## Facts

- Bryana Bible took out a Federal Family Education Loan Program (FFELP) Stafford loan using a standard Master Promissory Note (MPN) approved for nationwide use.
- The MPN incorporated the Higher Education Act (HEA) and Department of Education (ED) regulations and required payment of only “reasonable collection fees and costs” as permitted by that federal scheme upon default.
- Bible defaulted in 2012, then entered a rehabilitation agreement requiring reduced monthly payments.
- Bible made all required rehabilitation payments on time and remained current under the agreement.
- Despite Bible’s compliance, the guaranty agency, United Student Aid Funds, Inc. (USA Funds), assessed more than $4,500 in collection costs.
- Bible sued individually and for a proposed class, asserting (1) breach of contract based on federally incorporated limits on collection costs and (2) civil RICO violations predicated on alleged mail and wire fraud in communications about collection-cost balances and reductions during rehabilitation.
- The district court dismissed, concluding the HEA preempted the claims and that the fraud allegations were inadequately pleaded.

## Issues

1. Whether the HEA and ED regulations preempt a borrower’s state-law breach of contract claim where the promissory note incorporates federal limits on collection costs.
2. Whether, and to what extent, a court should defer to ED’s interpretation of its own collection-cost regulations offered in an amicus brief.
3. Whether the HEA preempts a borrower’s federal civil RICO claim predicated on alleged misrepresentations about collection costs.
4. Whether the complaint plausibly alleged a fraudulent scheme using the mails or wires sufficient to survive a motion to dismiss.

## Decision

- The Seventh Circuit reversed the dismissal and remanded.
- The court held the breach of contract claim was not preempted because it sought to enforce, through the MPN, limits that federal law (as interpreted by ED) placed on collection costs.
- Deferring to ED’s interpretation of its own regulations, the court concluded a guaranty agency may not impose collection costs on a borrower who is in default for the first time and who complies with an alternative repayment agreement.
- The court held the civil RICO claim was not preempted by the HEA.
- Accepting ED’s regulatory interpretation, the court found the alleged statements about zero balances and cost reductions could support a plausible fraud theory at the pleading stage.

## Legal Principles

- A borrower may pursue a breach of contract claim based on terms in a student-loan promissory note that incorporate federal statutes and regulations; such a claim is not preempted when it aligns with federal requirements rather than adding conflicting obligations.
- An agency’s reasonable interpretation of its own ambiguous regulation may receive controlling weight, including when advanced in an amicus brief, if not plainly inconsistent with the regulation.
- The HEA does not categorically bar federal civil RICO claims challenging allegedly fraudulent conduct related to collection costs.
- At the motion-to-dismiss stage, allegations that a lender or guaranty agency communicated misleading information about collection costs while assessing prohibited costs can plausibly plead a scheme to defraud using mail or wire communications.

## Conclusion

The Seventh Circuit held that a borrower stated plausible breach of contract and RICO claims arising from collection costs assessed after compliant rehabilitation, rejecting HEA preemption and deferring to ED’s interpretation that the governing regulations barred such costs in the borrower’s circumstances.


Bible v. United Student Aid Funds, Inc., 799 F.3d 633 (7th Cir. 2015)