6th Cir. Says Student Loan Rehabilitation Company Was Not a Debt Collector Under FDCPA Because the Loans Were Not in Default at the Time of Assignment

In Willison v. Nelnet, Inc., No. 20-3538, 2021 U.S. App. LEXIS 8921 (6th Cir. Mar. 25, 2021), the Court of Appeals for the 6th Circuit found that a student loan rehabilitation company was not subject to the FDCPA.

Uncontradicted evidence clearly shows that Nelnet obtained Willison’s loans for servicing after they were no longer in default. Willison participated in the Rehabilitation Agreement, which provided that her loans’ status would change from default to being in repayment after a rehabilitation lender purchased the loans from the current lender. The record reflects that SunTrust Bank purchased the loans from Deutsche Bank on February 15, 2017. R. 12 (Loan Detail at 2) (Page ID #115). After completion of the sale, the loans were no longer in default. Id. Subsequently, SunTrust Bank transferred the loans to Nelnet for servicing that same day. Id. Consequently, Nelnet obtained the loans for servicing when the loans were no longer in default. Other record evidence bolsters this conclusion. See R. 2-1 (Koerperich Decl. at 2) (Page ID #65) (explaining that Nelnet “only services current loans and does not service loans in default”). Willison takes issue with this process and asserts that it is a “default washing operation which purports to restore a defaulted loan to a non-defaulted status.” Appellant Br. at 9. However, if it is an “operation,” it is one set up and regulated by the Department of Education. Recognizing that a concerning amount of federal student loan borrowers at some point default, the Department of Education requires all guarantors of loans held under the Federal Family Education Loan Program (“FFELP”) to “establish a loan rehabilitation program for all borrowers . . . for the purpose of rehabilitating defaulted loans, . . . so that the loan may be purchased . . . by an eligible lender and removed from default status.” 34 C.F.R. § 682.405(a)(1). Willison’s loans were consolidated under the FFELP. See R. 1-2 (FFELP Application at 1-2) (Page ID #39-40). And Willison’s Rehabilitation Agreement appears designed to satisfy all the requirements set out in the Department of Education’s regulation. Compare R. 1-2 (Rehabilitation Agreement) (Page ID #38), with 34 C.F.R. § 682.405(a), (b) (2016). Once Willison met the terms of the agreement and the loan was sold, her loans exited default through rehabilitation and “return[ed] to [a] normal repayment” schedule. Id. at § 682.405(a)(2), (b)(1)(vi)(A). Thus, when SunTrust Bank assigned the loans to Nelnet for servicing, neither the Department of Education, the guaranty agency, nor the lender considered the loans to be in default. As fortuitous as the timing may be, the result of the rehabilitation process is that Nelnet does not fall within the definition of a “debt collector” under the FDCPA. Accordingly, Willison’s claims must fail. We also have held that “the definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any non-originating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition.” Bridge, 681 F.3d at 362 (emphasis added). Willison does not argue that Nelnet treated her loans as if they were in default at the time Nelnet acquired her loans. And, as the magistrate judge noted, nothing in the record demonstrates that Nelnet treated the loans as if they were in default when Nelnet first acquired them. Willison, 2020 WL 1914810, at *4. So that path to liability also is foreclosed.