## ~THF, ATIKBRNEY GENERAL OFTEXAS

June2,1972

Hon. Bevington Reed, Commissioner Opinion No. M- 1133 Coordinating Board Texas College andUniversity System Re: Authority of CoorP. 0. Box 12788, Capitol Station dinating Board to Austin, Texas 78711 impose charges for late repayment of loans due under the college student loan program, pursuant to Sections 52.01, et seq., Texas Education Code, and related Dear Dr. Reed: question.

Your recent letter requesting the opinion of this office concerning the referenced matter states, inpart, as follows:
"TheCoordinating Board isconsidering authorization of a fee tobe charged to a HinsonHazlewood College Student Loan borrower when a repayment on a loan isreceived later than ten days following the date thepayment isdue, and we respectfully request your opinion concerning the legality of such aprocedure. Specifically, does the Coordinating Board have statutory authority to assess and collect such charges on Hinson-Hazlewood College Student Loan accounts?
"If it isdetermined that the Coordinating Board doeshave authority to assess and collect such a charge, does such authority extend toboth the federally insured interim notes (negotiated sinceAugust 15, 1971, subsequent topassage of

-5513-. I

Hon. Bevington Reed, page 2, (M-1133)

Senate Bill No. 527and subsequent to the date of our entry into the contract for federal insurance) aswell as to those interim notes negotiated prior to entry into the federal program?
. . . .II
The Texas Opportunity Plan Fund, toprovide loans to college students, was established by theprovisions of Section 50b ofArticle III of the Constitution of Texas. Pursuant to said constitutional authorization, Article 2654g, Vernon's Civil Statutes was enacted, and established detailed procedures for the operation and funding of the Texas Opportunity Plan. Article 2654gwas repealed in its entirety, and recodified as Sections 52.01, et seq., Texas Education Code, by the 62nd Legislature in 1971.

While there isno express provision in these statutes for authority to contract with the student for late charges or fees as such, there isnoprovision therein which could be construed as depriving the Coordinating Board of so contractingwith the student. Furthermore, ashereinafter shown, Section 52.36 of the Code does permit such interest tobe charged as isreasonable and necessary to finance theprogram and expenses incidental thereto.

OnApril 21, 1972, the Coordinating Board made its own interpretation of the statutes andvoted toprovide for an additional interest charge of fivepercent of themonthly payment or $5.00,whichever is less, for student borrowers whose payments become more than ten days overdue. This problem has given the Board substantial concern, and the action was taken because of its expressed need "to improve on the default rate for the loanprogram."

The construction of statutes by the administrative agency charged with their enforcement and administration is entitled to great weight in the courts, andwhile not controlling, such construction in cases of doubt will generally be followed unless clearly wrong. Armco Steel Corp. v. Texas

-5514-Hon. Bevington Reed, page 3, (M-1133)

Employment Commission, 386 S.W.2d 894 (Tex.Civ.App. 1965, error ref., n.r.e.); Attorney General Opinion No. M-1082 (1972); 53Tex.Jur. 2d 276-277, Statutes, Sec. 183;pp.265- 266, Sec. 178.

The statutes here involved, being apart of the Texas Education Code, must be interpreted inaccordance with the rules to aid in the construction of codes set out in Article 5429b-2, Vernon's Civil Statutes, the Code ConstructionAct. The construction aids are declared to apply, whether or not the statutes are considered ambiguous. Section 3.03 requires among other matters, consideration of the object sought to be attained, the consequences of aparticular construction, and the administrative construction of the statute. Section 3.01 authorizes apresumption to be indulged, among other things, that a just and reasonable result was intended and that the public interest is favored over any private interest. Section 3.02 requires that the statutes bepresumed tobeprospective in their operation unless expressly made retrospective.

Furthermore, these revised statutes, under Article 10(8),Vernon's Civil Statutes ".
. .shall be liberally construed with aview to effect their objects and topromote justice." Section 52.32 gives thepower to authorize student loans from the Texas Opportunity Plan Fund, and Section 52.34 of the Education Code provides that,

"Nopayment may be made to any student until he has executed anote payable to the Texas Opportunity Plan Fund for the full amount of the authorized loanplus interest. For thepurposes of this Chapter, a student has the capacity to contract and isbound by any contract executed by him, and the defense that he was aminor at the timehe executed thenote isnot available tohim in any action arising on the note."

-5515-Hon. Bevington Reed, page 4, (M-1133)

Section 52.35 of the Code leaves the term of loans made to the discretion and determination by the Board, consistent with the guidelines that theymust be made induration for the shortest possible period and no longer than tenyears from the student's enrollment, "except as a longer period is authorized formedical students, dental students, and students seeking professional or graduate degrees as authorized under theprovisions of Section 52.38 of this Code."

Section 52.36 of the Code provides that the Board shall annually "fix the interest tobe charged for any student loan at a rate sufficient topay the interest on outstanding bonds plus any expenses incident to their issuance, sale, and retirement."

Section 52.38 of the Code provides formonthly repayment of loans. The time duration and extension of time for repayments is left to the Board's discretion, based on consideration of "financial hardships, with the approval of theAttorney General." Repayments are directed therein tobe made directly to the Board or to aparticipating institution "pursuant to a contract executed by theboard inaccordance with its rules and regulations."

Suit upon automatic default isprovided after the student borrower fails and refuses tomake sixmonthly payments due "inaccordance with an executed note" in Section 52.39 of the Code.
Under Section 52.54(a) and (b)of the Code, the Board isrequired to adopt andpublish rules and regulations to effectuate thepurposes of theprogram and may also adopt rules and regulations forparticipation in the federal guaranteed loanprogram provided by the Higher Education Act of 1965 (20 U.S.C.A. Sec. 421, etseq.). - The specific power of the Board to contract with any governmental agency, business entity or individual in achieving thepurposes of theprogram and theperformance of its functions is set out in Section 52.52.

-5516-Hon. Bevington Reed, page 5, (M-1133)

From the foregoing, itappears that the Legislature has ingeneral terms provided for the Board to administer and finance that student loanprogram, leaving discretion to the Board to carry out the incidental details by thepromulgation of rules and regulations and through thepower to contract with the student for the loan amount, terms, time andprovisions for repayment of the loan, including the fixing of the amount of interest to cover the expenses incident to the financing of thebond obligations. While not specifically mentioned, we think the matter ofproviding, asapart of the voluntary loan contract, for an additional interest charge to cover the expenses incident to collection of delinquent payments which are apart of the total cost of the bond financing program, isnecessarily implied in the general grant of authority to the Board to carry out itsadministration and enforcement of the loanprogram. Such a charge isusual and customary and tobe reasonably expected by theparties in the conduct of all other commercial and business transactions.

We think thepertinent rule of statutory constructionhere applicable is that the statutory grant of such express powers carries with it,by implication, every incidental power that isnecessary and proper to the execution of the powers expressly granted. Terre11 v. Sparks, 104Tex. 191, 135 S.W. 519 (1911); 53Tex.Jur.2d 203, Statutes, Sec. 141.

A statutory construction that the Legislature intended to leave the Board powerless to do anything about late payments and topermit delinquent borrowers tohave the free use of the money borrowed forperiods of time at the expense of thepublic isnot a just and reasonable result and favors theprivate over thepublic interest. We reject such a construction in favor of that adopted by the administrative agency, towhich the Legislature has given the responsibility of supervising and operating the student loanprogram.

We also note that theportion of the Higher Education Act of 1965 dealing with loans to students in institutions of higher learning is theNational Defense Education Act, found

-5517-Hon. Bevington Reed, page 6, (M-1133)

at 20U.S.C. 421, etseq., provides, inpart,That Subsection (c)of 20U.S.C. 425

"Pursuant to regulations of the (U.S.) Commissioner (ofEducation), an institution may assess a charge with respect to a loan from the loan fund established by the institution pursuant to this subchapter for failure of theborrower topay all or any part of an installment when it isdue.

. . ." (Emphasis added.)
Since the Board has entered into a contract to participate in the federal guaranteed loanprogram provided by the Higher Education Act of 1965, itmay adopt rules and regulations providing for additional charges where the borrower fails topay all or anypart of an installment when it isdue.

With respect to those loans not connected with the federal guaranteed loanprogram, we would here point out that theprovision for assessing an additional interest charge as an expense incident to the bond financing program is subject to Board action annually, not later than September 1,under Section 52.36 of the Code. This statute isconstructive notice to the contracting parties andmay be read into the note or contract as apart thereof. Anderson -Berney Realty Co.v. Sovia, 41 S.W.2d 279 (1931),affd. 123Tex. 100, 67 S.W.2d 222; 12Am.Jur.2d 769, Contracts, Sec. 240;Attorney General Opinion No. M-1034 (1971). The charge made should be based upon this consideration and bear aproportional relationship to the amount of theparticular loan asmade.

Your second question concerns whether or not the Board has the authority toprovide for latepayment charges as toboth the federally insured interim notes (negotiated sinceAugust 15, 1972, subsequent topassage of Senate Bill No. 527and subsequent to the date ofyour entry into the contract for federal insurance) aswell as to those interim notes negotiated prior to entry into the federal program.

-5518-. .

Hon. Bevington Reed, page 7, (M-1133)

You have advised that theproposed late charge isconsistent with the requirements of the federally insured student loan program inwhich the Hinson-Hazlewood College Student Loan Program isnow aparticipant, and that you have adopted such amendment, which will be implemented in amanner consistent with the Federal Reserves Regulation 2, Truth and Lending in Consumer Credit Cost Disclosure. Inview of Section 52.54 of the Texas Education Code and the federal statutes and regulations above cited,which constitute constructive notice to allparties at all relevant times and may be read into any notes or contracts executed inconnection with the federal program, andparticularly inview ofyour administrative construction and adoption of the proposal, we also answer your second question in the affirmative.

SUMMARY ------- The Coordinating Board has the authority to promulgate rules and regulations for interest charges on delinquent repayments of student loan accounts pursuant to Sections 52.01, etseq., Texas Education Code, and may so provze for the same in the contracts and notes tobe executed by the student borrower. Such authority extends toboth the federally insured interim notes as well as to those interim notes negotiated prior to entry into the federal program.

Ve ruly yours,

Atto eyGeneral ofTexas Prepared byWilliam J. Craig Assistant Attorney General

-5519-. . .

Hon. Bevington Reed, page 8, (M-1133)

APPROVED: OPINION COMMITTEE

Kerns Taylor, Chairman W. E.Allen, Co-Chairman
Bill Campbell J. C.Davis Jack Goodman Bob Lattimore Houghton Brownlee

SAMUEL D. MCDANIEL Staff LegalAssistant

ALFRED WALKER Executive Assistant

NOLA WHITE First Assistant

-5520-