Business Law and the Regulation of Business 11th Edition by Richard Mann, Barry Roberts

Exercise 6

FACTS In May 1998, Catherine Roth-Steffen graduated from law school with over $100,000 in school loans from more than a dozen lenders. Of this total, Roth-Steffen received $20,350 from the Missouri Higher Education Loan Authority (MOHELA) CASH Loan program. As of November 5, 1998, Roth-Steffen had incurred interest on these loans (MOHELA loan) in the amount of $3,043.28. Roth-Steffen listed the balance of $23,401.28 in a loan consolidation application she submitted in December 1998. She requested that the MOHELA loan not be consolidated with her other loans.
In February 2003, MOHELA assigned ownership of the MOHELA loan to Guarantee National Insurance Company (GNIC), which, in turn, assigned the loan for collection to respondent Mountain Peaks Financial Services, Inc. (Mountain Peaks). Mountain Peaks commenced a collection action claiming that it holds the MOHELA loan and that it is entitled to judgment in the amount of the outstanding balance, $23,120.52, and additional interest at the rate of 2.54% from July 19, 2007. In response, Roth-Steffen asserted that the action is barred by Minnesota's six-year statute of limitations for collection on promissory notes. The district court granted summary judgment in favor of Mountain Peaks, determining that Mountain Peaks (1) owns Roth-Steffen's loan, (2) is a valid assignee of MOHELA's right, and (3) under the federal Higher Education Act is not to be subject to any state statutes of limitation.
DECISION Summary judgment is affirmed.
OPINION Bjorkman, J. Enacted in 1965, the Higher Education Act was the first comprehensive government program designed to provide scholarships, grants, workstudy funding, and loans for students to attend college. [Citations.] Pursuant to the act, the federal government makes loans and guarantees loans made by private lenders. [Citation.] In 1991, in response to rising loan defaults and an unfavorable legal ruling, Congress adopted the Higher Education Technical Amendments. [Citation.]
The amendments eliminate all statutes of limitation on actions to recover on defaulted student loans for certain classes of lenders. [Citation.] These lenders are defined in section 1091a:
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(B) a guaranty agency that has an agreement with the Secretary under section 1078(c) of this title that is seeking the repayment of the amount due from a borrower on a loan made under part B of this subchapter after such guaranty agency reimburses the previous holder of the loan for its loss on account of the default of the borrower;
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[Citation.] For convenience, we refer to the entities described in this statute as ''named lenders.''
Mountain Peaks argues that it is exempt from Minnesota's statutes of limitation because it is a valid assignee of MOHELA, a lender that has an agreement with the Secretary of Education under [section] 1091a(a)(2)(B). Roth-Steffen acknowledges that MOHELA is a named lender but argues that because Congress did not expressly identify assignees as named lenders, section 1091a does not preempt state statutes of limitation for claims asserted by assignees of named lenders.
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Section 1091a does not, by its terms, extend its statutesof- limitation exemption to assignees of named lenders. Nor does the statute expressly preclude application of the exemption to assignees. ***
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But courts interpreting federal statutes must also presume that Congress intended to preserve the common law.***
The common law of most states, including Minnesota, has long recognized that ''[a]n assignment operates to place the assignee in the shoes of the assignor, and provides the assignee with the same legal rights as the assignor had before assignment.'' [Citation]; see generally Restatement (Second) of Contracts § 317 (1981) (Assignment of a Right). Contractual rights and duties are generally assignable, including the rights to receive payment on debts, obtain nonmonetary performance, and recover damages. Restatement (Second) of Contracts § 316 (1981). But an assignor may not transfer rights that are personal, such as recovery for personal injuries or performance under contracts that involve personal trust or confidences. [Citation]; see generally Restatement (Second) of Contracts § 317 cmt. c. Under the common law, a contractual right to recover student-loan debt is assignable and does not fall within the personal-rights exclusion to the assignment rule.
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We are also guided by how courts have applied other federal-loan statutes. The majority of courts hold that assignees are entitled to the benefit of the federal statute of limitations when they acquire loans made under federal programs administered by the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance Corporation, and the Small Business Administration. ***
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*** Because Congress legislated with a full knowledge of the common law of assignment, all contractual rights of the named lenders, including the protection from state statutes of limitations, should transfer to their assignees. This interpretation of section 1091a both preserves the common law and furthers the stated purpose of the statute. [Citation.]
We conclude that section 1091a of the Higher Education Act applies to assignees of named lenders. Mountain Peaks is an assignee of a named lender, therefore this action is not time-barred by any Minnesota statute of limitations.
INTERPRETATION An assignment places the assignee in the shoes of the assignor and provides the assignee with the same legal rights as the assignor had before the assignment.
CRITICAL THINKING QUESTION If assignees of student loans were made subject to state statutes of limitations what would be the probable effect on the availability of student loans? Explain.