Nichols Kaster, PLLP and National Consumer Law Center Win Appeal on Behalf of Student Loan Borrowers Wrongly Charged Collection Costs

On August 18, 2015, the United States Court of Appeals for the Seventh Circuit reversed the Southern District of Indiana’s dismissal of Plaintiff Bryana Bible’s Complaint against Defendant United Student Aid Funds (USA Funds) for wrongfully charging collection fees on a defaulted student loan.

“We are very pleased with the Seventh Circuit’s decision,” said Plaintiffs’ Counsel Anna P. Prakash of Nichols Kaster, PLLP. “Student loan borrowers, just like any other party to a contract, should be allowed to enforce the terms of those contracts in court. The Seventh Circuit spoke with a clear and unified voice in affirming this basic principle. The decision is also tremendously important given how long student loan borrowers carry substantial debt. That debt cannot—under contract or the Higher Education Act—be increased by the addition of collection costs for borrowers like Ms. Bible who timely agreed to repay their loans.”

In 2014, Plaintiff Bryana Bible filed a class action lawsuit on behalf of herself and other student loan borrowers against USA Funds for breach of contract and violations of the federal Racketeer Influenced Corrupt Organizations (RICO) Act. The terms of Bible’s student loan contract, over which USA Funds was the guarantor, incorporated the Higher Education Act (HEA) which, Bible alleged, did not allow the imposition of collection costs where a borrower in default agrees within 60 days to rehabilitate a loan. Although Bible had defaulted on her loan, she agreed to rehabilitation well within the 60-day period. Nonetheless, USA Funds added more than $4,000 in collection costs to the balance of Bible’s loan, leading to Bible’s lawsuit.

In granting USA Funds’ motion to dismiss, the district court had held that Bible’s claims were preempted by the HEA. However, the U.S. Department of Education (the Department), which oversees the HEA, filed an amicus brief in support of Bible at the Seventh Circuit. Yesterday, the Seventh Circuit reversed the district court’s decision, holding that “[n]either of Bible’s claims is preempted by the [HEA]” The Court agreed with the Department—and Bible—that “a guaranty agency may not impose collection costs on a borrower who is in default for the first time but who has timely entered into and complied with an alternative repayment agreement.”

Plaintiffs are represented by E. Michelle Drake, Anna P. Prakash, and Joseph C. Hashmall from Nichols Kaster, PLLP in Minneapolis, Minnesota; and by Stuart Rossman and Charles Delbaum of the National Consumer Law Center in Boston, Massachusetts. The case is Bible v. United Student Aid Funds, 1:13-cv-00575-TWP-TAB (S.D. Ind.). Additional information can be found at