UNITED STATES DEPARTMENT OF EDUCATION
WASHINGTON, D.C. 20202
In the Matter of Docket No. 97-164-ST
INTERNATIONAL JUNIOR COLLEGE, Student Financial
On July 11, 1997, DMD issued an official notification denying the appeal and upholding
IJC's final FY 1994 CDR of 40.8 percent. The Department twice sent IJC final rate
determination letters, the first of which was returned to the Department. IJC stated that it
received neither of the two letters, and this, in part, formed the basis of IJC's motion to dismiss
this proceeding. IJC argued that proper notice is required before an institution's Title IV
eligibility may be terminated, based on an excessive CDR. SFAP countered by stating that no
regulatory provision supports this motion. Notification, according to SFAP, is not legally
significant in this instance since IJC was already notified once of its CDR in the October 23,
1997, notice to terminate, and the school submitted a timely request for a hearing to challenge the
proceedings. Further, SFAP noted that where notice is legally significant, the regulations
explicitly state so.See footnote 22 Finally, SFAP stated that even if IJC had not received the final rate
determination notice, the school was not harmed because it had already exhausted all appellate
recourse within the Department.See footnote 33 IJC's motion to dismiss was denied on January 16, 1998.
In its challenge of this termination proceeding, the school alleges that the CDR is not
final because DMD incorrectly calculated the 1994 CDR by not considering the need for native
language servicing of some of the borrowers, and because the school has asked the Secretary to
reopen this case which would include a re-examination of the rate calculation. In addition, IJC
states that several U.S. District Court cases support its contention that the rate is not final.
Finally, IJC believes that its opportunity to appeal the rate has not yet expired.
IJC alleges that its CDR is not final due to improper loan servicing which resulted in the
guaranty agencies' failure to perform all required tasks. Among the 15 student borrowers that
are the subject of IJC's appeal, the students allegedly informed the servicer that they could not
speak English. IJC states that little or no attempt was made, however, to communicate with the
students in Spanish by either telephone or letter. As a result, IJC requested that these 15 students
be excluded from the CDR calculation. IJC alleges that the Department, during its review of
IJC's CDR appeal, did not conduct a thorough review of the servicing history of these 15
students because there was no mention of the negative effects, caused by a language barrier, on
the students' repayment status, and hence the school's default rate. In this vein, IJC cautions
against the appeal process' arbitrary or capricious nature when it ignores the negative impact of
English-only servicing. At the same time, IJC asserts that loan servicers have a responsibility to
communicate to the borrowers in an effective and meaningful manner, following a common-
sense application of the purpose of the loan servicer regulations.
IJC supports a great deal of its argument with the district court case of Advanced Career
Training v. Riley, No. 96-7065, 1997 U.S. Dist. LEXIS 12776 (E.D. Pa. Aug. 18, 1997)
(hereinafter ACT). The main import of this decision, as interpreted by IJC, is that loan servicing,
based on an analogy with pre-claims assistance, must be effective and meaningful under the law,
otherwise ineffective form over substance will dictate administrative regulations. The
regulation's (34 C.F.R. § 668.17(h)(3)(viii)) language, purpose, and manner in which it was
carried out was a focal point of this decision. IJC questions whether servicing conducted in
English is a meaningful way to communicate with borrowers whose first and, in many cases, only
language is Spanish. IJC extends its analysis when it states that although a service is technically
performed, it is considered ineffective and as if it were never completed if the service is done in a
manner that does not achieve its intended goal. In the present case, IJC concludes that phone
calls and letters made or sent by the servicer were not performed because they were conducted in
English instead of Spanish, and therefore did not achieve the intended goal of effectively urging
the borrower to avoid defaulting on her loan.
Particularly subject to opposing interpretations by SFAP and IJC is a letter, issued by the
Secretary, in response to a letter from the Hispanic Association of Colleges and Universities
concerning possible discrimination in loan servicing to Hispanic borrowers. SFAP points out
that after the Secretary reviewed general CDR data, he concluded that institutions serving
Hispanic populations have not historically experienced high default rates. The Secretary further
stated that two student loan servicers, Sallie Mae (a servicer for the Puerto Rican region during
the FY 1994 loan defaults at issue in this case) and Citibank, employ multilingual
representatives. IJC counters by stating that while general data may not reveal discrimination,
the Secretary did not assess IJC's individual borrowers to determine whether native language
servicing was required and appropriate. More specifically, IJC does not believe this letter
implies that loan servicers operating in a region where Spanish is the official language need not
provide communication in that language. Rather, IJC believes the letter is silent on whether the
loan servicing was adequate in this particular case.
The case at hand presents a unique dilemma for loan servicers who conduct business in a
United States commonwealth where English is not the predominant or official language. Indeed,
this case speaks substantively to both the jurisdictional limitations of this tribunal, as addressed
in previous decisions, and the loan servicing process administered to borrowers who attend
institutions where the instruction is not in English. Disturbingly, Puerto Rico represents a
discrete region that participates in Title IV programs, yet nowhere in the regulations is attention
devoted to the responsibility of servicers operating in this region. This omission is a contributing
factor in the present litigation. As a result, the parties involved have resorted to interpretation of
intent, purpose, and at times mere speculation of the meaning of those regulations that govern the
loan servicing of Title IV programs.
As mentioned earlier in this decision, there are five requirements of a loan servicer which
include sending a final demand letter and attempting a phone call. IJC has not proven, nor does
it even contend, that no communication was attempted by the loan servicer to the student
borrowers. Rather, the school relies on its interpretation of ACT, including the belief that
communication in English served no functional purpose and therefore constituted a failure to
perform the required tasks. The court in ACT , however, also determined that, [u]nder the
statute, the school is entitled to a reduction in its CDR only if that loan servicing [error] was so
serious as to have caused the loan to default. ACT, at 34 (interpreting the meaning of 20 U.S.C.
§ 1085(m)(1)(B)). While there is no way to determine whether a final letter or phone call in
Spanish would have prevented the students from defaulting, there is evidence that IJC students
were already presented with information detailing their obligations of repayment as borrowers.
The students signed promissory notes in English; IJC's personnel, however, worked with the
students in Spanish to ensure that they understood their loan obligations. In addition, IJC
administered entrance and exit interviews conducted in Spanish, as were all business and
academically related transactions, and the school's Office of Financial Assistance sent several
letters in Spanish to the students explaining their responsibilities. In the present case, there were
simply too many attempts at communicating with the student borrowers in Spanish to establish
causation between the loan servicing and the excessive default rates.See footnote 55
Further, assuming arguendo that the loan servicing was the cause, there appears to be no
precedent or regulatory authority which states that loan servicing must be conducted in the native
language of the borrower. In fact, many borrowers do not even receive phone calls in any
language since the requirements only obligate an attempt on the part of the loan servicer. IJC
does not establish that no letters or phone calls were made to the borrower. To the contrary,
much of the evidence establishes that students received final correspondence, albeit in English.
ACT, as much as it discusses a standard of regulatory review that incorporates purpose and
meaning, also affords the Secretary a great deal of discretion in interpreting the regulations unless
the interpretations are clearly erroneous or inconsistent with the regulation. ACT at 24. The
wording of 34 C.F.R. § 668.17(h)(3)(viii), which governs loan servicing requirements, states
nothing about language requirements. Therefore, I find that SFAP's interpretation is not
erroneous and does not negate the purpose or intent of this regulation. Finally, the erroneous
nature of the timing of the final demand letters and the preclaims assistance issues, which were
addressed in the ACT decision,See footnote 66 are not analogous to the loan servicing issue in the present case.
IJC also utilizes several other District Court cases in its argument. The issues raised in
these cases, however, are couched within the context of utilizing relevant loan servicing and
collection records to prove that one of the five basic loan servicing steps was not performed. See
generally, Calise Beauty School, Inc., d/b/a Hair Design Institute-Livingston, et al. v. Riley, No.
96-6501, 1997 U.S. Dist. LEXIS 15706 (S.D. N.Y. Oct. 8, 1997). Again, the issue in the present
case is not whether the services were performed, but rather whether the language in which they
were carried out is sufficient to constitute performance. For the reasons stated above, the
Secretary's conclusion that these services were performed is not arbitrary or capricious since
the regulations are silent on native language servicing. In some instances, phone calls in Spanish
to IJC students were attempted, thereby further satisfying the requirements. Indeed, the Calise
case, as well as Mildred Elley Business School v. Riley, 975 F. Supp. 434 (N.D. N.Y. 1997), dealt
mainly with the adequacy of loan servicing records provided by the guaranty agency. This is not
analogous to the present case where IJC alleges that the Secretary did not address all of the facts
before ruling on the 15 defaults. Here, even if records reveal that servicing was not done in
Spanish, the outcome would not change because the five regulatory loan servicing requirements
do not include a requirement of native language servicing.
Judge Richard F. O'Hair
Dated: July 28, 1998
J. Andrew Usera, Esq.
Counsel for International Junior College
8310-B Old Courthouse Rd.
Vienna, VA 22182
Ronald L. Holt, Esq.
Bryan Cave LLP
3500 One Kansas City Place
1200 Main Street
Kansas City, MO 64105
Pamela Gault, Esq.
Office of the General Counsel
U.S. Department of Education
600 Independence Avenue, S.W.
Washington, D.C. 20202-2110