Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-05428/USCOURTS-caDC-95-05428-0/pdf.json

Parties Involved:
Richard W. Riley
Appellee
Student Loan Marketing Association
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 18, 1996 Decided January 10, 1997

No. 95-5428

STUDENT LOAN MARKETING ASSOCIATION,

APPELLANT/CROSS-APPELLEE

v.

RICHARD W. RILEY, SECRETARY OF THE UNITED STATES

DEPARTMENT OF EDUCATION,

APPELLEE/CROSS-APPELLANT

Consolidated with

No. 96-5016

Appeals from the United States District Court

for the District of Columbia

(No. 95cv00717)

Alan Kriegal, argued the cause for appellant/cross-appellee. Richard L. Brusca, Amy R. Sabrin,

Robert S. Bennett, Timothy G. Greene and Robert S. Lavet were with him on the briefs.

Douglas N. Letter, Litigation Counsel, United States Department of Justice, argued the cause for

appellee/cross-appellant. Frank W. Hunger, Assistant Attorney General, and Eric H. Holder, Jr.,

United States Attorney, were with him on the briefs. Barbara C. Biddle, Assistant Director, entered

an appearance.

Before: WALD, WILLIAMS and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

Concurring Opinion filed by Circuit Judge WALD.

WILLIAMS, Circuit Judge: In the Omnibus Budget Reconciliation Act of 1993, Congress

added § 439(h)(7) to the Higher Education Act of 1965, imposing a 0.3 percent "offset fee" on the

principal amount of each student loan that the Student Loan Marketing Association ("Sallie Mae")

"holds." The Department of Education interpreted the statute as applying to any loan in which Sallie

Mae has a financial interest, and, in particular, to loans that Sallie Mae has "securitized." (A firm

"securitizes" assets by conveying them to a separate entity, typically a "bankruptcy-remote vehicle,"

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which paysthe securitizing firmwith the proceeds of newlyissued securities backed bythe transferred

assets. See Lynn M. LoPucki, "The Death of Liability," 106 Yale L.J. 1, 23 (1996).) Sallie Mae sued

in district court, alleging that the statutory fee was a taking without just compensation and that the

Department's claim that the fee applied to securitized loansran counter to the unambiguous meaning

of the statute.

The district court rejected Sallie Mae's taking claim, but it invalidated the Department's

attempted application ofthe fee to securitized loans. Because the Higher Education Act affords Sallie

Mae benefits roughly approximating the burden of the offset fee, which in any event applies only to

loans acquired by Sallie Mae after the effective date of the amendment, we affirm the decision that

there was no taking. As to the application of § 439(h)(7) to securitized loans, we agree with the

district court that the Department's interpretation of the statute was impermissible. Because the

Department has not yet applied a correct interpretation to loans subject to the sort of arrangements

that Sallie Mae has adopted and proposesfor the future, we reverse and remand to the district court,

for it to remand the case to the Department.

* * *

Under the Guaranteed Student Loan Program the federal government serves as guarantor of

unsecured student loans and subsidizes interest payments on those loans. A single loan may, in the

course of its lifetime, make its way through three different institutionsa bank, a secondary

institution (such as Sallie Mae), and a guaranty agencybefore the federal government finally

intervenes and makes good on its guarantee.

Sallie Mae was established in 1972 to provide lender banks with greater liquidity. See 20

U.S.C. § 1087-2(a). It is a source of financing for participating banks (it makes loans secured by

guaranteed student loans) and a major purchaser ofstudent loansin the secondarymarket. Operating

under a federal charter, it is a for-profit, privately owned corporation, but it also enjoys certain

benefits such as an exemption from state and local taxes other than real estate taxes. See id. § 1087-

2(b)(2).

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Guaranty agencies, usually state-run, non-profit organizations, act as intermediaries for the

federalgovernment. They enter into guaranty agreements with banks and secondary institutions, and,

in the event of default, take over the loan and reimburse the financial institution. See id. § 1075(b).

If the guaranty agency is unsuccessful in collecting the loan, it may file a claim with the Department

of Education for reimbursement. See id. § 1078(c). Federal interest payments and the federal

guarantee are contingent on compliance with elaborate procedures that control every aspect of the

loan, from the initial explanation to the borrower to the dunning methods employed if the loan falls

delinquent. See, e.g., id. § 1080(a), (d); Sallie Mae Funding Corporation, Registration Statement

dated August 7, 1995 ("Registration Statement") 14 (listing "Risk Factors").

The 1993 amendment, § 439(h)(7) of the Higher Education Act, reads as follows:

(A) The Association [Sallie Mae] shall pay to the Secretary, on a monthly

basis, an offset fee calculated on an annual basis in an amount equal to 0.30 percent

of the principal amount of each loan made, insured or guaranteed under this part that

the Association holds ... and that was acquired on or after August 10, 1993....

(C) The Secretary shall deposit all fees collected pursuant to this paragraph

into the insurance fund established in section 1081 of this title.

20 U.S.C. § 1087-2(h)(7) (emphasis added), enacted as part of the Omnibus Budget Reconciliation

Act of 1993, Pub. L. No. 103-66, Title IV, Subtitle B. The fund referred to in subsection (C) is

available for payment on defaulted loans. See 20 U.S.C. § 1081(a).

After enactment of the offset fee provision, the Department learned, through a Sallie Mae

submission to the Office of Management and Budget, that Sallie Mae was planning to securitize a

portion of its loan portfolio and that it believed that securitized loans would be exempt from the fee.

Essentially, Sallie Mae proposed to create a trust that would purchase Sallie Mae loans, financing the

purchase with the proceeds of securities that would be backed by the loans. The income generated

by the loans in the trust would satisfy payments due on the securities. Sallie Mae would continue to

be responsible for administration of the loans under a service contract with the trust and would retain

certain residual financial interests in the trust assets.

On January 13, 1995 Steven Winnick, Acting General Counsel of the Department of

Education, wrote a letter to Sallie Mae's general counsel(the "Winnick letter"), stating the Secretary

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of Education's position on the applicability of § 439(h)(7) to the securitized loans. It was, according

to the letter, "appropriate to interpret the term "holds' [in § 439(h)(7)] to include any loan in which

Sallie Mae holds a direct or indirect financial interest." The letter pointed to the "residual interest"

that Sallie Mae would retain in the trust, as well as to itsrole asservicer of the loans, and argued that

"[n]either the words of [the statute], nor the applicable legislative history, suggests that Congress

intended to limit the Secretary in defining the term "holds' in § 439(h)(7)." The letter made it clear

that the Department was under the impression that Sallie Mae was attempting to evade the fee; it

analogized the case to the "Clifford regulations," under which the Internal Revenue Service had

attributed the income of certain trusts to the grantor in order to prevent income tax avoidance.

Sallie Mae responded with a letter and an attached legal opinion critiquing the Winnick

analysis, and representatives of Sallie Mae also met with Felix Baxter, Deputy General Counsel of

the Department, to press their argument. In a letter dated March 16, 1995 (the "Baxter letter"),

Baxter answered some of the objections made by Sallie Mae and confirmed the view expressed in the

Winnick letter. After another letter from Sallie Mae, its representatives met with the Secretary on

April 12, 1995. He reiterated the Department's position, and Sallie Mae's representatives told him

of their intention to bring suit. Since then, Sallie Mae has securitized about $4 billion in loans (out

of a portfolio of at least $34 billion), in transactionsroughly along the lines of the trust securitization

described to the Secretary.

Taking Claim

As a preliminarymatter, we must addressthe issue of whether we have jurisdiction over Sallie

Mae's taking claim. Sallie Mae requests a declaratory judgment that the offset fee imposed by

Congressis an unconstitutional taking in violation of the Fifth Amendment. Normally a taking claim

against the federal government must be brought as a suit for money damages (i.e., the "just

compensation" that the Constitution assures) under the Tucker Act in the Court of Federal Claims,

28 U.S.C. § 1491, or, for amounts not exceeding $10,000, under the Little Tucker Act in district

court. 28 U.S.C. § 1346(a)(2); see Preseault v. ICC, 494 U.S. 1, 11-12 (1990); Ruckelshaus v.

Monsanto, 467 U.S. 986, 1016-19 (1984). So long as such jurisdiction is available, the plaintiff is

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barred from suing for equitable relief in district court, see Ruckleshaus, 467 U.S. at 1020, or is

required to seek a Tucker Act remedy first, before suing for equitable relief, see Preseault, 494 U.S.

at 11. (The Tucker Act and Little Tucker Act themselves do not normally supply a waiver of

sovereign immunity for equitable relief. See Richardson v. Morris, 409 U.S. 464, 465 (1973).) The

Court has stated broadly that a Tucker Act remedy is available unless "Congress has ... withdrawn

the Tucker Act grant of jurisdiction ... to hear" the claim for compensation. Preseault, 494 U.S. at

12 (emphasis in original, internal quotations and citations omitted).

Despite that broad language, the SupremeCourt hasitselfruled on the merits offederal taking

claims, without making any inquiry as to whether Tucker Act jurisdiction had been withdrawn, and

even though plaintiffs had made no attempt to pursue a Tucker Act remedy. See Concrete Pipe &

Prods. of Cal., Inc. v. Construction Laborers Pension Trust for Southern Cal., 508 U.S. 602 (1993);

Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211 (1986). This could, of course, be

oversight. But in In re Chateaugay Corp., 53 F.3d 478, 493 (2d Cir. 1995), the Second Circuit

offered an explanation for such cases, pointing out that they involved mandates of "direct transfers

of money to the government." Id. For such cases, use of the Tucker Act remedy would entail an

utterly pointless set of activities, as "[e]very dollar paid pursuant to a statute would be presumed to

generate a dollar of Tucker Act compensation." Id. It contrasted cases such as Concrete Pipe and

Connolly with ones involving statutes that burdened "real or tangible property," id., for which the

Tucker Act remedy would be presumptively sensible. Chateaugay's reading of the cases appears

sound. To rephrase its analysis more directly in the language of Preseault, then, in cases involving

straightforward mandates of cash payment to the government, courts may reasonablyinfer either that

Tucker Act jurisdiction has been withdrawn or at least that any continued availability does not wipe

out equitable jurisdiction. Accordingly, we reach the merits.

The Fifth Amendment states that private property shall not "be taken for public use without

just compensation." It does not follow, however, that the imposition of a special regulatory burden

on a person or entity is necessarily a taking. If the regulatory action in question benefits the burdened

persons, and the amount of the burden is "a fair approximation ofthe costs of benefitssupplied," then

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no taking is said to have occurred. United States v. Sperry Corp., 493 U.S. 52, 60 (1989) (quoting

Massachusetts v. United States, 435 U.S. 444, 463 n.19 (1978)); see also Colorado Springs Prod.

Credit Ass'n v. Farm Credit Administration, 967 F.2d 648 (D.C. Cir. 1992); cf. Richard A. Epstein,

Takings 195 (1985) (characterizing benefits conferred by legislation as "implicit in-kind

compensation" for regulatory takings).

In Colorado Springs we considered legislation requiring the healthy banksin the Farm Credit

System to make a contribution to a scheme for bailing out the entire system. Under the scheme

Congress "vindicat[ed] the market's perception that the United States implicitly stood behind the

Farm Credit System" by providing an explicit guarantee. 967 F.2d at 651. Despite the apparent

health of the complaining banks, the rescue operation redounded to their benefit because they were

so "lashed together" with the unhealthy ones that the failure of the latter would have dragged them

down as well. 967 F.2d at 654-55. We found that the various features of the legislation gave the

healthy banks "substantial, concrete, and direct" benefits. Id. at 655. As it would have been

impracticable to show dollar-for-dollar equivalency, the evidence of "rough equivalency of benefit

and burden" was enough to defeat the taking claim. Id. at 656 n.9.

Section 439(h)(7) is different from the bailout legislation assessed in Colorado Springs in a

number of ways. First, the benefits of the Higher Education Act, which are enjoyed by student

borrowers, institutions of higher education, and numerous private and state lending institutions, are

more widely distributed than in Colorado Springs, where many of the farmers who had access to

credit because of the banking system were also owners of the banks in the system. Nonetheless,

because students cannot pledge their human capital in any way paralleling the use of physical capital

as security, the student loan market would likely be a fraction of its current size without the federal

guarantees. And, in fact, there has been a high rate of default on student loans. See Permanent

Subcomm. on Investigations, Abuses in Federal Student Aid Programs, S. Rep. No. 102-58, at 1

(1991). As the largest player in this artificially generated market, Sallie Mae is aperhaps

theprime beneficiary of the loan guarantee fund that the offset fee helps underwrite. This

distinction from Colorado Springs, then, is one of degree.

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Sallie Mae also notes that the fee was passed as part of the 1993 Budget Act for the purpose

of generating government revenue, not to stave off a crisis in the system of which it is a part, as had

been the case in Colorado Springs. Given the application of the offset fee revenue to the guarantee

fund, however, this distinction appears almost immaterial. A third distinction is that Sallie Mae is

already burdened by the requirement that it serve as lender-of-last-resort to students who meet the

federal loan criteria but pose risksthat are excessive in the eyes of all other financial institutions(even

with the guarantee); the offset fee comes on top of that. We return to this issue later in addressing

the prospective nature of the offset fee.

Apart from Sallie Mae's role as a beneficiary of the basic system of loan guarantees, the

government points to a number of specific advantages it has received. We start by discarding three

of them as of little or no relevance: (1) start-up financing from the government permitting Sallie Mae

to borrow at a lower interest rate than would otherwise have been available, see 20 U.S.C. § 1087-

2(b)(3); (2) a market perception that the government would bail out Sallie Mae with federal funds

in the event of widespread defaults; and (3) a statutory capital requirement of two percent of assets,

significantly lower than the roughly eight percent requirement characteristically applicable to the

commercial financial institutions with which Sallie Mae competes, 20 U.S.C. § 1087-2(r)(4);

Oxendine Decl. ¶ 5(c).

The initialseed capital is pure history. Sallie Mae borrowed no funds under this authorization

after 1982 and has fully repaid the debt in accordance with the terms of the agreement. Nowhere in

the agreement did the government reserve the right to impose a future fee on Sallie Mae, and

government exactions eleven years after the last borrowing cannot possibly be viewed as

compensation for previously granted benefits. Many persons and firms receive one-time tax breaks,

as well as other forms of financial incentives, and to hold that this allows legislators forever after to

impose financial burdens upon the earlier beneficiaries would largely gut the takings clause. Imagine

the surprise, for instance, of the holders of land patented gratis by the federal government under the

Homestead Acts if they were to wake up and discover that the government could subject them to a

special tax because of the way title had been acquired, generations before.

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Nor doesthe apparent market perception that the government willuse public fundsto prevent

the failure of Sallie Mae, unsupported by anything in Sallie Mae'sfederal charter or offering circulars

for debt securities, constitute a relevant benefit. While the perception presumably gives Sallie Mae

a distinct advantage over private and state institutions in the secondary student loan market, the

benefit was created inadvertently by the government through its past actions, and not by any

enforceable guarantee made in Sallie Mae's charter or elsewhere.

The two percent capital requirement applicable to Sallie Mae does not set it apart in any

meaningfulwayfromthe other banksin the student loan system. The regulations that establish capital

standards for such banks adjust for the risk of the different types of assets held by banks. Since

federally guaranteed student loans fall into a relatively low-risk category, the capital standard for

Sallie Mae's competitors is, according to Sallie Mae's calculations, uncontested by the government,

20 percent of eight percent, i.e., 1.6 percent. Thus a competitor confining its activities to student

loans would evidently be in a better position than Sallie Mae on this score.

The more persuasive specific benefits accruing to Sallie Mae by virtue of its place in the

Federal Student Loan Program, which the fee in part finances, are these: (1) exemption of debt

offerings from SEC registration requirements; (2) exemption from state and local taxes, 20 U.S.C.

§ 1087-2(b)(2); and (3) access to borrowing from the Federal Financing Bank, 20 U.S.C. § 1087-

2(h)(6), which is said to be at low cost, although Sallie Mae has not borrowed from the bank apart

from the initialseed money loan now fully repaid. District Court Opinion 4; Oxendine Decl. ¶ 5(d).

The most telling ofthese is probably the statutory exemption from state and local tax liability.

Sallie Mae responds bysaying that even without the specific exemption it would qualifyforsuch relief

as a federal instrumentality. See Dep't of Employment v. United States, 385 U.S. 355 (1966). The

explicit statutory exemption at a minimum, however, saves Sallie Mae the burden of litigation to

establish its status, and of course relieves it of any risk that it might be found not to qualify.

Moreover, the exemption is a continuing benefit because Congress could at any time waive Sallie

Mae's immunity from state and local taxes by enacting a clear statement to that effect. Cf. Graves

v. New York ex rel. O'Keefe, 306 U.S. 466, 480 (1939).

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The other benefits also appear material. The exemption from SEC registration requirements

saves Sallie Mae legal and accounting fees. Although Sallie Mae attributes the exemption to the

restrictive nature of itsfederal charter, which largely limitsits operationsto the secondarymarket for

student loans, at a minimum it crystallizes Sallie Mae's special relationship to the market for student

loans and the risk reduction afforded by the government guarantee. Finally, even though Sallie Mae's

non-use of low-cost Treasury borrowing suggests its value is limited, the access to such borrowing

(which isill-defined on thisrecord) may provide a marginalreduction in the risk of future insolvency.

Although Sallie Mae's various advantages are hard to quantify, viewed in the absolute the

Higher Education Act appears to contain the "rough equivalency" that we found sufficient in

Colorado Springs. Sallie Mae argues, however, that by singling it out of all of the "holders" of

government-guaranteed student loans for the payment of the offset fee, Congress unjustly burdened

it for benefits shared by all such holders. In Colorado Springs, however, we rejected a comparable

argument advanced by the complaining banks, in which they claimed that their forced contribution

could notstand because other, unhealthybanksthat were greater beneficiaries ofthe bailout program,

were not required to make the contribution. "The question is not," we said, "whether there were

other subgroups who could or should have borne a greater share of the burden as a policy matter;

the judiciary is not institutionally fitted to undertake such an inquiry." 967 F.2d at 656.

Of course there are limits. One can imagine provisions that, viewed in isolation, provide an

excellent match of benefit with burden, but that also supply identical benefits to a host of similarly

situated entities. The entities to which Sallie Mae compares itself, however, are distinctly different.

On the one hand, there are non-profits and state agencies. But these entities already are exempt from

state and local taxation (to take Sallie Mae's most salient benefit) by virtue of special attributes that

Sallie Mae does not possess. Without a tax exemption, Sallie Mae would occupy the ordinary

position of a for-profit firm in competition with non-profitsan unenviable position, to be sure, but

not an unconstitutional one. (While as a matter of policy Congress has gone some way to levelling

the playing field for non-profits and for-profits, and hasrestricted the abilityof non-profitsto compete

with for-profit entities by means of the tax on unrelated business income, see 26 U.S.C. §§ 511-15;

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United States v. Am. College of Physicians, 475 U.S. 834, 837-38 (1986), no one has eversuggested

that this tax is constitutionally mandated.) The other competitors that Sallie Mae points to as better

treated are for-profit banks in the business of making guaranteed student loans. But these firms

plainly do not enjoy the exemption from state and local taxes. Thus, while the courts must impose

limits on the possible manipulation of benefits and burdens to prevent the unfair singling out that the

takings clause isin part aimed to prevent, whatever mismatch exists here is beyond what the judiciary

is "institutionally fitted" to condemn.

To the extent that the above features leave the matter in doubt, the fee's solely prospective

applicationto loans acquired by Sallie Mae after the effective date of the amendment, August 10,

1993resolvesthem. Purely prospective burdens do not present the same constitutional difficulties

asretroactive ones, asthe affected parties can take measuresto protect themselves against, or at least

mitigate, the otherwise resulting loss. See In re Thompson, 867 F.2d 416, 422 (7th Cir. 1989); cf.

United States v. Security Industrial Bank, 459 U.S. 70, 82 (1982) (construing bankruptcy provision

as affecting onlypropertyrights acquired after enactment in order to avoid the taking issue that would

otherwise have been presented). Except for the loans acquired pursuant to its responsibility to act

as a lender-of-last-resort, Sallie Mae evidently may cease acquiring loans altogether. Indeed, Sallie

Mae itself, in the context of arguing that its advantages as a government-sponsored entity are trivial,

saysthat it isfree to abandon its specialstatus and turn its business over to a conventional, for-profit

firm. If so, its shareholders could avoid both the fee and the burdens borne as lender-of-last-resort.

More generally, Sallie Mae does not appear to argue that its charter restrictions prevent it from

migrating into deployments of its physical and human capital that would be indisputably free of the

0.3% fee and roughly as profitable as its business before imposition of the fee.

We must reject the claimthat the offset fee imposes an unconstitutional taking on Sallie Mae.

Application to Securitized Loans

On the second substantive issue we again face jurisdictional questions. The Secretary makes

a series of interrelated arguments on the subject. First, he claims that the Winnick and Baxter letters

defining "hold" were not final agency action. Even assuming they were, he contends that, by the time

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of the district court decision, the interpretation was moot because Sallie Mae had undertaken a

securitization transaction that was different from the hypothetical presented to the Department.

Finally, the Secretary asserts that the letters' interpretation of § 439(h)(7) is not ripe for review

because the Department never had an opportunity to consider the particulars of the transaction

actually carried out by Sallie Mae.

Under the Administrative Procedure Act we can review only final agency action. 5 U.S.C.

§ 704; Franklin v. Massachusetts, 505 U.S. 788, 796 (1992). Though the overwhelming bulk of

agency correspondence is probably non-final, in National Automatic Laundry & Cleaning Council

v. Shultz, 443 F.2d 689 (D.C. Cir. 1971), we found final action in an interpretation of law set forth

in a letter from the Administrator of the Wage and Hour Division of the Department of Labor. "[1]

When a published interpretation represents the initial views of an agency, approved by the

Commission or person who heads the agency, [2] when it is the product of the process provided by

the agency for taking into account the position of agency staff as well asthe outside presentation, [3]

when the interpretation is not labeled as tentative or otherwise qualified by arrangement for

reconsideration," then it is final for purposes of judicial review. Id. at 702.

Here all three criteria are satisfied. The Secretary of Education endorsed the interpretation

of § 439(h)(7) set forth in the two letters. In the Winnick letter, the Acting General Counsel of the

Department said that he was communicating the position of the Secretary. In the Baxter letter, the

Department's Deputy General Counsel wrote "we have concluded that our initial view was correct

and that the offset fee would be owed on loans transferred to a business trust," evidently referring to

the position of the Secretary and the Department in the initial letter. And when Sallie Mae's

representatives met with the Secretary, he stood by the Department's interpretation. There is no

doubt that the position stated in the letters was a "marching order[ ]" valid for all of the Department.

NRDC v. Thomas, 845 F.2d 1088, 1094 (D.C. Cir. 1988) (holding that director of relevant

component unit could issue memorandum constituting final agency action even though he was a

subordinate agency official).

The position was stated unequivocally. Although the Winnick letter said "[w]e will be glad

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to review the details of any particular transaction that Sallie Mae believes is an outright sale rather

than a continued holding," the preceding paragraphs made it abundantly clear that, on the issue of

whether any direct or indirect financial interest was enough to hold a loan, and on the issue of

whether, in a "typical securitization" the assets in question would cease to be "held" by Sallie Mae,

the Secretary had made up his mind. The second letter and the meeting with the Secretary confirmed

that the Department's view was definitive.

Finally, the Winnick letter and the later developments overwhelmingly suggest that the

Department'sinterpretationwasthe product of agencydeliberation informed bySallie Mae's position.

Assuming the Winnick letter may have been inadequate on thisscore, it wasfollowed by Sallie Mae's

letter and legal memorandum, the meeting with Deputy General Counsel Baxter, the Baxter letter,

and, finally, the meeting with the Secretary himself. It seems inescapable that the agency had

adequate opportunity to deliberate, to bring staff expertise to bear, and to consider the implications

of its interpretation, and that it did so.

The Secretary's mootness suggestion rests on the point that the securitizations actually

performed by Sallie Mae have differed in some detail from those described to him in the

communications leading to his letter determinations. Accordingly, he says, the district court's

judgment was merely a "ruling in the abstract." The conclusion does not follow from the premise.

Ifthe actualsecuritizations differed so drastically fromthe one outlined to the Secretary asto suggest

that in the future Sallie Mae would not pursue securitizations with substantially the same

characteristics that elicited the Secretary's analysis, the argument would make sense. But the

Secretary makes no claim that the differences are great enough to carry any such implication.

The Secretary finally argues that Sallie Mae's claim is not ripe. Recognizing that ripeness

characteristically turns on whether the issues are fit for judicial review and whether the plaintiff will

suffer hardship from delay of adjudication, see Abbott Laboratories v. Gardner, 387 U.S. 136, 148-

49 (1967), the Secretary claims that Sallie Mae will suffer no hardship. This conclusion is clear, he

says, from the fact that Sallie Mae went forward with securitizing loans even before the district court

ruled.

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In the regulatory context, the conventional treatment of hardship focuses on the dilemma of

a party that must either incur the costs of obeying a regulation it believes invalid, or violate the

command and run the risk of significant penalties. See id. at 152-53. Where conformity to a

regulation would impose a large capital cost and no material operating costs, of course, a firm that

conformed to the mandate could well be said to have mooted its hardship. A one-time capital

investment will have been made and there will be no more hardship to be suffered. For a regulation

that imposed operating costs but no capital costs, however, the actual choice of the firm to comply

or not comply during the period of legal uncertainty would not, standing alone, materially contradict

the claim of hardship. Compliance or non-compliance with this type of regulation would show only

that the firm had chosen the least bad option in the light of the risks.

A legally disputable fee presents a firm with comparable trade-offs. Most obviously, a firm's

choices would include (1) persisting in conduct that is plainly subject to the fee, (2) abandoning any

semblance of that conduct, and (3) devising substitutes for the burdened conduct that, in the firm's

opinion, reduce the probability that the fee will apply but that presumably entail some costfor

otherwise the firm would have employed the substitutes anyway. For a fee that does not require a

one-time, lump-sum payment, but rather is calculated on a continuing basis as a percentage of the

firm's volume of business, the firm's choice among these possibilities is as uninformative about the

hardship created by the prolongation of legal uncertainty as the choice made by the firm subject to

an operating-costs-only regulation.

Here the case isslightly more complicated. Sallie Mae evidently would regard securitization

as desirable for part of its portfolio even in a world completely free ofthe offset fee. Of the over four

billion dollars in loans now securitized, it had acquired $800 million before the effective date of the

statute; as they were not subject to the offset fee under any reading of § 439(h)(7), avoidance of the

fee could not have been any part of Sallie Mae's motivation. Indeed, Sallie Mae's vice president and

controller explained that (1) securitization is part of the firm's effort to "demonstrate to the equity

market its ability to finance its business cost effectively as a state chartered corporation," Overend

Decl. at 12, but that at the same time (2) securitization entails higher transaction costs than those

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incurred in Sallie Mae's "traditional debt issues," id. We do not claim to fully understand the nuances

of Sallie Mae's strategy (which were not central to development of the record), but it is obviousthat,

at the margin, the risk of the offset fee alters the balance between conventional debt and

securitization. Sallie Mae's securitization of $3.2 billion in loans subject to a risk of the fee shows

only that, given its appraisal of the costs and benefits of the alternatives available to it, it regarded

$3.2 billion as the optimal amount. By the same token, its uncontradicted allegations show that the

risk is a factor in that balance, so that its continued exposure to the risk alters its conduct in a costly

way. That is enough.

Accordingly we reach the merits of Sallie Mae's attack on the Department's ruling that the

term "holds" includes "any loan in which Sallie Mae holds a direct or indirect financial interest."

Winnick letter at 2. We must uphold the agency if its interpretation flows from the unambiguous

meaning ofthe statute or is a reasonable construction of ambiguousstatutorylanguage. See Chevron

U.S.A. Inc. v. NRDC, 467 U.S. 837, 842-43 (1984).

Sallie Mae starts with something of an ace. Although the Higher Education Act does not

define the verb "holds," the precise word used in § 439(h)(7), it does define the noun "holder" for

purposes of the Act, specifically as "an eligible 

lender who owns a loan." 20 U.S.C. § 1085(i). Although it is possible that the definition

applies only when the word appears in the form of a noun, such a reading is not on its face very

plausible. Cf. United States v. Granderson, 511 U.S. 39, 46 (1994) (noting "textual difficulty" in

party's proposing to give different constructions to term used both as a noun and a verb in the same

statutory proviso). But see Indiana Michigan Power Co. v. Dep't of Energy, 88 F.3d 1272 (D.C.

Cir. 1996) (finding different meaning where context supported such an interpretation). This is

especially the case where, as here, the common meaning and the statutory definition of the word

overlap. For instance, Webster's Third New International Dictionary Unabridged 1078 (1961),

defines the verb "to hold" as "to retain in one's keeping: maintain possession of: not give up or

relinquish: possess, have." Nothing in the common meaning of "to hold" belies resort to the statutory

definition of "holder" to illuminate the meaning of the verb form. Nor does Webster'sinclude among

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the meanings of "hold," occupying two long columns of fine print, anything remotely resembling the

Secretary's idea that one holds anything in which one has any financial interest.

The Secretary offers a structural argument for supposing that, even though a "holder" means

an "owner," "holds" does not mean "owns." He points to a specific provision in the statute that, he

argues, draws a distinction between the two:

Loans made by eligible lenders in accordance with this part shall be insurable by the

Secretary whether made from funds fully owned by the lender or from funds held by

the lender in a trust or similar capacity and available for such loans."

20 U.S.C. § 1076 (emphasis added).

We think the argument affords him little help. First, the provision does not relate to the

context in which the term "holder" in the general statutory definition is linked with the term "holds"

in § 439(h)(7), namely, the task of identifying the "holder" of, or who "holds," a loan. Instead, the

section refers to the distinct issue of the type of ownership that is permissible for student loans,

namely, both "full[ ]" ownership and ownership of only legal title, without the beneficial interest.

Second, although the section employs the terms "owned" and "held" independently, it does so in a

context where that drafting choice makes no difference whatever: the point of § 1076 is simply to

make clear that even a person holding (or owning) funds as trustee is an eligible buyer.

Of course the section recognizes that there is some elasticity in the idea of ownership,

stretching (at least) from "full[ ]" legal and equitable title to legal title, but that is completely different

from breaking down the apparent statutory equation of holding and owning. We will return to the

issue of what "owns" means shortly in a discussion of the flexibility left to the Secretary under our

reading of § 439(h)(7).

The Secretaryalso contendsthat Sallie Mae, through a representationmade in itsRegistration

Statement, admitsto holding securitized loans under its own view of the meaning of "hold." A lender

may make a consolidation loan only if that lender "holds" a student loan, or is approached by a

borrower who certifies that none of the current holders of the borrower's existing loans offers

consolidation loans. See 20 U.S.C. § 1078-3(b)(1)(A). Since Sallie Mae's Registration Statement

statesthat it will continue to make consolidation loans available to borrowers whose loans have been

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transferred to the trust, Registration Statement at 24, the Secretary argues that Sallie Mae must

believe that it willstill "hold" those loans. But Sallie Mae's representation carries no such implication.

Sallie Mae can relinquish ownership of loans when they are put into the trust, but then repurchase

them when it wishes to make consolidation loans; evidently it does exactly that.

As to legislative history, the litigants have pointed to none shedding any direct light on the

meaning of "holds," "owns," or "holder," and we have discovered none on our own.

In seeking to break out from the apparent statutory equation of holding and owning, the

government notes that Congress is not bound by the statutory canon that the same word used in

closely related provisions of a statute should be expected to have the same meaning. See Atlantic

Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433 (1932). It therefore turns to broad

arguments about the purpose ofthe statute, aimed at showing that Congress could not have intended

that the term "holds" in § 439(h)(7) be governed by § 1084(i)'s definition of "holder." In its core

form, the argument is an assertion that, if the Secretary's view is rejected, the government might

collect less revenue than Congress had hoped. Obviously this goes much too far. If accepted, it

would allow the government to assess the fee even if Sallie Mae completely dropped its current

business and instead dedicated itself wholly to the provision of services related to student loans.

Further, the Secretary's exclusive focus on revenue assumesthat Congress's primary goalwas

ipso facto its only goal. "But no legislation pursues its purposes at all costs." Rodriguez v. United

States, 480 U.S. 522, 525-26 (1987). We see no evidence that § 439(h)(7) was the product of

monomaniacs. Congress clearly tempered its desire for revenue with a careful selection of

meansimposition of a fee on Sallie Mae proportional to the dollar amount in loans that Sallie Mae

"holds" (and acquired after the date of enactment). That choice must also be honored.

A closely related argument is the Secretary's suggestion that, in the absence of his

interpretation, Sallie Mae would be able to "evade" or "avoid" the fee. See Baxter letter at 2, 3. The

two deserve separation. Persons are permitted to structure their affairs so as to reduce the incidence

of taxation. See Bullen v. Wisconsin, 240 U.S. 625, 630-31 (1916) (Holmes, J.). They may "avoid"

the payment of burdens that would flow from persisting in the status quo. They typically may not,

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however, "evade" burdens, i.e., escape a tax by engaging in sham transactions that preserve the

economic reality of the relationship that Congress has burdened.

It seems doubtful if even the Secretary seriously thinksthat, to prevent evasion, it is necessary

to define "holds" as embracing "any loan in which Sallie Mae holds a direct or indirect financial

interest." One of the purposes of Sallie Mae's enabling legislation was to enrich the supply of funds

for student loans by enabling lenders to borrow capital from Sallie Mae using student loans as

security. See 20 U.S.C. §§ 1087-2(a), 1087-2(d)(2). If the Secretary's formula were right, all loans

in which Sallie Mae held a security interest would be subject to the offset fee, a logical application

that the Secretary nowhere asserts.

In the pertinent letters, theDepartment also offered more restrained analyses ofthe underlying

theory behind the fee:

The offset fee is intended to partially repay the taxpayers, in the form of the FFEL

[Federal Family Education Loan] program fund, for the benefits Sallie Mae has

received from its statutory role in the FFEL program. In addition, the fee is intended

to help "even the playing field' in the student loan secondary market by reducing the

financial advantage Sallie Mae has over othersecondarymarkets because of itsstatus

as a Government Sponsored Enterprise.

Winnick letter at 1.

These ideas ofimplicit reciprocity are, of course, akin to the very groundsthat we considered

earlier in rejecting Sallie Mae's argument that the fee effected a taking of its property. The Secretary

does not explain why accomplishment of these purposes cannot be achieved within the notion of

ownership that the statute itself employs. Moreover, other parts of the Secretary's statements engage

in an analysis suggesting reconciliation of those purposes with the idea that § 439(h)(7) covers only

loans owned by Sallie Mae. The Baxter letter, for example, in analysing the hypothetical

securitization transaction, contendsthat Sallie Mae should pay the fee because the holders of "equity"

certificates in the trust receive a "return ... limited to principal and interest and they do not share in

any final profits of the trust." Baxter letter at 1. Here the focus seems to be on which party has a

claim to residual profits, which is characteristically seen astheor at least anessential attribute of

ownership. See, e.g., Henry Hansmann, "Ownership of the Firm," 4 J.L. Econ. & Org. 267, 269

(1988). Had the Department developed this line of reasoning, it might have arrived at a permissible

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interpretation of the statute. The rights necessary to ownership for these purposes might, of course,

be different from simple legal title.

The assertion that Sallie Mae must be deemed to "hold" any loan in which it "holds a direct

or indirect financial interest" is flawed not only qualitatively (sweeping up loans that Sallie Mae

cannot in any normal sense of the word be said to own) but also quantitatively. If Sallie Mae had a

5% equity interest in a corporation that owned a loan, but no other financial or control interest in the

corporation, the Secretary's interpretation would subject the entire loan to the fee. Without

addressing whether the Secretary might deem Sallie Mae to be the holder of any part of the loan

under those circumstances, we can say firmly that he could not treat it as the holder of 100%.

Because the Secretary considered Sallie Mae's securitizations under a flawed understanding

of the word "holds" as used in § 439(h)(7), we cannot sustain his conclusion that a securitized

portfolio is held by Sallie Mae. If the offset fee is to be applied to loans securitized by Sallie Mae

under the sort of arrangement proposed by Sallie Mae in itslettersto the Department, or later carried

out in practice, this must occur (if at all) within the statutory terms defining "holder" as equivalent

to "owner."

* * *

We affirm the district court in its rejection of Sallie Mae's claim that the fee effected a taking

of Sallie Mae's property. We affirm the district court's judgment striking down the Department's

ruling that § 439(h)(7) embraces any loan in which Sallie Mae "holds a direct or indirect financial

interest." Because the Department has not applied a correct understanding of "holds" in determining

§ 439(h)(7)'s possible coverage of loanssecuritized by Sallie Mae, we remand the case to the district

court for it to remand the matter to the Secretary.

So ordered.

WALD, Circuit Judge, concurring. I agree with the majority that the fee imposed on loans

held by Sallie Mae under 20 U.S.C. § 1087-2(h)(7) (1994) does not constitute a taking, that the

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Department's interpretation of the fee provision as applying to any loan in which Sallie Mae "holds

a direct or indirect financial interest" is impermissibly broad, and that we must therefore remand for

the Department to apply a correct definition of "holds" in determining whether and how the fee

provision applies to loans securitized by Sallie Mae. I write separately out of an apprehension that

the majority's opinion suggests at times an unduly restrictive definition of "holds" that focuses

excessively on the extent to which Sallie Mae retains an equity stake in the loans or the entity to

which it transfers the loans. While I agree that the extent of Sallie Mae's equity stake in the loans is

significant, I believe that other factors may be equally relevant in determining whether Sallie Mae

could legitimately be said to "hold" the loans. These factors include, for example, the degree to which

Sallie Mae can control the loans, whether Sallie Mae continues to receive financial benefits from the

loans, whether Sallie Mae has a right to buy back the loans, and whether Sallie Mae can control the

trust or corporation to which it transfers the loans. Emphasizing these factors is not incompatible

with the majority's equation of "holds" with "owns," since these factors are often viewed as indicia

of ownership. See, e.g., United States v. 526 Locum Drive, 866 F.2d 213, 217 (6th Cir. 1989)

(holding that in order to have standing to challenge forfeiture of property, where evidence indicates

claimant may be nominal owner, claimant must "present evidence of dominion and control or other

indicia of true ownership," not merely legal title); S.S. Silverblatt, Inc. v. East Harlem Pilot Block

Bldg. 1 Hous. Dev. Fund Co., Inc., 608 F.2d 28, 37 (2d Cir. 1979) (holding that under public housing

programHUD possesses "almost allofthe indicia of actual ownership except the status oftitle holder

of record," where HUD controls planning, development and operation of housing project). Indeed,

the majority itself notes that the "rights necessary for ownership for [purposes of determining the

applicability of the fee provision] might ... be different from simple legal title." Majority opinion at

21.

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