Lockhart v. United States

LII note: The U.S. Supreme Court has now decided Lockhart v. United States.

Issues 

The Supreme Court faces an issue of statutory construction and interpretation in this case. The language in the Debt Collection Improvement Act (as of 1982) conflicts with language in the Higher Education Assistance Act (as of 1991) as to the time limitation on collection of debt owed to the government. The former prohibits collection of debt more than 10 years outstanding, while the latter contains a clause explicitly stating that there is no such limitation. The Court will hold that either the earlier statute is controlling because it has not been explicitly repealed (thus, shielding debt more than 10 years outstanding), or else the later statute's language constructively repeals the earlier provision (thus, making all debt to the government susceptible for collection).

Oral argument: 
November 2, 2005
Court below: 
United States Court of Appeals for the Ninth Circuit

The language of the Higher Education Assistance Act clearly countermands any statute of limitations found in other statutes or administrative law that may bar the government from collecting, through administrative asset or garnishment, outstanding student loan debt. However, the amended Debt Collection Act, the Debt Collection Improvement Act, which was passed after the Higher Education Assistance Act, included language that expressly prevented administrative offset of social security benefits if the claim was outstanding for more than ten years. The Eighth and Ninth Circuits disagree as to whether the ten year statute of limitations applies to prevent offset of social security benefits. If Congress intended to protect social security benefits from administrative offset, then seriously delinquent debtors will be excused from repayment in this fashion. However, should the Court decide that Congress intended to prospectively abrogate the statute of limitations when it passed the Higher Education Assistance Act, then the government will be able to collect overdue student loans by withholding a certain amount from the debtor's social security benefits. Either way, statutory safeguards exist to protect those beneficiaries whose sole income is social security from offsets of excessive amounts.

Questions as Framed for the Court by the Parties 

Do the Social Security Act and the Debt Collection Improvement Act bar the United States from withholding social security benefits to collect student loan debt that has been outstanding for more than ten years, as the Eighth Circuit has held, or does the Higher Education Act eliminate any such bar, as the Ninth Circuit held below?

Facts 

A. Statutory Background

The Debt Collection Act of 1982 (31 U.S.C ? 3716) provided for the collection of outstanding debts owed to the United States through means of administrative offset.? Under this statute, the United States could apply to an administrative agency in order to recoup debt owed by an individual. The statute, while granting this ability to the United States, limited the debt-collection power in clause (e), stating that the statute is inapplicable to debts outstanding for more than 10 years.

The Higher Education Assistance Act (20 U.S.C. ? 1091), ("HEAA"), was amended in 1991 to include language that contradicted the Debt Collection Act as to time constraints on debt collection. The HEAA states (in section (2)), as to actions to collect outstanding student loans, "no limitation shall terminate the period within which suit may be filed.or an offset.initiated.."

The Social Security Act (42 U.S.C. ? 407), as amended in 1983, leaves open the question of whether social security benefits are vulnerable to administrative offset for the collection of debt to the government. The relevant section, (a), protects benefits from ".attachment, garnishment, or other legal process[es]." but does not explicitly mention offset by the government.

In 1996 the Debt Collection Improvement Act was enacted to amend the Debt Collection Act. The new act includes language authorizing the collection of outstanding debt through administrative offset of social security benefit payments. The language (in section (c)(3)(a)(1)) states ".all payments due to an individual under the Social Security Act.shall be subject to offset under this section." The 1996 amendment also added a clause exempting the first $9,000 in federal benefits annually from offset. Significantly, when this act was amended, the codifiers did not change the provision mentioned above limiting administrative offset claims on debts outstanding for more than 10 years.

B. Factual Background

James Lockhart obtained student loans between 1984 and 1990 to pay for his higher education. He was unable to repay the majority of the loans due to unemployment and health problems with their associated costs. The loans were lawfully assigned to the Department of Education for collection starting in 1991. Mr. Lockhart's only income at the time he brought the pending lawsuit was social security disability payments under 42 U.S.C. ? 423. In the interim, Mr. Lockhart turned sixty-five and these payments converted into old-age benefits (42 U.S.C. ? 402). The Department of Education notified him in February, 2002, of their intention to start offsetting his student loan debt with a percentage of his social security payments. Mr. Lockhart filed a timely request for administrative review of this decision, which was unsuccessful. In May 2002, the government began offsetting his payments, and continues to do so.

C. Procedural Background

Mr. Lockhart filed his lawsuit in March 2002, in the District Court for the Western District of Washington, seeking an injunction that would prevent the government from offsetting his social security payments. His claim alleged that the Debt Collection Improvement Act prohibited the government from collecting his debt through offset of his social security payments because his debt was more than ten years old. The District Court dismissed his complaint for failure to state a claim and for lack of subject matter jurisdiction.

Next, Mr. Lockhart appealed this decision to the Court of Appeals for the Ninth Circuit. The Ninth Circuit affirmed the District Court decision in July, 2004. (Lockhart v. United States, 376 F.3d 1027.) The Court based their decision on a theory of implied repeal, reasoning that Congress' enactment of the Higher Education Act's unlimited time constraint overrode the 10-year limit in the Debt Collection Act. The Ninth Circuit recognized the "puzzle.created by the codifiers" in this conflict in statutory language and, to reconcile this conflict, the Supreme Court granted certiorari.

Analysis 

Petitioner's Argument

Petitioner relies on the order in which the relevant statutes were enacted, the legislative history of the DCIA, and the plain language found in the Debt Collection Improvement Act (DCIA) at subsection (e), which states that administrative offset does not apply to claims that have been outstanding for more than ten years.

Order of Statute Enactment

First, Petitioner argues that the original enactment of the Social Security Act (42 U.S.C. ? 407) intended to, and did, protect social security benefits from garnishment or attachment in order to provide for aging Americans after retirement. Moreover, the Debt Collection Act of 1982 (31 U.S.C ? 3716), an attempt to recoup outstanding student loan debt by withholding tax refunds or other government funds owed an debtor, included language preventing administrative offset of claims that were outstanding by more than ten years. By 1991, delinquent student loan debt had become a major financial loss for the federal government, and thus, the Higher Education Assistance Act (20 U.S.C. ? 1091) (HEAA) abrogated any statute of limitations on collection of outstanding student loan debt. However, the 1996 amendment to the Debt Collection Act which gave the government the right to use administrative offset on social security benefits to recoup outstanding student loan debt, the Debt Collection Improvement Act (DCIA), failed to amend or remove the language that prevented offset of those claims outstanding by ten or more years. Thus, the Petitioner argues that Congress never intended social security benefits to be used to collect student loan debt delinquent by ten or more years.

DCIA Legislative History

Second, Petitioner argues that Congress continuously provides or fails to repeal safeguards and protections of social security benefits against garnishment and administrative offset. The DCIA expressly reserves the first $9,000 in benefits to the social security beneficiary, and prevents offset or garnishment of that amount. Moreover, the Conference Report to the DCIA expressed a concern that administrative offset would harm debtors whose sole source of income are social security benefits. Therefore, Congress did not intend the HEAA to abrogate the ten-year statute of limitations on collection of student loan debt, especially in the context of a debtor whose sole source of income is social security.? Congress has always intended social security benefits to protect Americans after retirement and through their elder years.

Plain Language of the DCIA

Third, the DCIA, passed in 1996 to amend the Debt Collection Act of 1982, affords the government greater latitude to collect delinquent student loan debt through administrative offset of social security benefits. Although Congress used sweeping language authorizing the administrative offset of social security benefits, petitioner argues that the failure to delete subsection (e)(1) reveals a congressional intent to continue to protect claims more than ten years delinquent. Had Congress intended to allow offset of these funds, they would have amended or removed the language explicitly preventing such governmental action. Significantly, Congress had this chance to amend or repeal the ten year statute of limitations in 2004 when a proposed amendment to the Act was proposed, but ultimately failed to pass. Thus, Congress' intent in passing the HEAA and DCIA was merely to allow administrative offset of tax refunds, not social security benefits, despite their failure to explicitly state this intent.

Respondent's Argument

Respondent argues that although the DCIA does not expressly abrogate the ten-year statute of limitations on collection of student loan debt through administrative offset, the HEAA abrogated all statutes of limitations on outstanding student loan debt.? Preventing the government from using administrative offset of social security benefits would seriously hinder the government's ability to collect outstanding student loan debt, and Congress intended to abrogate such a limitation as shown by the additional safeguards included in the Social Security Act, as amended, to protect beneficiaries.? Therefore, the HEAA overrides the exception found in the DCIA.

HEAA's Complete Abrogation of Student Loan Statute of Limitations

The sweeping language of the Higher Education Assistance Act leaves no doubt that Congress intended to override the ten-year statute of limitations found in the DCIA. Although the DCIA failed to expressly repeal the ten-year statute of limitations, Congress clearly intended, through the HEAA, to allow collection of all outstanding student loan debt, regardless of how delinquent it may have become. Congressional intent is clear from clauses that provide that it is the purpose of the statute to ensure that obligations to repay student loan debt are enforced without regard to any other administrative or statutory time limitation.

Moreover, the Social Security Act (Section 207) does not impose any statute of limitations on administrative offset of delinquent student loan debts, and therefore does not foreclose the option of administrative offset of student loan debt more than ten years delinquent. Also, the DCIA expressly references Section 207 of the Social Security Act as required by Social Security Act in order to expressly override existing safeguards: "[n]otwithstanding any other provision of law (including [] Section 207.of the Social Security Act).all payment due to an individual under.the Social Security Act shall be subject to offset under this section."

Financial Implication of Imposing Statute of Limitations

Imposing the ten year statute of limitations would impede the federal government from recouping seriously overdue student loan debts. More than $33 billion is currently owed to the federal government from outstanding student loan debt, and foreclosing debt delinquent by more than ten years will prevent a sizeable portion of that amount from ever being recovered. Taxpayers will suffer should seriously delinquent debtors be protected from administrative offset of social security benefits, as these funds must come from somewhere. Moreover, the government could be dissuaded from providing loans to all qualifying students regardless of their credit report, etc., should a loophole exist that would allow debtors protection against offset should they escape detection for ten or more years.

Adequate Safeguards on Social Security Benefits

Finally, the DCIA contains adequate safeguards to prevent undue hardship to Social Security beneficiaries whose benefits are subject to administrative offset. For example, the first $9,000 of the debtor's annual benefits cannot be offset. Also, the Department of the Treasury has further limited administrative offset of social security benefits to either the amount of the debt, 15% of the monthly covered benefit, or any benefit amount that exceeds $750 per month, if any. Thus, both Congress and administrative agencies have implemented adequate safeguards to protect social security beneficiaries from undue hardship should their benefits become subject to administrative offset after the required notice has been given. The goal of the program is to recoup outstanding debts without resulting in severe financial hardship to the debtor.

Implications of Decision

This case concerns whether or not seriously delinquent student loan debtors will be forgiven their debt to the federal government if the only way to recoup those costs is through administrative offset of their social security benefits. The idea that the government, and thus, taxpayers, must pay for citizens to attend college, without forcing those individuals to repay their debts seems unfair. This outcome seems especially unfair if the exception applies to seriously delinquent debtors across the board regardless of reason or hardship.

However, the purpose of the Social Security Act was to ensure that retired and elderly Americans did not fall into poverty. Allowing administrative offset of social security benefits could deprive those who most need the funds, i.e., sick, elderly Americans, from receiving those funds due to an outstanding student loan debt. The Court must decide which of these competing interests is most valid, or else, attempt to determine legislative intent based on a series of unclear, conflicting statutes.

Discussion 

Determining Congressional intent can be a difficult task, especially when several enactments seem to call for different requirements. In this case, the issue is whether the federal government is allowed to take possession of an individual's social security benefits to offset outstanding student loans, regardless of how long the loans have been delinquent.?

The impact of this decision is obvious. Should the Supreme Court rule that the ten year statute of limitations found in the Debt Collection Act of 1982 was not overruled by the Higher Education Assistance Act, the government will likely be unable to collect student loan debt that is delinquent by more than ten years. In addition, the government will be unable to use the administrative offset tool as applied to social security benefits for that purpose. For the petitioner, James Lockhart, continuance of the statute of limitations would effectively close the door on the government's ability to offset his social security benefits for debt older than ten years, freeing up those funds for the payment of necessary medical and living expenses. For those debtors who find themselves in an unexpected situation (i.e., disability, financial insolvency, etc.) after college or graduate school, excusing these loans lifts a weight from their shoulders. Thus, certain individuals would greatly benefit from such a ruling, but at a very real cost.

Outstanding student loan defaults to the Department of Education amount to more than $33 billion, and the imposition of the statute of limitations would foreclose a portion of that debt from ever being recouped. This financial loss could result in higher taxes, an increase in the federal deficit, and could have a negative impact on Congress' desire to fund higher education for financially unstable individuals in the future. However, even if the Supreme Court reads the statutory language in this way, Congress may still disagree and amend the language to reflect its actual intent.??????

Importantly, Congress has included certain safeguards to protect social security beneficiaries in the event that their funds become subject to administrative offset. For example, statutory and regulatory limits prevent offset over a certain amount. Also, debtors are given notice before offset can occur, and have the opportunity to either work out a payment plan that would not result in the offset of benefits, or contest the decision to offset. If the individual is unable to work due to a disability or medical condition, the debt can be discharged. Hence, Congress likely did not intend the administrative offset program to financially cripple delinquent debtors, but simply attempted to implement a reasonable way of recouping student loan debt.

Conclusion 

Should social security benefits be subject to administrative offset to recoup seriously delinquent student loan debt? If so, the Higher Education Assistance Act was intended to apply to both the Debt Collection Act and the Debt Collection Improvement Act of 1996, although the express language of both statutes included a ten year statute of limitations. Moreover, the federal government will have another tool for the collection of seriously delinquent student loan debt and will theoretically be able to pay down some of the $33 billion owed to it by citizens who utilized the federal student loan program. However, should the Court rule that Congress intended to maintain the ten year statute of limitations in order to protect social security beneficiaries based on the very nature and intention of the Social Security Program, then people like the petitioner will be free from repaying seriously overdue loans unless other federal funds, such as tax refunds, become available. Regardless of how the Court rules, Congress has the option to amend any of the relevant statutes to clarify their wishes.

Written by:

Liz Hanks

Amy McDonald

Acknowledgments 

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