Huge Win for Private Student Loan Borrowers

Student loans are notoriously difficult to shed through the bankruptcy process.  A person must show that it would impose an “undue hardship” on them to be required to repay the student loans, and the test for proving undue hardship has historically been nearly insurmountable.

The Second Circuit Court of Appeals has handed a game-changer ruling to people in New York, Connecticut and Vermont who are suffocating under the weight of private student loan debt.  In a major blow to many private lenders, the Second Circuit ruled that a private student loan is NOT an “obligation to repay funds received as an educational benefit”—as Navient (one of the largest private student loan servicers) has long argued—and therefore IS dischargeable in bankruptcy without having to prove undue hardship.  This quoted language may sound like it applies to private loans, but the Second Circuit found that it really refers to conditional grants that are similar to scholarships and stipends—not loans.

While this ruling does NOT apply to government funded or backed loans, it is going to help a large number of people discharge huge amounts of private student loan debt through bankruptcy. It will be interesting to see how many other circuits follow this approach, and whether it gives bankruptcy judges throughout the country—many of whom have commented in written opinions on the harshness of the “undue hardship” tests—persuasive authority on which to base decisions discharging private student loan debt.

The Second Circuit’s unanimous and well-reasoned decision (the language of which is fairly damning on Navient) can be viewed here.  And if you’re curious whether your student loan is private, see if you can find it here (if not, it’s a private loan).

©2021 Roetzel & Andress

For more articles on student loans, visit the NLRFinancial Institutions & Banking section.

Homeland Security Withdraws Proposed Rules Affecting International Students

The U.S. Department of Homeland Security announced the withdrawal of proposed new rules that would have limited the time that individuals entering the U.S., including international students, could remain in the country, absent the issuance of a new visa. The proposed rules, which were published on September 25, 2020, had been the subject of significant concern by many higher education leaders due to their potential impact upon international student retention.

Under the current rules, international students approved for an F or J category entry visa are allowed to remain in the country for an unspecified period, so long as they continue to be enrolled in coursework leading to their degree or research activity. This so-called “duration of status” policy would have been replaced by fixed terms of up to four years, under the proposed changes.

The new rules would have required a reapplication and renewal of the visa status of the student at the expiration of the term for studies to be continued. Further, in the case of countries whose students have higher visa overstay rates, the proposed rule would have limited initial student visa terms to two years.

In a letter voicing opposition to the proposed changes, the American Council on Education (“ACE”) argued that the imposition of limitations on visa duration for international students would significantly impede the educational process. As the ACE letter noted, the average time for an international student to complete a B.A. degree is slightly more than 4.5 years, and almost six years to complete a Master’s/Ph.D. program. It further concluded that the proposed rules would be “largely unworkable for the majority of students.”

The announcement of the withdrawal of the proposed rules represents a positive step for colleges and universities seeking to attract international students. It reinforces the existing student visa regime and produces a more stable environment for applicants. Yet, the announcement of the withdrawal of the proposed rules came with the acknowledgement that other changes may be necessary “to protect the integrity of programs that admit nonimmigrants in the F, J and I classifications.” Accordingly, a new Notice of Proposed Rulemaking related to the rules regarding these specific visa categories could be forthcoming.

© Steptoe & Johnson PLLC. All Rights Reserved.

For more articles on international students, visit the NLRPublic Education & Services section.

The Supreme Court’s Transgender Bathroom Case Rebuff, What Direction Should School Districts Take?

On June 28, 2021, the Supreme Court denied the Gloucester County School Board’s petition for a writ of certiorari or stated another way denied to hear an appeal from the School Board from a Federal Appellate court.  So at this juncture,  it appears the Justices don’t seem inclined to intervene in disputes over transgender rights and bathrooms.  So what are the implications of the Court’s action or more accurately inaction in Grimm v. Gloucester County School Board?

The Background and Twisting Litigation in Grimm v. Gloucester

Prior to appeal to the Supreme Court, the United States District Court for the Eastern District of Virginia denied a motion by the Gloucester County school board to dismiss the Title IX and Equal protection lawsuit brought by student Gavin Grimm.

In Grimm v. Gloucester County School Board the Plaintiff Gavin Grimm, a transgender student, challenged a school board resolution that required him—and other transgender students—to use the bathroom associated with his “biological gender.” G.G. ex rel. Grimm v. Gloucester Cty. Sch. Bd., 822 F.3d 709, 716 (4th Cir. 2016), cert. granted in part, No. 16-273, 2016 WL 4565643 (U.S. Oct. 28, 2016). Grimm sued the school board, alleging that the policy violated Title IX as well as the equal protection clause of the Constitution.

What does Title IX Protect?

Title IX of the Education Amendments of 1972 (Title IX) is a federal law that states in part:

“No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.”

What does the Equal Protection Clause of the Constitution Protect?

The Equal Protection Clause is part of the Fourteenth Amendment to the U.S. Constitution and the part most frequently litigated reads:

“No state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

Specifically, the phrase “equal protection of the laws” has been used by the Supreme Court to find constitutional protection in a number of gender and public education related situations.

What Does the Due Process Clause of the 14th Amendment Protect?

The Due Process clause of the 14th Amendment which explicitly applies to the states,   essentially mirroring the protections of the 5th Amendment, which only applies to the Federal Government , thereby adding additional protections for individual rights from intrusion by the states.  The Due Process clause guarantees the following rights from interference by the states:

In addition to his Title IX and equal protection clause claims, the plaintiff in Grimm v. Gloucester relied heavily on a Department of Education (DOE) /  Office of Civil Rights Letter (OCR) known as a “Dear Colleague Letter” interpreting Section 106.33 (34 CFR 106.33 Comparable Facilities)  to require schools to “treat transgender students consistent with their gender identity.” G.G., 822 F.3d at 718.

In response to the Fourth Circuit Court of Appeals decision in Grimm v. Gloucester County School Board, 2016 WL 1567467 (4th Cir. April 19, 2016), on May 13, 2016, the Department of Labor (DOL) and the Department of Education under the Trump Administration issued a joint directive to school districts summarizing “a school’s Title IX obligations regarding transgender students and explains how the [DOE] and the [DOL] evaluate a school’s compliance with these obligations” or another a “Dear Colleague Letter.”

The Fourth Circuit’s majority opinion in Grimm (2106) relied heavily, if not exclusively, on the Obama Era’s DOE’s interpretation of Title IX and that requiring transgender students to use the restroom associated with their biological sex equated to discrimination on the basis of sex.

The school district in Grimm, along with several state attorney generals, petitioned the Fourth Circuit for a hearing before the full panel.  The Fourth Circuit denied the and School District appealed to the United States Supreme Court for review and the Supreme Court granted certiorari in 2016, but after the change of administration the Department of Education withdrew the “Dear Colleague Letter”, the Supreme Court opted to not to hear the case and vacated and remanded the case back to the Fourth Circuit.

Grimm then filed an amended complaint, and in 2020, the Fourth Circuit affirmed the district court’s ruling in favor of Grimm.  The Fourth Circuit, in its 2020 ruling relied on 2020 landmark Supreme Court case, Bostock v. Clayton County, which held that Title VII’s prohibition of discrimination on the basis of sex necessarily includes discrimination on the basis of sexual orientation and gender identity. The Fourth Circuit extended the Supreme Court’s reasoning in Bostock  to Title IX’s analogous prohibition of discrimination on the basis of sex.

The School District once again appealed and the Supreme Court refused to grant certiorari on June 28, 2021, so the underlying 2020 Fourth Circuit opinion stays intact.

What Impact will Grimm v. Gloucester Actually Have?

According to Shannon Farmer a Labor & Employment partner in the Philadelphia office of Ballard Spahr, with extensive litigation experience related to civil rights:

“As the Fourth Circuit’s decision and the Supreme Court’s denial of certiorari makes clear, the Court’s landmark ruling in Bostock changed the legal landscape surrounding LGBTQ+ discrimination. When Grimm was before the Court in 2016, the underlying Fourth Circuit decision was based on administrative guidance with limited authority. The Fourth Circuit’s most recent ruling, however, was grounded in the Court’s reading of statutory language. Although the Supreme Court explicitly stated that the Bostock opinion did “not purport to address bathrooms, locker rooms, or anything else of the kind,” its decision not to hear the Grimm case allowed Bostock to be extended to provide exactly those protections. In addition, the Biden Administration’s March 8 Executive Order and a subsequent memorandum from the DOJ have extended Bostock to the educational context.”

Although many institutions have created or are beginning to create policies for transgender students, the long and winding road of the Grimm case shows there are still challenges ahead and changes in direction from the DOL, DOE and OCR  with different administrations, can make keeping up with the rules a moving target. As it stands today, revisions to existing policies will call for more clearly-defined inclusivity provisions for the LGBTQ community.

According to Nikki Hatza, an associate in the Philadelphia office of Ballard Spahr with previous experience with the Employment Litigation Section of the U.S. Department of Justice’s Civil Rights Division:

“Given the Biden Administration’s guidance and the existing appellate court decisions interpreting Title IX and the Equal Protection Clause to prohibit discrimination on the basis of gender identity, schools should review and adjust their policies as needed to comply.”

Per Art Coleman, of EducationCounsel and past Deputy Assistant Secretary for Civil Rights, U.S. Department of Education, who along with his team, last year filed an amicus brief in the U.S. Court of Appeals for the Fourth Circuit on behalf of Gavin Grimm:

“The U.S. Supreme Court’s decision not to consider the appeal in the Grimm case is not surprising in light of the unbroken string of recent federal appellate decisions that affirm that the protections of Title IX extend to transgender students.  Coupled with recent U.S. Departments of Justice and Education actions that align with those rulings, clear consensus has emerged under federal law.”

The federal court rulings that affirm the extension of Title IX protections to transgender students have continued to affirm the reality of consequential harm to transgender students that occurs when they are denied from full participation and opportunities in education.  In the end, the cases really are about the indisputable harm to students that results from lack of equal opportunity—medically, psychologically and educationally.  The federal courts—and the Biden administration—have recognized that reality, and won’t countenance it.  Because the law doesn’t.

Jessica Clarke, a professor of law and co-director of the George Barrett Social Justice Program at Vanderbilt University believes that Grimm v. Gloucester will cause groups with concerns related to LGBTQ rights to shift their attention from the bathroom issue and served as the impetus for school districts to adopt more trans-friendly bathroom policies.

“The decision not to grant certiorari is important because it did not disrupt the emerging consensus among federal courts–not just the Fourth Circuit–that schools may not forbid transgender students from using restrooms consistent with their gender identities. One factor that has been important in this development is that school districts around the country have adopted trans-inclusive restroom policies without experiencing any of the disruption that was feared. As a result, we are likely to see conservative advocacy groups shift the focus of their attacks on the LGBTQ community from restrooms to other issues.”

Copyright ©2021 National Law Forum, LLC

For more articles on the Supreme Court, visit the NLRLitigation / Trial Practice section.

Supreme Court Offers Clarification on Protection for Off Campus Speech: Implications for School Boards & First Amendment

On June 23, 2021, the U.S. Supreme Court held that the Mahanoy Area School District violated the First Amendment rights of Brandi Levy, a high school student who went to Snapchat to voice her frustrations when she didn’t make the varsity school cheerleading team.

Ms. Levy posted on her personal Snapchat a few photos showing the middle finger, one with the caption, “F*** school f*** softball f*** cheer f*** everything,” and the other saying, “Love how me and [another student] get told we have another year of jv before we make varsity but tha[t] doesn’t matter to anyone else.” which was visible to about 250 people at the time, many of whom were fellow students.  Snapchat messages, by design are meant to go away not long after they are sent.

In this circumstance, at least one other student took a screenshot of the post(s) and shared it with her mother, who was also a coach, to express concern, the school district decided Ms. Levy violated school and team rules, and was ultimately suspended from the junior varsity cheer squad for the remainder of the year.

Ms. Levy and her parents sued Mahanoy School District (“School District”) under 42 U.S.C. § 1983, stating that her suspension violated the First Amendment, and Mahanoy’s team and school rules were overbroad and unconstitutionally vague. The School District argued that they were within their rights to suspend Ms. Levy because of the previous Supreme Court decision Tinker v. Des Moines Independent Community School District, which ultimately held that school officials could regulate speech that would disrupt the work and discipline of the school.

Both the United States District Court for the Middle District of Pennsylvania and the Third Circuit Court of Appeals sided with Ms. Levy, and the Mahanoy School District filed a petition for certiorari, asking whether Tinker standard did or did not apply to this case.

The Supreme Court needed to decide whether the First Amendment prohibits public schools from regulating off-campus speech, and whether the Third Circuit correctly held that the school violated Ms. Levy’s first amendment rights. It was an 8 to 1 decision, with Justice Stephen Breyer drafting the majority opinion and Justice Clarence Thomas authoring the dissenting opinion.

The Supreme Court previously outlined three instances where a school may regulate student speech: (1) incident, lewd or vulgar speech uttered during a school assembly on school grounds, (2) speech uttered during a class trip that references illicit drug use, and (3) speech that others may perceive as bear[ing] the imprimatur of the school, such as in a school newspaper.

Ms. Levy’s words of criticism were outside of school hours and not on school property, and although they were vulgar, they were not threatening in nature, so the Supreme Court held the School District did not have the right to punish Ms. Levy and she was not outside of her First Amendment rights.

What are the Free Speech Implications?

While the Supreme Court ruled in favor of Ms. Levy in this case, the ruling does not necessarily protect all off-campus speech. For example, in Tinker v. Des Moines Independent Community School District, the Supreme Court said schools may regulate speech that disrupts the order of the school or infringes on others’ rights. In his dissenting opinion, Justice Thomas said schools have the authority to regulate speech off-campus when it harms the school and threatens its faculty.

The Court said exceptions to the ruling in Mahanoy Area School District v. B.L. would be limited, and would have to be worked out in future cases. Justice Samuel Alito said in his concurring opinion that “the regulation of many types of off-premises student speech raises serious First Amendment concerns, and school officials should proceed cautiously before venturing into this territory.”

According to previous precedent, students do not lose their First Amendment rights when they set foot on school grounds.

“I think this result is foreseeable insofar as the Court seemed unlikely during oral argument to adopt the Third Circuit’s broad view that schools can’t regulate off-campus speech at all, but they also seemed to think the school had overreached here,” said Gautam Hans, assistant clinical professor of law and director of the Stanton Foundation First Amendment Clinic at Vanderbilt University Law School in a statement to the National Law Review.

The Court outlined three facets that distinguish schools’ efforts to regulate off-campus speech. First, it’s the parents’ responsibility to regulate students’ speech off campus. Additionally, if a student is subjected to speech regulations on and off campus, then their speech is regulated 24 hours a day.

“That means courts must be more skeptical of a school’s efforts to regulate off-campus speech, for doing so may mean the student cannot engage in that kind of speech at all,” per Justice Breyer writing for the majority. Lastly, the Court said schools are America’s “nurseries of democracy,” and therefore have an interest in protecting students’ unpopular opinions.

“Justice Breyer’s adoption of a flexible standard for when schools can regulate speech off-campus demonstrates the real challenges for schools and the need to balance competing interests. I suspect this will get litigated a fair amount in the coming years as courts try to figure out what to do with the standard articulated here,” Professor Hans said.

The Court specifically pointed out that in this case, Ms. Levy’s Snapchats were sent outside of school hours on her own time and were not sent on school grounds. She also did not identify the school itself in the posts, and did not target any person in particular. Therefore, the school did not have the right to suspend her.

“Likewise, there is little to suggest a substantial interference in, or disruption of, the school’s efforts to maintain cohesion on the school cheerleading squad,” the Court said.

What are the Implications for School Boards & Administrators?

In his dissenting opinion, Justice Thomas criticized the Court’s majority opinion for being too vague, and for its lack of guidance to schools on how to discipline students moving forward.

“Because the Supreme Court declined to set forth a uniform rule and give leeway to schools to regulate off-campus speech, the lower courts will further shape the landscape of First Amendment application to student speech,” per  Christine V. Hamiel, Chair of the School Law Section at von Briesen & Roper. “School boards and administration must be mindful that such further interpretation will continue to lay the foundation for what action a school may take with respect to student off-campus speech.”

Due to the ruling’s lack of uniformity, school administrators will have to think about the specific characteristics of off-campus speech when deciding whether or not to respond with disciplinary action.

“While acknowledging that there can be circumstances where off-campus speech may be regulated, it is clear from the decision that the characteristics of off-campus speech that differentiate it from speech at school or at a school function will make it more difficult to pass constitutional muster when dealing with off-campus speech,” per  Robert Burns, Chair of the School and Higher Education Team at Davis Kuelthau. “School administrators will have to analyze such issues carefully when contemplating responding to off-campus speech.”

Moving forward, schools will have to consider multiple factors of the impact of students’ speech when determining if and how to respond.

“The Supreme Court recognized that there can be circumstances where off-campus speech implicates the regulatory interests of schools,” Mr. Burns said.  “It concluded that the facts in Mahanoy did not rise to that level, but going forward school districts are in a position to respond to such speech if they conclude it is creating a substantial disruption of learning or threatening the protection of the school population.”

Should a school decide to take action against a student for off-campus speech, they must also determine the circumstances around the student’s speech.

“Schools must carefully consider each situation and the unique circumstances of each situation on a case-by-case basis, taking into consideration three key features: the authority a school has over the off-campus student; the content of the speech at the time it is made (given that off-campus regulation opens the door to school regulation of all student speech); and a school’s responsibility in maintaining a free ‘marketplace of ideas,’” Ms. Hamiel said.

Copyright ©2021 National Law Forum, LLC


ARTICLE BY Rachel Popa and Hanna Taylor of
For more articles on the Supreme Court, visit the NLRLitigation / Trial Practice section.

Ohio Supreme Court Rules that School Employees Must Undergo Training in Order to Carry Firearms on School Grounds

On June 23, 2021, in a 4-3 decision, the Ohio Supreme Court ruled that a resolution passed by the Madison Local School District Board of Education which allowed certain employees of the District to carry firearms on school grounds did not comport with Ohio law.

In 2016, a school shooting took place at Madison Junior-Senior High School, which left four students injured. In response, the District’s Board of Education approved a resolution in April 2018 “to allow armed staff” in a school safety zone, which was subsequently followed by a “Firearm Authorization Policy.” The resolution and the corresponding policy stated that some “teachers, school support staff, administrators, and others” would be permitted to carry a firearm on school grounds if the individuals: (i) were designated by the superintendent after a mental health assessment and background check; (ii) had a concealed carry license; and (iii) completed 24 hours of active shooter training.

In response, a group of parents of students enrolled in the District commenced an action seeking a declaratory judgment that the resolution violated O.R.C. §109.78(D), as well as an injunction prohibiting the District from implementing the resolution regarding District employees who did not meet the requirements of that statute. O.R.C. §109.78(D) indicates that public education institutions, such as the District, cannot “employ a person as a special police officer, security guard, or other position in which such person goes armed while on duty, who has not received a certificate of having satisfactorily completed an approved basic peace officer training program, unless the person has completed twenty years of active duty as a peace officer.”

The trial court ruled in favor of the District and held that the requirement in O.R.C. §109.78(D) only applied to “positions that inherently require the employee to be armed while on duty.” On appeal, the Twelfth District reversed the trial court’s judgment and its “limited reading” of O.R.C. §109.78(D), and held that the statute applies to teachers and other school staff who are authorized to carry a firearm while on duty by a board of education.

The Ohio Supreme Court affirmed the ruling of the Twelfth District and held that because the April 2018 resolution authorized certain employees to be armed while on duty “without also requiring that these employees satisfy the training-or-experience requirement” of O.R.C. §109.78(D), the resolution violates the statute, and does not comply with Ohio law. The Ohio Supreme Court also analyzed O.R.C. §2923.122, a criminal statute which makes illegal the possession of a deadly weapon in a school safety zone, with certain exceptions—including a caveat that the statute does not apply to (among others) “any other person who has written authorization from the board of education or governing body of a school to convey deadly weapons or dangerous ordnance into a school safety zone or to possess a deadly weapon or dangerous ordnance in a school safety zone….” The Court held that the exception in O.R.C. §2923.122(D)(1)(a) does not give school boards the ability to circumvent the requirements of O.R.C. §109.78(D), nor does it “constitute a legislative grant of power for school boards to authorize their employees to go armed so long as the employees undergo whatever training a board might deem advisable.”

The dissenting opinions indicated the peace officer training requirements were not applicable to teachers and other school staff, and that school districts had discretion in creating policies regarding arming teachers and other staff.

The Court also explained that when the General Assembly enacted O.R.C. §2923.122, O.R.C. §109.78 had already been in effect for more than 20 years – and further held that if the General Assembly had “perceived any conflicts between the statutes,” it could have amended either one of the statutes but did not. In response to this discrepancy, Representative Thomas Hall, whose father was the school resource officer who chased the shooter out of the building in 2016, introduced House Bill 99. House Bill 99 would give school districts throughout Ohio the discretion to allow teachers and other school staff to be armed in school so long as they have completed the concealed carry training, which is 8 hours in length. The Bill also includes proposed amendments to O.R.C. §2923.122 and O.R.C. §109.78. It remains to be seen whether House Bill 99 will be signed into law, but it is clear that the issue of armed teachers and school staff is one that is under continuous scrutiny.

©2021 Roetzel & Andress


For more articles on education, visit the NLRPublic Education & Services section.

U.S. Department of Education Says Title IX Protects LGBTQ Students

Yesterday, the Office of Civil Rights (OCR) for the U.S. Department of Education released a new Notice of Interpretation clarifying the Department’s position that Title IX prohibits discrimination against gay and transgender students. The interpretation, applicable to both colleges and universities and K-12 institutions which accept federal funding, follows the U.S. Supreme Court’s holding in Bostock v. Clayton County that Title VII prohibits workplace discrimination based on sexual orientation or gender identity. OCR’s announcement is a departure from the previous administration’s position, which declined to extend Title IX’s protections to transgender students. While the Notice does not have the effect of law, it signals OCR’s intentions as it enforces Title IX going forward. “We just want to double down on our expectations,” said DOE Secretary Miguel A. Cardona. “Students cannot be discriminated against because of their sexual orientation or their gender identity.”

OCR’s Notice states that its interpretation is meant to align Title VII and Title IX, acknowledging that courts regularly rely on interpretations of Title VII to inform decisions based on Title IX. The interpretation also follows a March 2021 memorandum from the U.S. Department of Justice, which similarly interpreted the Bostock decision to apply to Title IX. OCR’s announcement has been welcomed by many schools, which had been forced to juggle conflicting Title IX and Title VII standards in the wake of the Bostock decision. Still others have questioned the interpretation’s impact, including schools in locations where the interpretation is in conflict with state or local law. And OCR’s Notice expressly acknowledges that the interpretation does not change the Title IX exemption for education institutions controlled by a religious organization to the extent that the law is not consistent with the organization’s religious tenets.

OCR’s announcement comes during the summer months—as many schools are updating their policies and procedures—and while many institutions anxiously await OCR’s announcement of further guidance and regulations related to Title IX, particularly regarding further guidance regarding the 2020 Title IX regulations. The interpretation also leaves open several key questions including, for example, its impact on single sex institutions or campus affinity groups or how broadly the department will define gender identity. But as schools prepare for the 2021 fall semester, administrators should be ready to address allegations of discrimination based on sexual orientation or gender identity as part of Title IX compliance efforts.

OCR’s Notice of Interpretation may be found in its entirety here.

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.

For more articles on the OCR, visit the NLRCivil Rights section.

CFPB Suit Against Student Loan Trusts Dismissed

On March 26, 2021, Judge Maryellen Noreika of the U.S. District Court for the District of Delaware dismissed a lawsuit brought by the Consumer Financial Protection Bureau (“CFPB”) in Consumer Financial Protection Bureau v. The National Collegiate Master Student Loan Trusts,1 finding, inter alia, that the CFPB’s suit was constitutionally defective due to the CFPB’s untimely attempt to ratify the prosecution of the litigation in the wake of the Supreme Court’s decision in Seila Law LLC v. Consumer Financial Protection Bureau.  This case has been closely watched by many participants in the structured finance industry, because the litigants had disputed over the question of whether the trusts at issue in the litigation are “covered persons” liable under the Consumer Financial Protection Act despite their status as passive securitization trust entities—a question that has important and wide-reaching implications for the structured finance markets.

Background

The National Collegiate Student Loan Trusts (the “Trusts”) hold more than 800,000 private student loans through 15 different Delaware statutory trusts created between 2001 and 2007, totaling approximately $12 billion.  The loans originally were made to students by private banks.  The Trusts provided financing for the student loans by selling notes to investors in securitization transactions.  The Trusts also provided for the servicing of and collection on those student loans by engaging third-party servicers.  However, the Trusts themselves are passive special purpose entities lacking employees or internal management; instead, to operate, the Trusts relied on various interlocking trust-related agreements with multiple third-party service providers to—among other things—administer each of the Trusts, determine the relative priority of economic interests in the Trusts, and service the Trusts’ loans.

On September 4, 2014, the CPFB issued a civil investigative demand (“CID”) to each of the Trusts for information concerning thousands of allegedly illegal student loan debt collection lawsuits used to collect on defaulted loans held by the Trusts.  On May 9, 2016, the CFPB alerted the Trusts to the fact that the CFPB was considering initiating enforcement proceedings against the Trusts based on the collection lawsuits through a Notice and Opportunity to Respond and Advice (“NORA”).  A few weeks later, the law firm McCarter & English, LLP (“McCarter”), purporting to represent the Trusts, submitted a NORA response to the CFPB.  McCarter and the CFPB then proceeded to negotiate a Proposed Consent Judgment to resolve the CFPB’s investigation of the Trusts.

The Litigation

On September 18, 2017, the CFPB filed suit against the Trusts in Delaware federal court (the “Court”), alleging that the Trusts had violated the Consumer Financial Protection Act of 2010 (the “CFPA”) by engaging in unfair and deceptive practices in connection with their servicing and collection of student loans.  Although the CFPB acknowledged that the Trusts had no employees and that the alleged misconduct resulted from actions taken by the Trusts’ servicers and sub-servicers in the course of their debt collection activities—rather than any actions taken by the Trusts themselves—the CFPB nonetheless named only  the Trusts as defendants.  On the same day, the CFPB also filed a motion to approve the Proposed Consent Judgment negotiated with McCarter.

However, within days of the CFPB’s initiation of the lawsuit, multiple parties associated with the Trusts intervened in the litigation to argue against the entry of the Proposed Consent Judgment.  The intervenors expressed concern that the entry of the Proposed Consent Judgment would impermissibly impair or rewrite their respective contractual obligations as set forth in the agreements underlying the Trusts.  After discovery, on May 31, 2020, the Court denied the CFPB’s motion to approve the Proposed Consent Judgement, holding that McCarter lacked authority to execute the Proposed Consent Judgment pursuant to terms of the agreements governing the Trusts and Delaware law.

On June 29, 2020, in another lawsuit involving the CFPB, the United States Supreme Court held in Seila Law LLC v. Consumer Financial Protection Bureau that the CFPB’s structure violated the Constitution’s separation of powers.2  Specifically, the Supreme Court held that “an independent agency led by a single Director and vested with significant executive power” has “no basis in history and no place in our constitutional structure,”3 and that the statutory restriction on the President’s authority to remove the CFPB’s Director only for “inefficiency, neglect, or malfeasance” violated the separation of powers.4  The Supreme Court then concluded that the proper remedy was to sever the removal restriction, and ultimately allowed the CFPB to stand.  The Supreme Court also noted that an enforcement action that the CFPB had filed to enforce a CID while its structure was unconstitutional may nonetheless be enforceable if it was later successfully ratified by an acting director of the CFPB who was removable at will by the President.  If not so ratified, however, the enforcement action must be dismissed.

Around the time the Supreme Court issued its decision in Seila Law, various intervenors were briefing multiple motions to dismiss the CFPB’s complaint against the Trusts.  One subset of intervenors—Ambac Assurance Corporation, the Pennsylvania Higher Education Assistance Agency, and the Wilmington Trust Company5 (collectively, “Ambac”)—argued, inter alia, that: (i) the Supreme Court’s decision in Seila Law required dismissal of the CFPB’s complaint because the CFPB’s ratification of the litigation against the Trusts was untimely, and (ii) the Court lacked subject matter jurisdiction over its asserted claims because the Trusts are not “covered persons” as required under the CFPA.  Another intervenor, Transworld Systems, Inc.6 (“TSI”) also argued that the CFPB’s complaint merited dismissal for lack of subject matter jurisdiction as well.

The Court’s Holding

Subject Matter Jurisdiction

The Court held that it possessed the requisite subject matter jurisdiction to decide the CFPB’s claims, and rejected the contention that a showing of whether the Trusts are “covered persons” is a jurisdictional requirement under the CFPA.  To determine whether a restriction—such as the term “covered persons”—is jurisdictional, the Court looked to “whether Congress has clearly stated that the rule is jurisdictional.”7  “[A]bsent such a clear statement,” courts “should treat the restriction as nonjurisdictional.”8

The Court then examined the CFPA, observing that there is no clear statement in the CFPA’s jurisdictional grant that “covered persons” is required.  The Court noted that only one section of the CFPA addresses the issue of subject matter jurisdiction, and that section granted jurisdiction over “an action or adjudication proceeding brought under Federal consumer law” with no mention of “covered persons” whatsoever.9

While the Court agreed that the term “covered persons” appeared multiple times throughout the CFPA, it pointed out that none of the sections where “covered persons” appeared mentioned jurisdiction.

Enforcement Authority

In light of the Supreme Court’s holding in Seila Law, the Court granted Ambac’s motion to dismiss the CFPB’s complaint due to the CFPB’s lack of enforcement authority as a result of its untimely ratification of the litigation.

As an initial matter, the Court observed that there was no question that the CFPB initiated the enforcement action against the Trusts at a time when its structure violated the constitutional separation of powers.  The task facing the Court, then, would be to determine (i) whether that constitutional defect has been cured by ratification, or (ii) whether dismissal of the suit is required.  Under the applicable Third Circuit precedent, there are three general requirements for ratification of previously-unauthorized action by an agency: (1) “the ratifier must, at the time of ratification, still have the authority to take the action to be ratified”; (2) “the ratifier must have full knowledge of the decision to be ratified”; and (3) “the ratifier must make a detached and considered affirmation of the earlier decision.”10  Here, the parties’ dispute centered around the first requirement.

Under the first requirement, the Court noted that “it is essential that the party ratifying should be able not merely to do the act ratified at the time the act was done, but also at the time the ratification was made.”11  On July 9, 2020, the CFPB’s then-Director, Kathy Kraninger, had ratified the decision to initiate the CFPB’s litigation against the Trusts a few weeks after the Supreme Court’s decision in Seila Law.  The Court held that Director Kraninger’s ratification was ineffective, because (i) an enforcement action arising from alleged CFPA violations must be brought no later than three years after the date of discovery of the violation to which the action relates,12 (ii) ratification is ineffective when it takes place after the relevant statute of limitations has expired, and (iii) the CFPB clearly had discovery of the Trusts’ alleged CFPA violations more than three years before the ratification date, i.e., before July 9, 2017.  Thus, Director Kraninger’s ratification of the CFPB’s decision to file suit against the Trusts failed to cure the constitutional defects raised by Seila Law, and the CFPB’s complaint—initially filed by a CFPB director unconstitutionally insulated from removal—could not be enforced.

In so holding, the Court rejected the CFPB’s argument that the timeliness requirements for ratification were satisfied because the CFPB had brought the original suit within the applicable limitations period.  The Court likewise rejected the CFPB’s request to equitably toll the statute of limitations for ratification, because the CFPB “could not identify a single act that it took to preserve its rights in this case in anticipation of the constitutional challenges that could have reasonably ended with an unfavorable ruling from the Supreme Court.”13

Key Takeaways

The securitization industry has operated for decades on the premise that agreements governing securitization transactions provide that transaction parties are responsible for their own malfeasance and, barring special circumstances, will not be held accountable for the misconduct of other parties to the transaction.  A decision holding that passive securitization entities like the Trusts are “covered persons” under the CFPA—and thus potentially responsible for the actions of their third-party service providers—would undermine the certainty of contract terms that undergirds the success of the structured finance industry, with grave implications for the heathy functioning of the industry.  While the substantive question of whether passive securitization entities like the Trusts could indeed be “covered persons” and held accountable for the actions of their third-party service providers remains to be answered for another day, the Court did observe that it “harbor[ed] some doubt” that the plain language of the CFPA extended to passive statutory trusts,14 and expressed skepticism as to whether the CFPB could successfully replead in a manner that would successfully cure the deficiencies in its original complaint.


1   2021 WL 1169029, at *3 (D. Del. Mar. 26, 2021).

2   140 S.Ct. 2183, 2197 (June 29, 2020).  For a detailed discussion on Seila Law, please see our July 2, 2020 Clients & Friends Memo, “Seila Law LLC v. Consumer Financial Protection Bureau: Has the Supreme Court Tamed or Empowered the CFPB?”, available at https://www.cadwalader.com/resources/clients-friends-memos/seila-law-llc-v-consumer-financial-protection-bureau-has-the-supreme-court-tamed-or-empowered-the-cfpb.

3   Id. at 2201.

4   Id. at 2197.

5   Ambac Assurance Corporation provided financial guarantee insurance with respect to securities in over half of the Trusts.  The Pennsylvania Higher Education Assistance Agency is the Primary Servicer for the Trusts, while the Wilmington Trust Company is the Trusts’ Owner Trustee.

6   TSI is a sub-servicer responsible for the collection of the Trusts’ delinquent loans.

7   Nat’l Collegiate Master Student Loan Tr. at *3 (citing Sebelius v. Auburn Reg’l Med. Ctr., 568 U.S. 145, 153 (2013)).

8   Id.

9   See 12 U.S.C. § 5565(a)(1).

10  Nat’l Collegiate Master Student Loan Tr. at *4 (quoting Advanced Disposal Serv. E., Inc. v. Nat’l Labor Relations Bd., 820 F.3d 592, 602 (3d Cir. 2016)).

11  Id. (quoting Advanced Disposal, 820 F.3d at 603) (emphasis in original).

12  12 U.S.C. § 5564(g)(1).

13  Nat’l Collegiate Master Student Loan Tr. at 7.

14  Id. at 3.


© Copyright 2020 Cadwalader, Wickersham & Taft LLP

For more articles on the CFPB, visit the NLR Financial Institutions & Banking section.

NLRB Paves the Way for Graduate Student Unions

The March 15, 2021 Federal Register contained an unwelcome surprise for private colleges and universities. The National Labor Relations Board (NLRB) announced that it is withdrawing a proposed rule published last September that, if adopted, would have classified graduate students who are compensated in connection with their studies as non-employees.

The history behind the Board’s proposed “graduate student rule” is well-known. In a 2016 case captioned Columbia University, 346 NLRB No. 90, the Board ruled that graduate students are employees and therefore have the right to organize and bargain collectively. Obviously, this was a case of great significance in the higher education community.

By proposing the “graduate student rule” in September 2020, the Board sought to give blanket protection to private colleges and universities. Had the rule been adopted, these institutions could still have voluntarily recognized and bargained with graduate student unions. But, since the graduate students would have been non-employees, the colleges and universities would not have had a duty to recognize and bargain with graduate student unions.

With the rule withdrawal, the stage is set for graduate student unions

It is reasonable to expect that the withdrawal of the “graduate student rule” will reinvigorate the movement among graduate students to unionize. Indeed, graduate students at Northwestern University have already issued a statement that they expect this development to bolster their organizing efforts.

The consequences of this shift in the Board’s approach regarding higher education are potentially far-reaching. Where the duty to bargain exists, the right to strike also exists (unless the union bargains that right away at the table). The prospect of the “graduate student rule” being adopted acted like a brake on graduate students’ bargaining expectations.  Now they can be much more confident. For instance, graduate students at Columbia University who are planning to strike have lauded the decision to withdraw the “graduate student rule” and commented that it could not have come at a more opportune time.

Prepare now

Lastly, the withdrawal of the “graduate student rule” is expected to be just the first of many changes, both regulatory and legislative, aimed at strengthening unions’ ability to organize. Whether or not they are aware of this, many colleges and universities have an urgent need to assess management policies and practices, as well as campus culture, in order to prepare for possible organizing efforts.

© Steptoe & Johnson PLLC. All Rights Reserved.


For more articles on the NLRB, visit the NLR Labor & Employment section.

Transgender Students and Title IX: Biden Administration Signals Shift

President Biden issued Executive Order (EO) on Preventing and Combating Discrimination Based on Gender Identity or Sexual Orientation on Jan. 20, 2021.[1] While the EO itself is a high level policy statement and does not, in and of itself, immediately change any practices for public school districts, it likely signals a significant shift in how the Biden administration will interpret and enforce the rights of transgender and other LGBTQ students.

What policy is asserted in the EO?

The Executive Order asserts that “[a]ll persons should receive equal treatment under the law without regard to their gender identity or sexual orientation”, including that “[c]hildren should be able to learn without worrying about whether they will be denied access to the restroom, locker room, or school sports.” Additionally the EO provides: “[e]very person should be treated with respect and dignity without regard to who they are or whom they love; “[a]dults should be able to earn a living without worrying about being fired or demoted because of who they go home to or whether their dress conforms to sex-based stereotypes”; and “[p]eople should have access to healthcare and be able to put a roof over their heads without being subjected to sex discrimination.”

The EO bases its reasoning on Title VII of the Civil Rights Act of 1964 and the Supreme Court’s recent case of Bostock v. Clayton County, which held that Title VII’s prohibition against “sex discrimination” includes a prohibition against discrimination based on sexual orientation and gender identity. The EO asserts that Bostock’s reasoning also applies to other laws, including Title IX, that prohibit sex discrimination.

What does the EO require federal entities to do?

It requires the head of every federal agency (including the U.S. Department of Education) to:

  • Consult with the United States Attorney General as soon as practicable;
  • Review all existing orders, regulations, guidance documents, policies, programs, or other agency actions under any statute or regulation that prohibits sex discrimination and determine whether those items are consistent with the EO; and
  • Within 100 days of the Order, work with the Attorney General to implement an action plan to carry out the actions identified in its review of its policies, programs, guidance, rules, or regulations and that may be inconsistent with the Order’s stated policy.

How are the stated policy and required action different from the past?

The EO’s language stands in direct contrast with the prior administration’s stance on legal protections for students based on sexual orientation and gender identity. For example, under the prior administration, the U.S. Department of Education took the position that Bostock’s reasoning did not apply to Title IX and specifically reaffirmed its position that public school districts may exclude students from athletic teams based on gender identity and could require students to use bathrooms based on biological sex, rather than gender identity.

In fact, the prior administration issued correspondence explicitly disagreeing with how two federal circuit courts interpreted Title IX. In Grimm v. Gloucester County School Board and in Adams v. School Board of St. Johns County, the Fourth Circuit (covering Maryland, North Carolina, South Carolina, Virginia and West Virginia) and Eleventh Circuit (covering Alabama, Florida, and Georgia) held that public school students have the right, under both Title IX and the Equal Protection Clause of the Fourteenth Amendment, to use bathrooms consistent with their gender identity. The Eleventh Circuit, in particular, relied on Bostock to interpret Title IX’s prohibition against sex discrimination.[2] The new EO rejects the previous administration’s assertion that the Bostock decision does not apply to agency interpretation of Title IX.

While the EO does not specifically rescind any specific order or action, its broad mandate that agencies review existing programs and policies likely will lead to updated guidance, enforcement priorities, and rules implementing Title IX and other laws prohibiting sex discrimination.

What should schools do now?

The current administration will likely implement major changes related to discrimination on the basis of sexual orientation or transgender status. This may include requiring schools to allow students to use bathrooms and locker rooms that are consistent with their gender identity, and to play on athletic teams that are consistent with their gender identity. Additionally, schools can expect more robust federal agency investigation of complaints of discrimination based on gender identity and sexual orientation.

In light of Bostock, all schools subject to Title VII of the Civil Rights Act should ensure that their employment policies prohibit discrimination on the basis of sexual orientation and gender identity, in conformity with Bostock. In addition, all colleges and universities, as well as all public K-12 school districts, in the Fourth and Eleventh circuits should ensure that their bathroom policies allow students to use bathrooms consistent with their gender identity.

Finally, colleges and universities, as well as public K-12 school districts, should review their practices and procedures to determine how to best support the rights of transgender students in their programs and activities. They should prepare for greater scrutiny at the federal level and be prepared to defend their practices.


[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-preventing-and-combating-discrimination-on-basis-of-gender-identity-or-sexual-orientation/

[2] Note, though, that the School Board of St. Johns County has petitioned for an en banc hearing. That petition has not yet been ruled upon.

Copyright ©2021 Nelson Mullins Riley & Scarborough LLP


For more, visit the NLR Public Education & Services section.

For Title IX and Athletics Professionals in Higher Education, One Less Moving Part

Year after year, the issue of sexual misconduct in violation of Title IX on college campuses continues to confront higher education leaders.  The topic is one on which innumerable individuals and special interest groups have strong opinions and agendas.  Athletics, commonly called the “front porch” to universities, can often be at the center of the Title IX storm.  Among other high-profile issues, there have been reports of college athletes transferring to other schools and returning to competition even after being expelled, convicted or otherwise disciplined for sexual misconduct.

In response, in April 2020, the National College Athletic Association (NCAA) expanded its sexual violence policy to require that all incoming, current and transfer college athletes disclose annually to their school whether they have been subject to an investigation, discipline through a Title IX proceeding, or a criminal conviction for sexual, interpersonal or other acts of violence. Failure to accurately and fully disclose, could result in penalties for the athlete, including a loss of athletics eligibility.

It was recently reported that in October 2020 the NCAA quietly made the controversial decision to delay implementation of this policy until the 2022-2023 academic year.

This means that, until the fall of 2022, athletes might not face penalties if they do not disclose past accusations or discipline, and schools will not be required to create processes to track such misconduct.  The NCAA stated that the decision to delay implementation was based on challenges related to the pandemic and the new Title IX federal regulations that went into effect in August 2020.  Layered on top of these justifications is the speculation that President-elect Biden may at some point roll back or amend the new regulations.  Advocates for victims of campus assault have reacted to the NCAA decision with disappointment.

Though all of this, institutions of higher learning must remain steadfast in their concurrent commitments to both an environment free from sexual misconduct, and equitable, reliable processes for all.  While patience can be difficult, there is undoubtedly wisdom in allowing time to build a good process that fulfills these mutually beneficial commitments.  Colleges and universities are well advised to use the time to develop robust and equitable processes surrounding the reporting of misconduct.


©2020 Strassburger McKenna Gutnick & Gefsky