The opinion of the court was delivered by: BY THE COURT; HARVEY BARTLE, III
This is a putative class action brought by plaintiff Paula Williams, on behalf of herself and other students who were allegedly victimized by a now closed proprietary trade school known as National School of Health Technology, Inc. ("National").
Plaintiff seeks declaratory relief against the United States Secretary of Education ("Secretary") and declaratory and injunctive relief against United Student Aid Funds ("USAF") to prevent the enforcement of her federally guaranteed student loans.
Before the court are the motions of the Secretary and USAF to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted. When considering such a motion, the court must accept as true all allegations in the complaint, and all reasonable inferences which can be deduced therefrom. Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989).
Title IV of the Higher Education Assistance Act of 1965 ("HEA"), as amended, 20 U.S.C. § 1070 et seq., and the regulations promulgated thereunder,
are intended to address the need for financial assistance of students seeking higher education. The HEA provides various grant and loan programs including the Guaranteed Student Loan ("GSL") Program which is at issue here. The Secretary administers the GSL program and serves as the ultimate guarantor of GSL's. Eligible lenders, such as banks, issue guaranteed student loans to the students. 20 U.S.C. § 1085(d). A "guaranty agency" then guarantees to the lenders that the loans will be paid. A guaranty agency may be a state agency or private non-profit agency such as USAF, which has a reinsurance agreement with the Secretary. 20 U.S.C. §§ 1085(j), 1078(c). In the event of default, the guaranty agency pays the holder of the loan pursuant to the terms of the guaranty. The guaranty agency then obtains reimbursement pursuant to its reinsurance agreement with the Secretary for some or all of the funds which it has expended in paying the default claim to the holder of the note. The Secretary pays the guaranty agency a fee for administering the program, advances funds to the guaranty agency to purchase defaulted loans from the lenders, and uses the agency as a collection agent. 20 U.S.C. § 1078(c), 34 C.F.R. § 682.400, et seq. (410(b)(4)). To obtain reimbursement from the Secretary, the guaranty agency must have attempted to collect, with due diligence, a defaulted loan. 20 U.S.C. § 1078(c)(2); 34 C.F.R. §§ 682.200, 682.410(b).
In order for a student who lacks a high school diploma or its equivalent to be eligible for a guaranteed student loan, the school must certify him or her as having the "ability to benefit" from the education offered. 34 C.F.R. §§ 600.11, 668.7(b). The regulations require that, prior to admission, an "ability to benefit" student must demonstrate aptitude on:
a nationally recognized, standardized, or industry-developed test, subject to criteria developed by the institution's nationally recognized accrediting agency or association, that measures the student's aptitude to complete successfully the educational program to which he or she has applied ....
The regulations also require participating schools to maintain a "fair and equitable" refund policy for students who withdraw or are terminated. In the case of schools with default rates over 30 percent, the refunds must be based on a "pro rata" formula. 34 C.F.R. § 682.606.
According to the complaint, plaintiff, Paula Williams, is a 45 year old woman with an eleventh grade education. She enrolled in National's Medical Assistant Program in February, 1989, after passing a "pre-admission" test on her second try. The school arranged for and obtained a GSL from Meritor/PSFS on her behalf. Ms. Williams found that she was unable to do the work required in the program and withdrew from the school after one week. She claims that National induced her to re-enroll a few months later and, as before, the school processed a loan application on her behalf and obtained a second GSL. Plaintiff again withdrew after a few days, having amassed approximately $ 2,700 in loan obligations owing to Meritor/PSFS and guaranteed by USAF. She alleges that her loans are unenforceable because she was fraudulently certified as having the ability to benefit from the education provided by National in violation of 34 C.F.R. §§ 600.11 and 668.7(b), and state law, and because National failed to maintain a "fair and equitable" refund policy in violation of 34 C.F.R. § 682.606 and state law.
THERE IS NO PRIVATE CLAIM FOR RELIEF UNDER THE HEA
Both the Secretary and the USAF move to dismiss plaintiff's claims arising under the HEA, asserting that the HEA does not afford students a private cause of action. Plaintiff concedes that the statute does not afford an express right of action, but contends that the court should find an implied right to enforce the discharge provisions of the 1992 amendments to that statute. Specifically, plaintiff relies on 20 U.S.C. § 1087(c)(1) which provides:
If a student borrower who received, on or after January 1, 1986, a loan made, insured, or guaranteed under this part is unable to complete the program in which the borrower is enrolled due to the closure of the institution or if such student's eligibility to borrow under this part was falsely certified by the eligible institution, then the Secretary shall discharge the borrower's liability on the loan (including interest and collection fees) by repaying the amount owed on the loan and shall subsequently pursue any claim available to such borrower against the institution and its affiliates and principals ....
The statute further provides that students entitled to this discharge "shall not be precluded from receiving additional grants, loans, or work assistance under this ... [title]," and requires the Secretary to report the discharge to credit bureaus. 20 U.S.C. §§ 1087(c)(4) and (5).
The Supreme Court in Cort v. Ash, 422 U.S. 66, 78, 95 S. Ct. 2080, 2088, 45 L. Ed. 2d 26 (1975) articulated the following four-part test to determine whether Congress intended to afford an implied right of action in a given statute: (1) whether the plaintiffs constitute "one of the class for whose especial benefit the statute was enacted"; (2) whether there is "any indication of legislative intent, explicit or implicit, either to create a remedy or to deny one"; (3) whether inferring a private right of action would be "consistent with the underlying purposes of the legislative scheme"; and (4) whether the cause of action "is traditionally relegated to state law ... so that it would be inappropriate to infer a cause of action based solely on federal law." These factors are merely a means for determining what Congress intended. The Supreme Court has emphasized that unless congressional intent to create a private cause of action "can be inferred from the language of the statute, the statutory structure or some other source, the essential predicate for implication of a private remedy simply does not exist." Northwest Airlines Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 94, 101 S. Ct. 1571, 1582, 67 L. Ed. 2d 750 (1981); Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S. Ct. 2479, 61 L. Ed. 2d 82 (1979).
It is uncontested that the loan discharge provisions were enacted for the benefit of students such as the plaintiff. That conclusion alone, however, is not sufficient to imply a right of action to enforce the provisions.
Where a statute provides an administrative enforcement mechanism, it is presumed that Congress did not mean to create a private right of action. See Karahalios v. National Federation of Federal Employees, Local 1263, 489 U.S. 527, 533, 109 S. Ct. 1282, 1287, 103 L. Ed. 2d 539 (1989). In the 1992 amendments to the HEA, Congress created a duty on the part of the Secretary to discharge the student loans of falsely certified students. 20 U.S.C. § 1087(c). Congress also directed the Secretary to promulgate regulations implementing the amendments. 20 U.S.C. § 1098a. At oral argument, counsel for the Secretary assured the court that final regulations are to be issued by February 11, 1994.
Furthermore, the amendments prohibit the Secretary from making any new loan guarantees if final regulations are not issued by June 30, 1994. 20 U.S.C. § 1071. Although no enforcement mechanism currently exists, Congress manifested its intention that the provisions be enforced administratively by directing the Secretary to promulgate regulations to implement the amendments. An implied right of action would conflict with the enforcement powers of the Secretary and would therefore be inconsistent with the overall statutory scheme. See L'Ggrke v. Benkula, 966 F.2d 1346, 1348 (10th Cir. 1992).
Plaintiff concedes that if there were an adequate administrative enforcement mechanism in place, an implied private cause of action would be inappropriate. She contends, however, that because such regulations have not yet been promulgated, a private cause of action would not currently conflict with the statutory scheme. Plaintiff further contends that a private right of action is necessary because students who are entitled to have their loans discharged under the 1992 amendments are subject to ongoing enforcement of their loans, including wage garnishment, interception of any tax refunds, and preclusion from obtaining new loans to pursue legitimate education.