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Bible v. United Student Aid Funds, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

March 14, 2014

BRYANA BIBLE individually and on behalf of the proposed class, Plaintiff,



This matter is before the Court on a Motion to Strike (Dkt. 45) and Motion to Dismiss (Dkt. 47) filed by Defendant United Student Aid Funds, Inc. ("USA Funds"). Plaintiff Bryana Bible ("Ms. Bible") purports to represent a class of borrowers who obtained student loan funds through the Federal Family Education Loan Program ("FFELP") and whose loans were guaranteed by USA Funds. Ms. Bible asserts a breach of contract claim and alleges that USA Funds violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") by charging collection costs on her defaulted loan and applying her payments to these collection costs. Oral argument was held on the motions on February 12, 2014, and the Court took the matter under advisement. Having considered the parties' arguments and briefs, the Court now DENIES the Motion to Strike (Dkt. 45) and GRANTS the Motion to Dismiss (Dkt. 47).


USA Funds is a guarantee agency for student loans. Among other things, it guarantees student loans under the Higher Education Act's ("HEA") Federal Family Education Loan Program ("FFELP"). Under FFELP, private lenders make loans to students attending postsecondary institutions, which are guaranteed by agencies such as USA Funds. If a borrower defaults on the loan, the loan is transferred to the guarantee agency which pays the private lender for the debt and then itself seeks payment from the borrower.

Ms. Bible obtained an FFELP student loan in 2006. Citibank was the private lender and USA Funds is the guarantor of Ms. Bible's loan. Ms. Bible electronically signed a Federal Stafford Loan Master Promissory Note ("MPN") on June 12, 2006, which covers all of her student loans. Dkt. 38-3. The MPN explicitly provides that Ms. Bible

... promise[s] to pay all loan amounts disbursed under the terms of the MPN, plus interest and other charges and fees that may become due as provided in this MPN.... If I do not make any payment on the loan made under this MPN when it is due, I will also pay reasonable collection costs, including but not limited to attorney's fees, court costs, and other fees.

Dkt. 38-3 at 2, ΒΆ 15 (emphasis added). The MPN further provides that in the event Ms. Bible defaulted on the loan, the lender could accelerate her loan such that the entire unpaid balance would become immediately due and payable; the guarantor would then be able to purchase the loan and capitalize all then-outstanding interest into a new principal balance, and collection fees would become due and payable. Dkt. 38-3 at 3. Under the "Repayment" paragraph of the MPN, the agreement states that payments on the loan may be applied in the following order: late charges, fees, and collection costs first, outstanding interest second and outstanding principal last. Dkt. 38-3 at 6. Under the "Consequences of Default" section, the MPN states that failure to repay the loan under the MPN may result in collection charges (including attorney fees) being assessed. Dkt. 38-3 at 7-8.

In 2012, Citibank found Ms. Bible in default, a fact which she does not dispute. Thereafter, the loan was assigned, purchased, or otherwise transferred to USA Funds, and USA Funds paid Citibank's default claim for the loan. After default, Ms. Bible's loan was placed with General Revenue Corporation ("GRC") for collection. GRC subsequently offered Ms. Bible the opportunity to rehabilitate her defaulted loan, which would remove it from default status after certain conditions were met. GRC sent a letter to Ms. Bible dated April 12, 2012, which explained the loan rehabilitation program and included a notice entitled "Options for Resolving Your Loan Debt." Dkt. 38-4 at 4. Under the program, Ms. Bible had the opportunity to resolve her loan default by entering into a Loan Rehabilitation Program whereby if she made nine on time payments within ten months, the rehabilitation commitment would be complete and her defaulted student loan would be eligible for purchase by a lender. Once the rehabilitated loan is purchased by a new lender, the loans would no longer be considered in default and the default status would be removed from her credit record. The letter also stated, "As part of your eligibility for loan rehabilitation, you will be assessed collection costs at a reduced rate of 18.5% of the outstanding balance at the time your loan is purchased by an eligible lender, and the purchasing lender may add these costs to your outstanding loan principal...." Id.

On or about April 27, 2012, GRC sent Ms. Bible a rehabilitation program application packet which informed her that her current collection cost balance as of that date was $0.00. Dkt. 38-5 at 3. The GRC letter also stated that this was the amount owed "[a]s of the date of this letter" and "[b]ecause your credit agreement may require you to pay interest on the outstanding portion of your balance, as well as late charges and costs of recovery ... the amount required to pay your account in full on the day you send payment may be greater than the amount stated here." Dkt. 38-5 at 1 (emphasis added). The Capitalization Authorization Letter provided by GRC in the rehabilitation application packet stated, "Once rehabilitation is complete, the collection costs that have been added will be reduced to 18.5% of the unpaid principal and accrued interest outstanding at the time of Loan Rehabilitation. Collection costs may be capitalized at the time the Loan Rehabilitation by your new lender...." Dkt. 38-5 at 5 (emphasis added). Ms. Bible agreed to make ten payments of $50.00 per month in order to rehabilitate her loan. USA Funds subsequently imposed collection costs in the amount of $4, 547.44.

Despite multiple references to the imposition of collection costs in both the MPN and the Rehabilitation Agreement, Ms. Bible now claims that USA Funds unlawfully imposed collection costs on her, arguing that neither the MPN nor the Rehabilitation Agreement authorized the imposition of collection costs. Ms. Bible asserts that the HEA does not authorize the imposition of collection costs in situations like hers where a borrower in default promptly enters into a Rehabilitation Agreement, and because the original student loan agreement ( i.e. the MPN) is governed by the HEA, the collection terms in the MPN do not apply. Essentially she argues that the HEA does not authorize the imposition of collection costs on borrowers who default on their loans once they enter into a Rehabilitation Agreement, and because the MPN incorporates the HEA by reference, USA Funds acted unlawfully by imposing collection costs on her. She also argues that USA Funds breached the contract because the original rehabilitation application sent to her on April 27, 2012 stated that her current collection cost balance was $0.00, and she argues USA Funds was not authorized to increase this amount, only decrease the amount.

Furthermore, Ms. Bible's First Amended Complaint (Dkt. 38) also asserts a claim under RICO. Ms. Bible asserts that USA Funds, GRC, and Sallie Mae collaborated to fraudulently represent to her that her collection costs were $0.00 in order to induce her to sign the Rehabilitation Agreement, knowing that USA Funds would subsequently impose unlawful collection costs on her. Ms. Bible also alleges that they then illegally applied her payments to collection costs, instead of to the interest and principal that she owed. Ms. Bible purports to represent a class of approximately 100, 000 student loan borrowers who have defaulted on their loans, entered into Rehabilitation Agreements, and were subsequently charged collection costs.


When reviewing a 12(b)(6) motion, the court takes all well-pleaded allegations in the complaint as true and draws all inferences in favor of the plaintiff. Bielanski v. Cnty. of Kane, 550 F.3d 632, 633 (7th Cir. 2008) (citations omitted). However, the allegations must "give the defendant fair notice of what the... claim is and the grounds upon which it rests" and the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). Stated differently, the complaint must include "enough facts to state a claim to relief that is plausible on its face." Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (citations omitted). To be facially plausible, the complaint must allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (citation omitted). When ruling on a motion to dismiss, a court generally should only consider the complaint's allegations. Centers v. Centennial Mortg., Inc., 398 F.3d 930, 933 (7th Cir. 2005) (citation omitted). However, "[a] copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes." Fed.R.Civ.P. 10(c).


A. Motion to Strike

USA Funds filed a Motion to Strike paragraphs 95-107 and Exhibits 7 and 8 of Ms. Bible's First Amended Complaint under Federal Rule of Civil Procedure 12(f) (Dkt. 45). Rule 12(f) of the Federal Rules of Civil Procedure provides that "the court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Motions to strike are disfavored because they ...

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