United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 2, 1998 Decided March 23, 1999
No. 97-5316
Vanessa Armstrong,
Appellant
v.
Accrediting Council for Continuing Education and
Training, Inc., et al.,
Appellees
Appeal from the United States District Court
for the District of Columbia
(No. 91cv03135)
Michael E. Tankersley argued the cause for appellant.
With him on the briefs was Alan B. Morrison.
Anthony M. Alexis, Assistant U.S. Attorney, argued the
cause for appellee Accrediting Council for Continuing Edu-
cation & Training, Inc., et al. With him on the brief were
Wilma A. Lewis, U.S. Attorney, R. Craig Lawrence and Scott
S. Harris, Assistant U.S. Attorneys.
Henry S. Weinstock argued the cause and filed the brief
for appellees Bank of America, N.T. & S.A., et al.
Mark E. Shure argued the cause and filed the brief for
appellee Educational Credit Management Corporation.
Before: Henderson, Randolph and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Tatel.
Concurring statement filed by Circuit Judge Henderson.
Tatel, Circuit Judge: In this case, we must decide whether
appellant, a student who attended a for-profit vocational
school with help from a federally guaranteed student loan,
may assert the school's alleged fraud and failure to provide
the education it promised as a defense against the lender's
effort to collect the loan. Although federal student loan
policy now recognizes school misconduct defenses against
lenders who have "referral relationships" with for-profit
schools, appellant obtained her loan in the late 1980s, a time
when federal policy protected lenders from such defenses.
Because we find no basis for applying the new standards
retroactively to appellant's loan, we affirm the district court's
dismissal of her claims for declaratory and injunctive relief.
I
Established by the Higher Education Act of 1965, the
Guaranteed Student Loan Program provides interest rate
subsidies and federal insurance for private lenders to make
student loans. See 20 U.S.C. s 1078(a), (c) (1994).* To raise
funds to make, i.e. "originate," additional loans, original lend-
ers sell loans to other lenders on a secondary loan market.
__________
* The Guaranteed Student Loan Program has since been re-
named the Federal Family Education Loan Program. See Higher
Education Act Amendments of 1992, Pub. L. No. 102-325, sec.
411(a)(1), s 1071, 106 Stat. 448, 510. Throughout this opinion, we
refer to the program as the GSLP, its name at the time appellant
borrowed in 1988; where relevant, we cite law in effect in 1988.
So-called "guaranty agencies" guarantee the loans, paying
loan holders the amounts due and taking assignment of the
loans if students default. See id. s 1078(c). The Secretary of
Education "reinsures" the loans and ultimately reimburses
guaranty agencies on a sliding scale. See id. s 1078(c)(1).
Although guaranteed student loans often change hands many
times, they are not considered negotiable instruments; nei-
ther repurchasers nor assignees become "holders in due
course." See Jackson v. Culinary Sch., 788 F. Supp. 1233,
1248 n.9 (D.D.C. 1992), rev'd on other grounds, 27 F.2d 573
(D.C. Cir. 1994), vacated, 515 U.S. 1139, on reconsideration,
59 F.3d 354 (D.C. Cir. 1995). Instead, subsequent holders
assume loans subject to all claims and defenses available
against original lenders. Cf. 34 C.F.R. s 682.508(c) (1988).
Students may use federally guaranteed student loans to
attend "eligible" schools, including for-profit vocational
schools. See 20 U.S.C. s 1085(a)(1) (1988). To establish
eligibility, vocational schools must be accredited by a national-
ly recognized accrediting agency. See id. s 1085(c)(4). The
Secretary requires eligible schools to perform certain func-
tions to facilitate student access to guaranteed loans, includ-
ing giving students information on loan availability, certifying
student eligibility to participate in the federal loan program,
and forwarding applications to lenders. See 34 C.F.R.
ss 668.41-.43, 682.102(a), 682.603 (1988).
Federal student loan policy has undergone two significant
changes relevant to this case. The first began in 1979 when
Congress amended the Higher Education Act to encourage
lenders to market loans to for-profit vocational school stu-
dents. See Higher Education Technical Amendments of 1979,
Pub. L. No. 96-49, 93 Stat. 351. The 1979 amendments
removed a ceiling on the federal interest subsidy paid to
participating GSLP lenders, "making proprietary school
loans, which had previously been considered as too risky,
more attractive." S. Rep. No. 102-58, at 6 (1991) ("Senate
Report"). Later amendments removed other limitations on
student borrowers attending for-profit schools, increased ag-
gregate loan limits, and allowed students who had not com-
pleted high school to use GSLP loans to attend accredited
postsecondary schools. See Education Amendments of 1980,
Pub. L. No. 96-374, 94 Stat. 1367; Higher Education Amend-
ments of 1986, Pub. L. No. 99-498, sec. 425, s 1075(a), 100
Stat. 1268, 1359; id. sec. 481, s 1088, 100 Stat. 1268, 1476.
To further encourage private lenders to make vocational
school student loans, Congress excluded GSLP loans from the
Truth in Lending Act ("TILA"). See Pub. L. No. 97-320, sec.
701(a), s 1603, 96 Stat. 1469, 1538 (1982). As a result, the
Federal Trade Commission stopped enforcing various TILA
regulations against GSLP lenders, including the "Holder
Rule." Adopted by the FTC in 1976, the Holder Rule
requires purchase money loan agreements (loans supplying
money for the purchase of goods or services) arranged by
sellers to contain a notice to all loan holders that preserves
the borrower's ability to raise claims and defenses against the
lender arising from the seller's misconduct. See 16 C.F.R.
s 433.2(a) (1998). For example, if a used car dealer who
fraudulently sells a lemon also arranges the buyer's financing
through a bank, the buyer may rely on the dealer's fraud as a
defense against repaying the bank loan. Ending enforcement
of the Holder Rule with respect to GSLP loans thus had the
effect of protecting lenders from claims and defenses students
could raise against their schools.
This lender protection from student suits had one major
exception: where lenders delegated to schools "substantial
functions or responsibilities normally performed by lenders
before making loans." 51 Fed. Reg. 40,890 (1986); 34 C.F.R.
s 682.206(a)(2) (1988). In such cases, the Department of
Education's "origination policy" kicked in, treating the
schools--not the banks--as the lenders that had effectively
made the original loans. See 34 C.F.R. s 682.200(b) (1988).
As a result, all subsequent loan holders (remember, there are
no holders in due course) were subject to claims and defenses
that students could raise against their schools. Cf. id.
s 682.508(c). But so long as lenders avoided school-
origination relationships, they could make and sell loans
without fear that students could assert school misconduct as a
defense against repaying their loans.
These changes in the Guaranteed Student Loan Program
accomplished their purpose. Lending to for-profit school
students mushroomed, increasing more than six-fold between
1982 and 1988. See Senate Report at 6-7. The changes also
had unintended consequences. As a result of the GSLP's
easy source of funding, large numbers of for-profit schools
sprang up, admitted poorly prepared students, and offered
shoddy programs. See id. at 2-3, 8-13. Graduates of these
schools were often unable to get jobs. Default rates climbed
dramatically, rising as high as 39%. See id. at 2. Because
loan guaranty agencies were unable to keep up with growing
default rates, many had to be bailed out by the Secretary.
See, e.g., id. at 22.
In order to curb high default rates and protect students
from for-profit school abuses, Congress initiated a second
round of changes to the Guaranteed Student Loan Program
in 1992. One change directed the Secretary to terminate
GSLP eligibility of for-profit schools with consistently high
default rates. See Pub. L. No. 102-325, sec. 427(a), s 1085,
106 Stat. at 549 (redefining "eligible institution" to exclude
schools with excessive default rates). As a result, many for-
profit schools were eliminated from the program.
Congress also directed the Secretary to develop a "Com-
mon Guaranteed Student Loan Application Form and Prom-
issory Note" specifying the contractual terms governing
guaranteed student loans, and to study the possibility of per-
mitting students to raise fraud-based state law defenses
against repayment of student loans. See id. s 425(e), 106
Stat. at 546; id. s 1403, 106 Stat. at 817. Responding to
these directives, the Secretary prepared a common promisso-
ry note and included in it a provision modeled on the FTC
Holder Rule that was directed specifically at lenders affiliat-
ed with for-profit schools. See U.S. Dep't of Educ., Applica-
tion and Promissory Note for Federal Stafford Loans
(Subsidized and Unsubsidized) and Federal Supplemental
Loans for Students (SLS) (1993) ("Common Promissory
Note"). In fact, one year earlier the FTC had renewed
enforcement of the Holder Rule with respect to GSLP loans.
See, e.g., Letter from Jean Noonan, Associate Director for
Credit Practices, Federal Trade Commission, to Jonathan
Sheldon, National Consumer Law Center (July 24, 1991)
("FTC Opinion").
Treating GSLP lenders like banks that allow used car
dealers to arrange financing, the Holder Rule notice the
Secretary included in the common promissory note, together
with the FTC's renewed enforcement policy, made GSLP loan
holders "subject to all claims and defenses" that the student
borrower could raise against the school. Common Promisso-
ry Note. The notice applies where the loan is "used to pay
tuition and charges of a for-profit school that refers loan
applicants to the lender or that is affiliated with the lender by
common control, contract or business arrangement." Id.
(emphasis added). According to the Department, "refers"
means that a school, with a lender's knowledge, goes beyond
"giv[ing] its students information on the availability of stu-
dent loans" and "recommend[s] that the applicants seek loans
from [a particular] lender." U.S. Dep't of Educ., Overview,
Federal Trade Commission (FTC) Holder Rule 2, 3 (July 2,
1993) ("Overview, FTC Rule"). A school also "refers" loan
applicants when it "contact[s] a particular lender to inquire
whether that lender would be willing to make loans for its
own students, and later include[s] this lender (if it responded
positively) on its information list of lenders." Id. at 2. No
referral relationship exists where a school simply "obtain[s]
its lender information from third-party sources ... or from a
more generalized school inquiry to a lender (e.g., asking
merely whether the lender is generally willing to make loans
to trade school students in a particular state.)." Id. Al-
though the common promissory note's Holder Rule notice
expands lender liability beyond that authorized by the De-
partment's origination policy, the Department has made clear
that even under the notice's lower threshold lenders may
protect themselves from school misconduct defenses by limit-
ing their cooperation with schools to the few obligations
mandated by the Higher Education Act and implementing
regulations (i.e., providing students with information on loan
availability, certifying student eligibility, and forwarding ap-
plications to lenders). See Dep't of Educ., Federal Trade
Commission (FTC) Holder Rule: Questions/Answers 4 (July
27, 1993); 34 C.F.R. s 682.206 (1997).
The loan at issue in this case was made in 1988, during the
time when federal student loan policy encouraged lenders to
make GSLP loans to vocational school students and prior to
inclusion of the Holder Rule notice in GSLP promissory
notes. Appellant Vanessa Armstrong was recruited by Na-
tional Business School, a for-profit vocational school operating
in Washington, D.C., to enroll in its automobile mechanic
training program. With help from the school, Armstrong
obtained a $4,000 GSLP loan from the First Independent
Trust Company of California ("FITCO"). One of the largest
sources of loans for students attending for-profit schools in
the late 1980s, FITCO was singled out for its abuse of the
Guaranteed Student Loan Program during the hearings that
led to the 1992 revamping of federal student loan policy. See
Senate Report at 21-24, 28.
According to Armstrong, a National Business School repre-
sentative prepared her loan application, specified the type of
loan, determined the loan amount, prepared the promissory
note, selected FITCO as the lender, presented the loan
agreement to Armstrong to sign, and forwarded the loan
application and promissory note to FITCO. See Am. Compl.
pp 22, 24. Printed on standard forms provided by FITCO's
guaranty agency, the promissory note contained a choice of
law clause that subjected the loan contract to the laws of the
state of the lender, in this case California. Like other
student loan promissory notes issued at the time, the note
contained no Holder Rule notice. Armstrong alleges that the
school and its accrediting agency, the Accrediting Council for
Continuing Education & Training, Inc. ("ACCET"), repre-
sented that the school offered a nationally accredited program
in 1988; in fact, she claims, its accreditation had expired a
year earlier. See id. pp 2, 29-34.
Armstrong claims that National Business School failed to
provide the promised training, equipment, and job placement
services, "leaving [her] and other students to repay student
loans for an education that they never received." Id. p 2; see
also id. p 77. The school closed its doors in 1990 and filed for
bankruptcy. Although the school had charged each student
over $5,000, Armstrong and other former students who filed
claims in the bankruptcy proceedings each recovered only
$900. See Compl. p 26.
Armstrong filed suit in the United States District Court for
the District of Columbia, asserting federal claims based on
the FTC Holder Rule and the Department's school-
origination policy, as well as pendant state law claims based
on the District of Columbia Consumer Credit Protection Act
("CCPA") and common law contract doctrines. The com-
plaint sought damages, restitution, and declaratory relief
against ACCET and each of the entities that could enforce
the loan, all appellees in this case: Bank of America,
N.T. & S.A. (the current loan holder); California Student
Loan Financing Corporation (a corporation that acquires
student loans on the secondary market and which directed
Bank of America to purchase Armstrong's loan as its trustee);
the Secretary of Education (who assumed the guarantee of
Armstrong's loan after the original guarantor became insol-
vent); and Educational Credit Management Corporation (a
corporation created by the Department to manage loan guar-
antees assumed by the Secretary). Dismissing her federal
claims, the district court held that no cause of action arises
under the Department's school-origination policy or the FTC
Rule. See Armstrong v. Accrediting Council for Continuing
Educ. & Training, Inc., 832 F. Supp. 419, 432 (D.D.C. 1993)
("Armstrong I"). Armstrong now concedes this point. The
district court also dismissed Armstrong's state law claims
except her common law fraud and misrepresentation claims
against ACCET. See id. at 425-26, 434.
On appeal, this court found that the district court, having
dismissed the federal claims, failed to "expressly exercise its
discretion to maintain or decline jurisdiction over the pendant
claims under 28 U.S.C. s 1367." Armstrong v. Accrediting
Council for Continuing Educ. & Training, Inc., 84 F.3d 1452
(D.C. Cir. 1996) (unpublished table decision), 1996 WL
250412, at *1. We remanded to the district court for further
proceedings.
Exercising its discretion, the district court again dismissed
Armstrong's claims as to all defendants except ACCET
(which subsequently settled with Armstrong and is no longer
involved in these proceedings). See Armstrong v. Accredit-
ing Council for Continuing Educ. & Training, Inc., 980
F. Supp. 53 (D.D.C. 1997) ("Armstrong II"). The district
court held that Armstrong had no claim under the District of
Columbia CCPA because the choice of law clause made
California law applicable. It rejected her argument that the
so-called "public policy exception" in choice of law doctrine
required D.C. courts to override the choice of law clause and
to apply the District's more protective consumer protection
statute instead. See id. at 59-60. As to Armstrong's mistake
and illegality claims, the district court found that the school
had not lost its GSLP eligibility until after she enrolled, and
that at any rate federal Higher Education Act policy
preempted state law defenses based on lack of school accredi-
tation. See id. at 61-64.
Appealing again, Armstrong reasserts her state law claims,
arguing: (1) that the Holder Rule notice should be implied
into her loan contract; (2) that the school's loss of accredita-
tion rendered it ineligible to participate in the GSLP pro-
gram, making her loan unenforceable on grounds of mistake
or illegality; and (3) that the district court should not have
applied the choice of law clause because it conflicts with D.C.
public policy enacted to protect District citizens. With re-
spect to the last claim, Armstrong asks us alternatively to
certify the choice of law question to the District of Columbia
Court of Appeals. Our review is de novo. See Systems
Council EM-3 v. AT&T Corp., 159 F.3d 1376, 1378 (D.C. Cir.
1998).
II
We begin with Armstrong's implied contract claim. Rely-
ing on the FTC Holder Rule, she argues that National
Business School had a "referral relationship" or "affiliation"
with FITCO, thus permitting her to treat subsequent lenders
as "standing in the shoes" of the school and to assert the
school's misconduct as a defense against loan repayment. As
the government acknowledged at oral argument, had Arm-
strong signed her loan contract after the 1992 amendments to
the Higher Education Act, at which point the Secretary
incorporated the Holder Rule notice into the common promis-
sory note, she might well have a claim. Armstrong's allega-
tion that the school gave her a loan application preprinted
with FITCO's name as the chosen lender would support a
Holder Rule notice claim because the school "recommend[ed]
that the applicants seek loans" from FITCO, and FITCO
either supplied the preprinted forms itself or "kn[e]w that a
loan applicant was referred by [the] school." Overview, FTC
Rule at 2, 3.
Acknowledging that her pre-1992 loan agreement contained
no Holder Rule notice, Armstrong argues that the FTC's
Holder Rule nevertheless required the notice's inclusion and
that the court should therefore enforce it as an implied
contractual term. She relies on the common law principle
that contracts incorporate the law in force at the time of the
agreement. See United Van Lines, Inc. v. United States, 448
F.2d 1190, 1195 (D.C. Cir. 1971) ("Because the regulation was
in existence at the time [the party] entered on performance, it
became, in effect, a part of the contract between the par-
ties."); see also Ballarini v. Schlage Lock Co., 226 P.2d 771,
773-74 (Cal. 1950) ("The settled law of the land at the time a
contract is made becomes a part of it and must be read into
it."). Appellees disagree. They argue that the FTC Holder
Rule did not apply to student loans made in 1988 and that
even if it did, its terms cannot be implied into Armstrong's
agreement.
We think appellees have the better of this argument.
Although the Truth in Lending Act, the source of the Holder
Rule, originally covered GSLP lending, Congress expressly
exempted student loans from the Act in 1982. At that point
the FTC stopped enforcing the Holder Rule with respect to
GSLP loans. Not until after Armstrong obtained her loan
from FITCO did the FTC again begin enforcing the Holder
Rule in GSLP loans, and not until after that did the Secretary
incorporate the notice into the common promissory note. See
supra at 4, 5. Facing circumstances very much like those
presented in this case, the Seventh Circuit, relying on the
1982 TILA Amendments, expressly held the Holder Rule
inapplicable to guaranteed student loans obtained prior to
renewal of Holder Rule enforcement. See Veal v. First Am.
Sav. Bank, 914 F.2d 909, 914 (7th Cir. 1990).
To be sure, both the FTC and the Secretary have since
suggested that the Holder Rule did in fact apply to guaran-
teed student loans during the period when Armstrong ob-
tained her loan. See FTC Opinion at 2-3 (rejecting its
previous "literal interpretation" exempting GSLP loans from
the Holder Rule and claiming that Congress did not mean to
exclude such loans from the Rule's coverage when it exempt-
ed them from TILA); Overview, FTC Rule at 1 (concluding
that "the FTC Holder Rule notice must be included in the
common application/promissory note."). In our view, howev-
er, these later developments are insufficient to overcome the
clear implications of the 1982 TILA Amendments and the
FTC's nonenforcement policy. Moreover, even if there were
some ambiguity as to the Holder Rule's applicability to
student loans during the late 1980s, we would not imply the
terms of the notice into Armstrong's loan for one simple
reason: No one could reasonably argue that in 1988 appel-
lees, the purchasers and assignees of Armstrong's note (which
contained no Holder Rule notice), should have known that the
Holder Rule nevertheless applied to GSLP loans at that time.
Lenders still operated under a federal program that encour-
aged them to make loans for attendance at virtually any
accredited school, no matter how deficient or disreputable.
While Congress and the Department have since changed the
rules, we think it would be unfair to apply the new rules to
old loans.
Relying on contract-based theories of mistake and illegali-
ty, Armstrong next claims that her loan is void and unen-
forceable because National Business School had lost its ac-
creditation in 1987 and was therefore not an institution
"eligible" for participation in the federal student loan pro-
gram. See 20 U.S.C. s 1085(a), (c) (1988). The district court
rejected this claim, holding that schools do not lose their
GSLP eligibility until after a hearing before an administrative
law judge; in this case the hearing did not occur until 1989, a
year after Armstrong received her loan. Armstrong now
argues that the district court mistakenly relied on regulatory
instead of statutory eligibility rules. She points out that
under statutory rules, "the effective date of a loss of eligibility
by reason of the failure of an institution, its location, or its
program to satisfy the applicable definitions continues to be
the date on which the failure first occurred." 55 Fed. Reg.
32,181 (1990) (Secretary's explanation of the effects of failure
to meet statutory requirements). We need not resolve this
dispute to decide this case, for regardless of when National
Business School lost its GSLP eligibility, we agree with the
Secretary that federal student loan policy preempts Arm-
strong's claims.
Federal preemption can be express or implied. See Cippol-
lone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992). Nothing
in the Higher Education Act expressly preempts state law
claims of the kind raised by Armstrong. Implied preemption
occurs either "where the scheme of federal regulation is
sufficiently comprehensive to make reasonable the inference
that Congress 'left no room' for supplementary state regula-
tion" (known as field preemption) or "in those areas where
Congress has not completely displaced state regulation, ...
to the extent [state law] actually conflicts with federal law"
(known as conflict preemption). California Fed. Sav. & Loan
Ass'n v. Guerra, 479 U.S. 272, 281 (1987) (internal quotation
omitted). In Jackson v. Culinary School, we held that feder-
al education policy regarding GSLP lending is not so exten-
sive as to occupy the field. See Jackson v. Culinary Sch., 27
F.3d 573, 580-81 (D.C. Cir. 1994), vacated on other grounds,
515 U.S. 1139, on reconsideration, 59 F.3d 354 (D.C. Cir.
1995). Jackson also recognized that the Higher Education
Act preempts D.C. laws that "actually conflict" with federal
law. Id. at 581 (stating but declining to reach the conflict
preemption issue). Although Jackson was later vacated on
other grounds, we believe that it correctly stated and applied
federal preemption standards.
"Actual conflict" between Armstrong's contract claims and
Higher Education Act regulations is precisely what has oc-
curred here. If accepted, Armstrong's claim that she may
void her student loan based on the school's alleged GSLP
ineligibility would frustrate specific federal policies regarding
the consequences of losing or falsely certifying accreditation.
For example, it is the Secretary and guaranty agencies--not
students--who enforce statutory and regulatory require-
ments, including those concerning accreditation and school
misrepresentation. See 20 U.S.C. s 1094(c) (1988); 34 C.F.R.
ss 668.71-.75, 682.700-.710 (1988). Reinforcing this point,
the preamble to the final rule regarding institutional eligibili-
ty says this:
[The Department] considers the loss of institutional eligi-
bility to affect directly only the liability of the institution
for Federal subsidies and reinsurance paid on those
loans.... [T]he borrower retains all the rights with
respect to loan repayment that are contained in the
terms of the loan agreements, and [the Department] does
not suggest that these loans, whether held by the institu-
tion or the lender, are legally unenforceable merely
because they were made after the effective date of the
loss of institutional eligibility.
58 Fed. Reg. 13,337 (1993). Moreover, the Department ex-
pressly permits lenders to rely in good faith on eligibility
representations by students and schools so long as the schools
did not "originate" the loans. See 34 C.F.R. s 682.206(a)(2)
(1988). Allowing mistake and illegality claims based on
GSLP eligibility requirements to void student loan repayment
obligations would "stand[ ] 'as an obstacle to the accomplish-
ment and execution of the full purposes and objectives of
Congress.' " Guerra, 479 U.S. at 281 (quoting Hines v.
Davidowitz, 312 U.S. 52, 67 (1941)).
This brings us finally to Armstrong's claim under the
District of Columbia Consumer Credit Protection Act. She
relies on section 28-3809, which provides:
(a) A lender who makes a direct installment loan for the
purpose of enabling a consumer to purchase goods or
services is subject to all claims and defenses of the
consumer against the seller arising out of the purchase of
the goods or service if such lender acts at the express
request of the seller, and--
(1) the seller participates in the preparation of the
loan instruments....
D.C. Code Ann. s 28-3809 (1981). Characterizing her guar-
anteed student loan as a "direct installment loan," Armstrong
argues that National Business School's marketing of FITCO
loans through preprinted application forms, along with its
assistance in filling out loan applications, brings her loan
within the CCPA's protection. According to appellees, the
district court properly dismissed Armstrong's CCPA claim on
the ground that the promissory note's choice of law clause
made California law applicable. See Armstrong II, 980
F. Supp. at 58-60.
We need not determine whether D.C. courts would set
aside the choice of law clause as contrary to D.C. public policy
or whether, alternatively, to certify this question to the D.C.
Court of Appeals, because we again agree with the Secretary
that Armstrong's state law cause of action conflicts with pre-
1992 federal policy governing guaranteed student loans. As
we have noted, pre-1992 federal student loan policy was
intended to make student loans attractive to private lenders
by protecting them from the financial consequences of stu-
dent default. Although the Department's school-origination
policy certainly allows students to raise school misconduct
defenses in limited circumstances, the Department expressly
warned that the policy was "not intended to create any other
rights for student borrowers or to suggest that borrowers are
excused from repaying loans" except where there is a school-
origination relationship. 58 Fed. Reg. 13,337 (1993). Allow-
ing student borrowers to raise CCPA defenses based on
school misconduct against lenders who do no more than
permit schools to "participate[ ] in the preparation of the loan
instruments" at the schools' "request," D.C. Code Ann.
s 28-3809(a), would extend lender liability beyond school-
origination relationships. In letter rulings discussing circum-
stances closely mirroring the facts of this case, the Secretary
assured lenders that they do not risk falling within the scope
of the school-origination policy merely by "market[ing] GSL
lending by sending combined application/promissory note/
disclosure forms ... with the lender's name preprinted there-
on, directly to the school," and allowing schools to assist
students in completing loan applications on those forms.
Letter from John E. Dean, Clohan & Dean, to Larry Oxen-
dine, Director, Division of Policy and Program Development,
U.S. Dep't of Educ. (Dec. 14, 1990); Letter from Larry
Oxendine to John E. Dean (Feb. 20, 1991). Permitting
Armstrong to raise CCPA defenses against repayment of her
pre-1992, pre-common promissory note loan would subject
appellees to risks neither anticipated by them nor intended
by the Guaranteed Student Loan Program.
Nothing in United States v. Griffin, 707 F.2d 1477 (D.C.
Cir. 1983), requires a different result. There, we found no
preemption of state law defenses by a different student loan
program under which the federal government insures GSLP
loans made directly by schools. Because under that program
the student borrowed directly from the school, the Depart-
ment's school-origination policy squarely applied, and the
asserted state law claims did not expand lender risk beyond
that contemplated by federal policy. Moreover, allowing
students to raise school misconduct defenses against the
federal government could have had no impact on the private
lending that Congress considered so critical to the operation
of the pre-1992 Guaranteed Student Loan Program.
III
We acknowledge that denying relief to Armstrong may
seem unfair. Lenders that permitted schools to abuse the
Guaranteed Student Loan Program and that profited enor-
mously prior to the 1992 changes are protected by federal
preemption. Owners of schools that profited from student
loans while failing to provide promised training and resources
are protected by bankruptcy laws. Only the students, the
very people the Guaranteed Student Loan Program was
intended to benefit, are left holding the bag.
The 1992 changes in the federal student loan program went
a long way toward eliminating this unfairness for students
who borrowed after 1992. The Secretary has even estab-
lished loan discharge procedures for two categories of pre-
1992 borrowers: those whose for-profit schools closed while
they were in attendance, and those whose own GSLP eligibili-
ty (not the school's eligibility) was falsely certified. See 34
C.F.R. s 682.402(d), (e) (1997). These procedures provide no
relief for students like Armstrong, whose schools falsely
represented their accreditation or engaged in other miscon-
duct. We have no authority to protect such students, but we
think the Secretary does. See 20 U.S.C.A. ss 1082(a), 1087-0
(Supp. 1998).
So ordered.
Karen LeCraft Henderson, Circuit Judge, concurring:
I concur in the result but neither agree with nor deem
appropriate the concluding two paragraphs of the opinion.
The student loan program may have its flaws but there is no
basis to wring our hands over this one, especially when
defaulting student loan borrowers constitute a significant
national problem in the administration of the program.