00-000712 Johnny Martin vs. Department Of Education Status: Closed Recommended Order on Friday, December 22, 2000.

Summary: Agency proved Petitioner owed amounts on student loans that were not cut off by Petitioner`s bankruptcy.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOHNNY MARTIN, )

)

Petitioner, )

)

vs. ) Case No. 00-0712

)

DEPARTMENT OF EDUCATION, )

)

Respondent. )

_____________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings

and its duly-designated Administrative Law Judge, Stephen F.

Dean, held a formal hearing in the instant case on August 25,

2000, in Jacksonville, Florida.

APPEARANCES

For Petitioner: Johnny Martin, pro se

11431 Quailhollow Drive

Jacksonville, Florida 32218-3621

For Respondent: Ronald G. Stowers

Assistant General Counsel

Department of Education

The Capitol, Suite 1701

Tallahassee, Florida 32399-0400

STATEMENT OF ISSUES

Whether Petitioner has defaulted on student loans and, if

so, the principal amounts due on the loans, as well as accrued

interest, and collection costs. Whether Petitioner's employer

should be required to withhold payments from Petitioner's pay

pursuant to Section 112.175, Florida Statutes.

PRELIMINARY STATEMENT

By letter dated August 13, 1999, Respondent, Department of

Education (Department) advised Petitioner, Johnny Martin

(Petitioner), that his student loans held by the Department were

in default status. Petitioner was advised as to the total amount

due on the loans, including claimed interest and collection

costs, and that an involuntary wage withholding proceeding

pursuant to Section 112.175, Florida Statutes, would be

instigated if a voluntary withholding agreement was not reached.

Further, Petitioner was advised that the amount did not include

legal fees which would be incurred during collection proceedings.

Prior to and at hearing, the Department acknowledged that the

total amount due quoted in the letter mistakenly included amounts

for two loans (Loans 2 and 3) which were discharged in

bankruptcy.

The letter advised Petitioner that he could request a

hearing within 15 days of receipt of the letter challenging the

debt. Petitioner received the letter on August 20, 1999.

Petitioner's request for hearing, dated September 12, 1999, and

received by the Department on September 16, 1999, was neither

timely completed nor filed. Nonetheless, the Department

forwarded the request for hearing to the Division of

Administrative Hearings (DOAH).

The formal hearing was held in Jacksonville, Florida, on

August 25, 2000. At hearing, the Department presented the

testimony of one witness employed by the Department's Bureau of

Student Financial Assistance and presented six exhibits which

were accepted into evidence. Petitioner testified on his own

behalf and present 11 exhibits which were accepted in to

evidence.

A Transcript of the proceeding was filed on October 2, 2000.

The parties were accorded ten days from the date of the filing of

the transcript to file proposed recommended orders. On

October 12, 2000, the Department timely filed an extension of

time, until November 2, 2000, in which to file its proposed

recommended order. Both parties filed proposed recommended

orders, which were duly considered by the undersigned in

preparation of this Recommended Order.

FINDINGS OF FACT

1. P etitioner is Johnny Martin. Petitioner's mailing

address is 11431 Quailhollow Drive, Jacksonville, Florida.

2. Respondent is the Florida Department of Education. The

Department's business address is 325 West Gaines Street,

Tallahassee, Florida. The Department is a guarantee agency which

holds the loan account in question after paying the claim of the

lender on July 28, 1994.

3. All loans in this proceeding are Supplemental Loan(s)

for Students (SLS), also known as Florida Auxiliary Loans. SLS

loans are not subsidized by the federal government. Therefore,

the federal government has no responsibility for payment of

interest during periods of deferment or forbearance and there is

no grace period for SLS loans. During any period of deferment or

forbearance, such as when a borrower is unemployed, the

borrower's repayment obligation may be suspended; however,

interest accrues to the account for which the borrower is

responsible. When the deferment or forbearance ends, the

outstanding interest is capitalized on the loan.

4. SLS loans accrue interest at the rate of 12 percent per

year from the date of disbursement.

5. Persons eligible to receive SLS loans include parents of

dependent undergraduate students.

6. As set forth below, Petitioner, as parent of an eligible

dependent undergraduate student, received four SLS loans.

7. Loan 1: Petitioner applied for and received Loan

A000000442 in 1983. This loan, in the amount of $3,000.00, will

be referred to as Loan 1. Although the Department is the

guarantor of Loan 1, the lender never declared the loan in

default or sold it to the Department. Therefore, Loan 1 is not

at issue in this proceeding.

8. Loan 2: Petitioner applied for and received Loan

A000001064 in 1984. This loan, in the amount of $3,000.00, will

be referred to as Loan 2. The lender declared Petitioner in

default and sold Loan 2 to the Department as guarantor. Because

Loan 2 was in repayment status for more than seven years,

exclusive of suspensions of the repayment period, Loan 2 was

discharged in bankruptcy. Therefore, Loan 2 is not at issue in

this proceeding.

9. Loan 3: Petitioner applied for and received Loan

A000003767 in 1985. This loan, in the amount of $3,000.00, will

be referred to as Loan 3. The lender declared Petitioner in

default and transferred Loan 3 to the Department as guarantor.

Because Loan 3 was in repayment status for more than seven years,

exclusive of suspensions of the repayment period, Loan 3 was

discharged in bankruptcy. Therefore, Loan 3 is not at issue in

this proceeding.

10. Loan 4: On or about August 5, 1986, Petitioner

executed an Auxiliary (SLS) Loan application on behalf of his

daughter, Kelly Aleta Martin, an eligible dependent undergraduate

student. On or about September 8, 1986, Petitioner executed the

promissory note for this loan. This SLS Loan was in the amount

of $3,000.00. This loan was disbursed on or about October 9,

1986. The Department guaranteed this loan. Throughout exhibits

presented by the Department, the loan number for this SLS Loan is

A000007005; however, for convenience, herein this loan will be

referred to as Loan 4. Loan 4 is the only loan at issue in this

proceeding.

11. Petitioner's first payment for Loan 4 was due

October 25, 1986. The payment due date later changed to the 20th

of each month.

12. Petitioner's last payment to the lender was made on

July 17, 1990. However, as Petitioner was behind in his

payments, this payment was applied to the payment due May 20,

1990. The Petitioner is considered in repayment status for 44

months, from October 1986 through May 1990.

13. A borrower is not considered in repayment status during

any suspension of the repayment period, including any period of

forbearance or deferment.

14. Petitioner applied for and received an unemployment

deferment on September 18, 1990. This deferment was for the

period from July 21, 1990 through December 28, 1990. Because

Petitioner was not current in his payments, he requested and

received a forbearance from the lender for the payments due on

June 20 and July 20, 1990, in order to qualify for the

unemployment deferment. The forbearance together with the

unemployment deferment brought Petitioner current in his

payments; however, they suspended the repayment period for Loan 4

for seven months (two months for the forbearance and five months

for the deferment).

15. Petitioner failed to make any payments following the

deferment period ending December 28, 1990. Petitioner applied

for and received an unemployment deferment on April 23, 1991.

This deferment was for the period from February 24 through July

23, 1991. Because Petitioner failed to make any payments

following the deferment ending December 28, 1990, he again

requested and received a forbearance for the payments due

January 20 and February 20, 1991. The forbearance and

unemployment deferment brought Petitioner current in his

payments; however, they again suspended the repayment period for

Loan 4 by another seven months (two months for the forbearance

and five months for the deferment).

16. Following Petitioner's unemployment deferment ending

July 1991, he failed to resume payment to the lender beginning

August 20, 1990. Thereafter, the lender declared Petitioner in

default and made application to the Department for claim payment

based on the guarantee. However, the Department refused to pay

the lender's claim citing due diligence violations, and as a

result, Petitioner is considered in repayment status from

August 20, 1991 through April 20, 1992, or nine months, even

though no payments were actually received by virtue of his Fresh

Start Application.

17. Petitioner submitted a Fresh Start Application to the

lender dated May 13, 1992. This document reaffirmed the student

loan obligation and, when received by the lender on May 19, 1992,

reinstated the Department's guarantee of Loan 4.

18. In an application dated May 24, 1992, Petitioner

requested another unemployment deferment. The lender refused

Petitioner's request for an unemployment deferment due to the

fact that Petitioner was working at the time. However, the

lender granted Petitioner a forbearance. This forbearance

covered payments due from May 20 through December 20, 1992.

Thereafter, Petitioner again requested and was granted

forbearance of payments due through June 20, 1993. These

forbearances, from May 20, 1992 through June 20, 1993, suspended

the period Loan 4 is in repayment status by 14 months.

19. Petitioner failed to resume payments beginning July 20,

1993, the final due date at default.

20. In 1994, the lender declared Petitioner in default on

Loan 4 and made application to the Department for claim payment

based on the guarantee. The Department paid the default claim on

Loan 4 on July 28, 1994. Although no payments were received from

July 20, 1993 through July 20, 1994, or 13 months, Petitioner is

considered in repayment status for that time because there was no

forbearance or deferment in place.

21. When the Department acquired Loan 4, Petitioner owed

$2,195.68 in principal and $290.19 in accrued (claim) interest.

These figures were capitalized by the Department and yield the

figure of $2,484.18 in capitalized principal which is subject to

interest at the rate of 12 percent per year.

22. Beginning in 1995, Petitioner entered into a voluntary

wage garnishment agreement with the Department. Under this

agreement and through the period Petitioner was under the

bankruptcy court's jurisdiction, a total of $383.95 was received

by the Department and applied to Petitioner's account in

accordance with Title 34, Code of Federal Regulations Section

682.404(f), relating to how borrower payments will be applied.

The entire amount received was applied to outstanding interest.

23. Prior to filing bankruptcy, Petitioner's Loan 4 was

considered in repayment status from July 29, 1994 through January

5, 1995, during the time it was held by the Department. The

Petitioner was credited for being in repayment status for five

months, even though he made no payments. Additionally,

Petitioner was credited for being in repayment status for 12

months in 1995, whether or not regular payments were received

under Petitioner's voluntary wage garnishment agreement.

24. Because Petitioner filed for bankruptcy prior to the

January 20, 1996, the payment due date, the month of January 1996

cannot be counted as being in repayment status.

25. Petitioner filed for Chapter 13 bankruptcy protection

on January 11, 1996.

26. The Department filed a proof of claim with the

bankruptcy court for Loans 2, 3, and 4 in the principal amount of

$5,571.91, the amount of capitalized principal due on the

accounts. The Department filed with the court the claim of

$5,647.02 due on the accounts through date of filing the case.

See item 5 on page 2 of Department's Exhibit 5. This amount was

the capitalized principal and interest due.

27. On February 4, 1999, the United States Bankruptcy Court

for the Middle District of Florida, Jacksonville Division, issued

an "Order Discharging Debtor After Completion of Chapter 13 Plan"

in Petitioner's case, number 96-00175-3F3. That order provides

in pertinent part, "The debtor is discharged for all debts

provided for by the plan or disallowed under 11 U.S.C. [Section]

502, except any debt . . . for a student loan or educational

benefit overpayment as specified in 11 U.S.C.[Section]523(a)(8)."

28. In 1996, Title 11 United States Code Section 523(a)

provided in pertinent part:

(a) A discharge under . . . this title does

not discharge an individual debtor from any

debt--

(8) for an educational benefit overpayment

or loan made, insured or guaranteed by a

governmental unit, or made under any program

funded in whole or part by a governmental

unit or nonprofit institution, or for an

obligation to repay funds received as an

education benefit, scholarship or stipend,

unless--

(A) such loan, benefit, scholarship, or

stipend overpayment first became due more

than 7 years (exclusive of an applicable

suspension of the repayment period) before

the date of the filing of the petition . . .

29. Pursuant to this order, Petitioner's debt to the

Department for Loans 2 and 3 was discharged.

30. The first payment for Loan 4 was due October 25, 1986.

Petitioner filed for bankruptcy on January 11, 1996, nine days

prior to the payment due date of January 20, 1996. There were

111 months from the month the first payment of Loan 4 was due

through the month prior to the filing of bankruptcy (the month

that bankruptcy was filed cannot be counted if the payment due

date was after the date Petitioner filed for bankruptcy).

Petitioner was in forbearance or deferment status for 28 months

which suspends the period Loan 4 is considered in repayment

status. Petitioner was in repayment status on Loan 4 for 83

months regardless of whether he actually made payments on the

account. Therefore, Loan 4 was not discharged.

31. Section 682.410(b)(2) of Title 34, Code of Federal

Regulations, provides that the Department shall impose collection

costs as follows:

(2) Collection charges. Whether or not

provided for in the borrower's promissory

note and subject to any limitation on the

amount of those costs in that note, the

guarantee agency shall charge a borrower an

amount equal to reasonable costs incurred by

the agency in collecting a loan on which the

agency has paid a default or bankruptcy

claim. These cost may include, but are not

limited to, all attorneys fees, collection

agency charges, and court costs. Except as

provided in [Sections] 682.401(b)(27) and

682.405(b)(1)(iv), the amount charged

borrower must equal the lesser of --

(i) The amount the same borrower would be

charged for the cost of collection under the

formula in 34 CRF 30.60; or

(ii) The amount the same borrower would be

charged for the cost of collection in the

loan was held by the U.S. Department of

Education.

32. The Department established that the amount of the

annual collection cost mandated by Title 34 Code of Federal

Regulations Section 682.410(b)(2) for the loan at issue in this

proceeding should be calculated at least annually at the rate of

25 percent of the outstanding principal and accrued interest.

Petitioner agreed to pay these costs in the application and

promissory note he executed.

33. Petitioner is employed by the Duval County School

Board, a political subdivision of the State of Florida.

34. As an employee of a political subdivision of the State

of Florida, Petitioner is subject to the provisions of Section

112.175, Florida Statutes, and Chapter 28-40, Florida

Administrative Code. These provisions pertain to employees of

the State of Florida or its political subdivisions who have

defaulted on an education loan made or guaranteed by the State of

Florida.

35. The Department notified Petitioner by letter dated

August 13, 1999, that he had one or more student loans in default

and offered him the opportunity to make voluntary payments on the

loans. The letter also advised Petitioner that the Department

would seek to make involuntary withholdings if he did not make

voluntary payments. Petitioner elected to request the formal

hearing which triggered this proceeding.

36. As stated above, the capitalized principal due the

Department for Loan 4 is $2,485.87. This amount reflects the

principal due and the outstanding interest accrued on the account

at the time the Department acquired the loan from the lender.

All payments received by the Department were applied to

outstanding interest which accrued on the account after the loan

was bought by the Department, and no payment was applied to the

capitalized principal. The capitalized principal accrues

interest at the rate of 12 percent per year of $.82 per day. As

of February 4, 1999, after taking into consideration the $383.95

received by the Department, the unpaid accrued interest for Loan

4 was $881.74.

37. Pursuant to federal regulations collection costs

assessed at the rate of 25 percent of principal and interest due

as of February 4, 1999, were $867.08. Therefore, as of

February 4, 1999, the total principal, interest, and collection

costs due for Loan 4 totaled $4,234.69. Interest continues to

accrue to the account as provided by law and collection costs may

be reassessed as provided by law.

CONCLUSIONS OF LAW

38. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of these

proceedings. Sections 120.569, 120.57(1), and 120.60(5), Florida

Statutes.

39. The issue in this proceeding is whether the Department

may institute involuntary wage garnishment against Petitioner for

Loan 4 which is still owned by the Department after Petitioner's

bankruptcy. Petitioner's argument that Loan 4 has been

discharged in bankruptcy is not persuasive.

40. Pertinent to this case, Section 112.175, Florida

Statutes, provides:

Employee wages; withholding to repay

educational loan.--

(1)(a) Any person who has received an

educational loan made or guaranteed by the

state or any of its political subdivisions

and who at any time becomes or is an employee

of the state or any of its political

subdivisions shall be deemed to have agreed

as a condition of employment to have

consented to voluntary or involuntary

withholding of wages to repay such loans.

Any such employee who has defaulted or does

default on the repayment of such loan shall,

within 60 days after service of a notice of

default by the agency holding the loan to the

employee and the employing agency, establish

a loan repayment schedule which shall be

agreed to by both the agency holding the loan

and the employee for repaying such defaulted

loan through payroll deductions. Under no

circumstances may an amount in excess of 10

percent per pay period of the pay of period

of the pay of such employee be required by

the agency holding the loan as part of a

repayment schedule or plan. If such employee

be required by the agency holding the loan as

part of a repayment schedule or plan. If

such employee fails to establish a repayment

schedule within the specified period of time

or fails to meet the terms and conditions of

the agreed to or approved repayment schedule

as authorized by this subsection, such

employee shall be deemed to have breached an

essential condition of employment and shall

be deemed to have consented to the

involuntary withholding of wages of salary

for the repayment of the loan.

(b) No person who is employed by the state

or any of its political subdivisions on or

after October 1, 1986, may be dismissed for

having defaulted on the repayment of an

educational loan made or guaranteed by the

state or any of its political subdivisions.

(2) The Administration Commission shall

adopt rules to implement this section, which

shall include, but not be limited to, a

standard method of calculating amounts to be

withheld from employees who have failed to

establish a repayment schedule within the

specified period of time or failed to meet

the terms and conditions of the agreed to or

approved repayment schedule provided for in

this section. Such method shall consider the

following factors:

(a) The amount of the loan which remains

outstanding;

(b) The income of the employee who owes such

amount; and

(c) Other factors such as the number of

dependents supported by the employee.

41. Pursuant to Section 112.175(2), Florida Statutes, the

Administration Commission has adopted Rule 28-40, Florida

Administrative Code, to implement Section 112.175, Florida

Statutes.

42. Rule 28-40.006, Florida Administrative Code, provides

the procedures that must be followed before an involuntary

withdrawal from a person's pay pursuant to Section 112.175(2),

Florida Statutes, will be permitted. The Department has followed

those procedures in this proceeding.

43. Rule 28-40.007, Florida Administrative Code, provides

the methodology to be followed in calculating the amount of the

involuntary withholding. The total amount due is stated above in

paragraph 37.

44. Petitioner's first payment on Loan 4 was due

October 25, 1986. Petitioner filed for bankruptcy protection on

January 11, 1996.

45. On February 4, 1999, the United States Bankruptcy

Court, Middle District of Florida, Jacksonville Division, entered

an Order Discharging Debtor in Petitioner's case.

46. In 1996, when Petitioner filed for bankruptcy

protection, Title 11 United States Code Section 523(a) provided

in pertinent part:

(a) A discharge under . . . this title does

not discharge an individual debtor from any

debt--

(8) for an educational benefit overpayment

or loan made, insured or guaranteed by a

governmental unit, or made under any program

funded in whole or part by a governmental

unit or nonprofit institution, or for an

obligation to repay funds received as an

educational benefit, scholarship or stipend,

unless --

(A) such loan , benefit, scholarship, or

stipend overpayment first became due more

than 7 years (exclusive of an applicable

suspension of the repayment period) before

the date of the filing of the petition

. . . . (Emphasis supplied.)

47. Chapter 13 debtors have no interest in obtaining a

fresh start unfettered by obligations that Congress expressly

declares should be non-dischargeable. In re Sullivan , 195 B.R.

649 at 654 (Bkrtcy. W.D. Tex. 1996). In enacting Section

523(a)(8)(A), Congress intended to protect the student loan

program by preventing borrowers from discharging their debt too

soon. To further this policy Congress exempted from discharge

student loans until they have been "due and owing" for the

statutory period. Gibson v. Virginia , 86 F.3d 1150 (4th Cir.

1996).

48. The legal standard for determining when student loans

"first became due," and thus, for determining whether student

loan obligations are dischargeable, is a question of contract

interpretation, and relevant inquiry is to determine when payment

was due or, in an installment arrangement, the date that first

payment became due. Department of Education v. White , DOAH Case

Number 99-1592, Recommended Order page 9, dated August 2, 1999,

citing with approval In re Bachner , 165 B.R. 875.

49. Pursuant to Title 11 United States Code Section

523(a)(8)(A), student loans are dischargeable in bankruptcy,

including a Chapter 13 bankruptcy, only if they first became due

more than seven years prior to the filing of the bankruptcy

petitioner, "exclusive of any applicable suspension of the

repayment period." Any suspension of the repayment period during

which the lender granted a forbearance or deferment or during the

pendency of an earlier bankruptcy proceeding was an "applicable

suspension of the repayment period" because, while the loans were

owing, they were not due. Gibson v. Virginia , 86 F.3d 1150 at

1151 (Prior Chapter 7 bankruptcy proceeding was applicable

suspension of repayment period for purposes of Gibson's current

Chapter 13 filing.); citing with approval Georgina v. Higher

Education Assistance Foundation , 124 B.R. 562, 564 (Bkrtcy. W.D.

Mo. 1991)(Period during which lender granted a forbearance of

repayment was an "applicable suspension of repayment" because

while loans were owing, they were not due.); Woodcock v. Chemical

Bank , 144 F.3d 1340 (10th Cir. 1998)(Chapter 7 debtor's

deferments were applicable suspensions of the repayment period

for purposes of the statutory seven year period of non-

dischargeability for student loan debt, even if debtor was not

legally entitled to deferments under terms of promissory notes,

given absence of evidence that extensions were granted by lender

in bad faith.)

50. Interest continues to accrue at the contract rate on

obligations after debtor's Chapter 13 filing, and where

obligation is non-dischargeable student loan obligation, such

interest may be recovered from debtor personally in addition to

creditor's bankruptcy claim once bankruptcy stay is terminated.

Leeper v. Pennsylvania Higher Education Assistance Agency ,

49 F.3d 98 (3d. Cir. 1995) (Creditors may accrue postpetition

interest on non-dischargeable debts while bankruptcy is pending,

including interest on non-dischargeable student loans during

pendency of Chapter 13 bankruptcy plan.); In re Sullivan 195 B.R.

649 at 652 (While postpetition interest is not allowed against

the bankruptcy estate of Chapter 13 debtor, nothing in the

Bankruptcy Code acts to suspend the accrual of interest when the

debt is non-dischargeable. The code merely prevents postpetition

interest from being collect from the bankruptcy estate (ever) or

from the debtor (during the pendency of the bankruptcy).

However, after the bankruptcy and the lifting of the stay, there

is nothing to prevent a creditor from seeking to collect the

interest which has accrued on a debt that was not discharged.);

In re Hamilton , 179 B.R. 749 at 755-756 (Bkrtcy. S.D. Ga. 1995)

(Although Georgia Higher Education Assistance was bound to

payment schedule contained in Chapter 13 plan, it may pursue any

deficiency should student loan debt be non-dischargeable to the

extent that the debt is not satisfied in bankruptcy.); Branch v.

UNIPAC/NEBHELP , 175 B.R. 732 (Bkrtcy. D. Neb. 1994) (Interest

accrued on non-dischargeable student loan obligation after debtor

filed Chapter 13 petition was non-dischargeable. Although post-

petition interest not collectable from the Chapter 13 bankruptcy

estate, it continued to accrue and remained obligation of debtor

following closing of case); In re Shelbayah , 165 B.R. 332 at 337

(Bkrtcy. N.D. Ga. 1994)(Postpetition interest in Chapter 13

bankruptcy proceeding is not allowable against the bankruptcy

estate, even if the underlying claim is non-dischargeable;

however, postpetition interest on a non-dischargeable student

loan debt continues to accrue on unpaid balance for which debtor

remains liable at the conclusion of the bankruptcy proceeding.);

Jordan v. Colorado Student Loan Program , 146 B.R. 31 (D. Colo.

1992)(Postpetition interest on non-dischargeable student loan is

not dischargeable in Chapter 13 proceeding.).

51. Even if debtor's fully paid guarantor's allowed claims

and were granted discharge under Chapter 13, postpetition

interest on non-dischargeable student loan is non-dischargeable

and may be collected from Chapter 13 debtor personally.

Guarantor's acceptance of disbursement from trustee was not

accord and satisfaction as to postpetition interest claim.

Wagner v. Ohio Student Loan Commission , 200 B.R. 160 (Bkrtcy.

N.D. Oh. 1996).

52. Even where creditor failed to object to debtor's

Chapter 13 plan which provided no interest was to be paid during

pendency of Chapter 13 proceeding, holder of claim for non-

dischargeable student loan could collect postpetition interest as

part of its non-dischargeable claim at conclusion of bankruptcy

case. Ridder v. Great Lakes Higher Education Corporation , 171

B.R. 345 (Bkrtcy. W.D. Wis. 1994)

53. In addition to any unpaid principal and postpetition

interest which accrues to a non-dischargeable debt, a Chapter 13

debtor remains personally responsible for any debt, including

collection costs, not discharged in the bankruptcy proceeding.

Cousin v. Cousins , 209 F.3d 38 at 40 (1st Cir. 2000) (Debtor

remains personally responsible for any debt not discharged in

bankruptcy.). Congress created the student loan program and

decided for policy reasons to make debts arising from those loans

non-dischargeable. Leeper at 105. A non-dischargeable "debt"

under Section 523(a)(8)a in a Chapter 13 proceeding encompasses

the entire amount of the obligation . Branch at 734. Creditors

may pursue any deficiency should a debt be non-dischargeable

under Section 523(a)(8)a in a Chapter 13 bankruptcy proceeding.

In re Hamilton , 179 B.R. 749 at 756 (Bkrtcy. S.D. Ga. 1995).

54. The Department is required to assess collection costs

on all defaulted student loans in the amount of 25 percent of the

total principal and interest due. Collection costs are required

to be reassessed at least annually. Title 34 Code of Federal

Regulations Section 682.410(b)(2).

55. The uncontroverted proof at hearing demonstrated that

Petitioner applied for and received Loan 4. Petitioner's first

payment for Loan 4 was due on October 25, 1986. Petitioner filed

for bankruptcy protection on January 11, 1996.

56. Petitioner filed for bankruptcy 111 months after his

first payment was due. However, Petitioner received several

forbearances and deferments which suspended the repayment period

for 28 months. Those forbearances and deferments reduced the

time Petitioner was in repayment status from 111 months to 83

months (6 years, 11 months). (Petitioner filed for bankruptcy

prior to the due date in January, and that month is not included.

57. Petitioner's Loan 4 was not eligible for discharge by

the 1999 bankruptcy order, because the first payment became due

less than seven years before the filing of the bankruptcy

petition when the periods of forbearance and deferments are

considered. Therefore, Loan 4 is not discharged. The

capitalized principal balance due the Department for Loan 4 is

$2,485.87. This amount reflects principal due and outstanding

accrued interest on the loan at the time the Department acquired

Loan 4 from the lender. Petitioner made payments to the

Department totaling $383.95 on Loan 4. All of these payments

were applied to accrued interest on the principal balance. As of

February 4, 1999, the capitalized principal balance for Loan 4

was $2,485.87, unpaid accrued interest was $881.74, and

collection costs of $867.08 were due. The principal continues to

accrue interest at the rate of 12 percent per year.

58. The Petitioner is an employee of the Duval County

School Board, a political subdivision of the State of Florida.

As an employee of a political subdivision of the State of

Florida, Petitioner is subject to Section 112.175 and Rule 28-40,

Florida Administrative Code.

59. The total due for Loan 4 as of February 4, 1999, is

$4,234.69. The Department is entitled to make involuntary

withdrawals from Petitioner's pay pursuant to the provisions of

Section 112.175, Florida Statutes, and Chapter 40-28, Florida

Administrative Code. The amount of withdrawals should be

calculated pursuant to Rule 28-40.007, Florida Administrative

Code. Interest will continue to accrue on the debt as provided

by law and collection costs may be reassessed as provided by law.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Department enter a final order that

adopts the findings of fact and conclusions of law contained

herein, finds that Petitioner, as of February 4, 1999, owes the

sum of $4,234.69, and orders the involuntary wage withholding of

Petitioner's pay through his employer, Duval County School Board,

pursuant to Section 112.175, Florida Statutes, and Chapter 28-40,

Florida Administrative Code.

DONE AND ENTERED this 22nd day of December, 2000, in

Tallahassee, Leon County, Florida.

___________________________________

STEPHEN F. DEAN

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 22nd day of December, 2000.

COPIES FURNISHED:

Johnny Martin

11431 Quailhollow Drive

Jacksonville, Florida 32218-3621

Ronald G. Stowers

Assistant General Counsel

Department of Education

The Capitol, Suite 1701

Tallahassee, Florida 32399-0400

Honorable Tom Gallagher

Commissioner of Education

The Capitol, Plaza Level 08

Tallahassee, Florida 32399-0400

Michael H. Olenick, General Counsel

Department of Education

The Capitol, Suite 1701

Tallahassee, Florida 32399-0400

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order should be filed with the agency that will

issue the Final Order in this case.