 

program at the time of lender purchase. 

Gov’t Amicus Br. 3a (emphasis added). This letter contains 

no mention of an exception for borrowers who promptly 

agree to rehabilitation, and it explicitly states that collection 

costs on rehabilitated loans that do not exceed 18.5% of the 

outstanding balance and accrued interest are “reasonable.” 

Now, from the 1997 letter, which the Department sent to 

the loan corporation’s vice president in response to his question concerning collection costs for loan repayment agreements under § 682.410(b)(5)(ii)(D): 

The Department agrees with your interpretation of 34 CFR 682.410(b)(5)(ii)(D) and its interaction with §682.410(b)(2)(i). This provision of 

the regulations provides the borrower an opportunity to enter into a satisfactory repayment 

agreement before the agency either reports the 

default to a credit bureau or assesses collections costs against the borrower as required in 

§682.410(b)(2). You also are correct that “terms 

satisfactory to the agency ...” does not require that 

the loan be paid in full and provides the agency with 

discretion in establishing a satisfactory repayment 

agreement with the borrower. If the agency obtains a signed repayment agreement from the 

borrower within the 60-day period, and the 

borrower begins to make payments, the agency 

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No. 14-1806 81

is not required to assess the borrower collection 

costs. Collection costs related to the default 

would be assessed only if the borrower failed 

to continue to make payments by the repayment agreement. 

Gov’t Amicus Br. 1a (emphasis added). This letter does not 

concern loan rehabilitation at all. Instead, it confirms that 

while § 682.410(b)(2) requires the guarantor to charge collection costs, the provision requiring a “repayment agreement 

on terms satisfactory to the agency” grants the guarantor the 

discretion to not charge costs. That is a far cry from providing 

an exception for borrowers who promptly enter into a rehabilitation agreement and comply with that agreement. In 

fact, the proper inference from the Department’s letter is 

that, since § 682.405 does not grant the guarantor the same 

discretion as § 682.410(b)(5)(ii)(D) does, the guarantor must

charge collection costs on rehabilitated loans. 

To accept the Department’s extraordinary position requires us to hold that a single letter to an assistant vice president of one guaranty agency explaining that the agency has 

the discretion not to charge collection costs under a repayment 

agreement constitutes sufficient notice for the rule that all

agencies are prohibited from charging costs on rehabilitated 

loans. That is hardly the kind of “fair warning” required of 

the Department, especially since Bible seeks to “invoke the 

[Department’s] interpretation of ambiguous regulations to 

impose potentially massive liability on [USA Funds] for 

conduct that occurred well before that interpretation was 

announced.” Christopher v. SmithKline Beecham Corp., 132 S. 

Ct. 2156, 2167 (2012) (quotation marks omitted). 

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The Department’s recent July 10, 2015, letter purporting 

to “restate and clarify the rules” (provided to the court by 

the Department as a “citation of additional authority”) is 

nothing short of an admission that the Department’s rule is 

entirely new. Ultimately, the Department is not interpreting 

the regulations. Instead, 

What [the Department] claims for itself here is 

not the power to make political judgments in 

implementing Congress’ policies, nor even the 

power to make tradeoffs between competing 

policy goals set by Congress. It is the power to 

decide—without any particular fidelity to the 

text—which policy goals [the Department] 

wishes to pursue. 

Michigan v. E.P.A., 135 S. Ct. 2699, 2713 (2015) (Thomas, J., 

concurring) (citation omitted). This raises serious constitutional questions. 

The Department’s interpretation is not entitled to deference. Furthermore, even if the Department truly interpreted 

the statutes and regulations prior to the events of this case as 

it claims, we cannot apply the interpretation to USA Funds. 

To subject USA Funds—indeed, an entire industry—to RICO 

liability based on a rule that was never enforced—and only 

recently announced—is manifestly unjust. 

For all of these reasons, I respectfully dissent. 

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