Appeals from the United States District Court for the District of Columbia (No. 95cv00717)
Before: Wald, Williams and Ginsburg, Circuit Judges.
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Consolidated with No. 96-5016
Opinion for the Court filed by Circuit Judge Williams.
Concurring Opinion filed by Circuit Judge Wald.
In the Omnibus Budget Reconciliation Act of 1993, Congress added Section(s) 439(h)(7) to the Higher Education Act of 1965, imposing a 0.3 percent "offset fee" on the principal amount of each student loan that the Student Loan Marketing Association ("Sallie Mae") "holds." The Department of Education interpreted the statute as applying to any loan in which Sallie Mae has a financial interest, and, in particular, to loans that Sallie Mae has "securitized." (A firm "securitizes" assets by conveying them to a separate entity, typically a "bankruptcy-remote vehicle," which pays the securitizing firm with the proceeds of newly issued securities backed by the transferred assets. See Lynn M. LoPucki, "The Death of Liability," 106 Yale L.J. 1, 23 (1996).) Sallie Mae sued in district court, alleging that the statutory fee was a taking without just compensation and that the Department's claim that the fee applied to securitized loans ran counter to the unambiguous meaning of the statute.
The district court rejected Sallie Mae's taking claim, but it invalidated the Department's attempted application of the fee to securitized loans. Because the Higher Education Act affords Sallie Mae benefits roughly approximating the burden of the offset fee, which in any event applies only to loans acquired by Sallie Mae after the effective date of the amendment, we affirm the decision that there was no taking. As to the application of Section(s) 439(h)(7) to securitized loans, we agree with the district court that the Department's interpretation of the statute was impermissible. Because the Department has not yet applied a correct interpretation to loans subject to the sort of arrangements that Sallie Mae has adopted and proposes for the future, we reverse and remand to the district court, for it to remand the case to the Department.
Under the Guaranteed Student Loan Program the federal government serves as guarantor of unsecured student loans and subsidizes interest payments on those loans. A single loan may, in the course of its lifetime, make its way through three different institutions-a bank, a secondary institution (such as Sallie Mae), and a guaranty agency-before the federal government finally intervenes and makes good on its guarantee. Sallie Mae was established in 1972 to provide lender banks with greater liquidity. See 20 U.S.C. Section(s) 1087-2(a). It is a source of financing for participating banks (it makes loans secured by guaranteed student loans) and a major purchaser of student loans in the secondary market. Operating under a federal charter, it is a for-profit, privately owned corporation, but it also enjoys certain benefits such as an exemption from state and local taxes other than real estate taxes. See id. 1087-2(b)(2).
Guaranty agencies, usually state-run, non-profit organizations, act as intermediaries for the federal government. They enter into guaranty agreements with banks and secondary institutions, and, in the event of default, take over the loan and reimburse the financial institution. See id. Section(s) 1075(b). If the guaranty agency is unsuccessful in collecting the loan, it may file a claim with the Department of Education for reimbursement. See id. Section(s) 1078(c). Federal interest payments and the federal guarantee are contingent on compliance with elaborate procedures that control every aspect of the loan, from the initial explanation to the borrower to the dunning methods employed if the loan falls delinquent. See, e.g., id. Section(s) 1080(a), (d); Sallie Mae Funding Corporation, Registration Statement dated August 7, 1995 ("Registration Statement") 14 (listing "Risk Factors").
The 1993 amendment, Section(s) 439(h)(7) of the Higher Education Act, reads as follows:
(A) The Association [Sallie Mae] shall pay to the Secretary, on a monthly basis, an offset fee calculated on an annual basis in an amount equal to 0.30 percent of the principal amount of each loan made, insured or guaranteed under this part that the Association holds ... and that was acquired on or after August 10, 1993....
(C) The Secretary shall deposit all fees collected pursuant to this paragraph into the insurance fund established in section 1081 of this title.
20 U.S.C. Section(s) 1087-2(h)(7) (emphasis added), enacted as part of the Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title IV, Subtitle B. The fund referred to in subsection (C) is available for payment on defaulted loans. See 20 U.S.C. Section(s) 1081(a).
After enactment of the offset fee provision, the Department learned, through a Sallie Mae submission to the Office of Management and Budget, that Sallie Mae was planning to securitize a portion of its loan portfolio and that it believed that securitized loans would be exempt from the fee. Essentially, Sallie Mae proposed to create a trust that would purchase Sallie Mae loans, financing the purchase with the proceeds of securities that would be backed by the loans. The income generated by the loans in the trust would satisfy payments due on the securities. Sallie Mae would continue to be responsible for administration of the loans under a service contract with the trust and would retain certain residual financial interests in the trust assets. On January 13, 1995 Steven Winnick, Acting General Counsel of the Department of Education, wrote a letter to Sallie Mae's general counsel (the "Winnick letter"), stating the Secretary of Education's position on the applicability of Section(s) 439(h)(7) to the securitized loans. It was, according to the letter, "appropriate to interpret the term "holds' [in Section(s) 439(h)(7)] to include any loan in which Sallie Mae holds a direct or indirect financial interest." The letter pointed to the "residual interest" that Sallie Mae would retain in the trust, as well as to its role as servicer of the loans, and argued that "[n]either the words of [the statute], nor the applicable legislative history, suggests that Congress intended to limit the Secretary in defining the term "holds' in Section(s) 439(h)(7)." The letter made it clear that the Department was under the impression that Sallie Mae was attempting to evade the fee; it analogized the case to the "Clifford regulations," under which the Internal Revenue Service had attributed the income of certain trusts to the grantor in order to prevent income tax avoidance.
Sallie Mae responded with a letter and an attached legal opinion critiquing the Winnick analysis, and representatives of Sallie Mae also met with Felix Baxter, Deputy General Counsel of the Department, to press their argument. In a letter dated March 16, 1995 (the "Baxter letter"), Baxter answered some of the objections made by Sallie Mae and confirmed the view expressed in the Winnick letter. After another letter from Sallie Mae, its representatives met with the Secretary on April 12, 1995. He reiterated the Department's position, and Sallie Mae's representatives told him of their intention to bring suit. Since then, Sallie Mae has securitized ...