98-000360 Edwin Nwaefulu vs. Department Of Education Status: Closed Recommended Order on Friday, August 7, 1998.

Summary: Involuntary wage withholding from county employee`s pay authorized for defaulted student loans.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

EDWIN NWAEFULU, )

)

Petitioner, )

)

vs. ) Case No. 98-0360

)

DEPARTMENT OF EDUCATION, )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on May 13, 1998, at Miami, Florida, and on June 10, 1998, via

telephone between Tallahassee, Florida, and Miami, Florida,

before Claude B. Arrington, a duly designated Administrative Law

Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Edwin Nwaefulu, pro se

Post Office Box 680471

Miami, Florida 33168

For Respondent: Ronald G. Stowers, Esquire

Department of Education

The Capitol, Suite 1701

Tallahassee, Florida 32399-0400

STATEMENT OF THE ISSUES

Whether Petitioner has defaulted on student loans and, if

so, the principal amounts of the loans, any accrued interest, and

any 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 October 1, 1997, Respondent advised

Petitioner that his student loans were held by the Respondent and

that those loans were in default. Petitioner was advised as to

the amounts of the loans, the amounts of the claimed interest,

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. Petitioner

timely disputed the proposed agency action, and the matter was

referred to the Division of Administrative Hearings for formal

proceedings.

The formal hearing began in Miami, Florida on May 13, 1998.

During the course of the hearing, the Petitioner represented that

he was too ill to proceed. Consequently, the hearing was

continued. The hearing resumed by telephone on June 10, 1998,

with the Petitioner participating from Miami, Florida. 1 At the

formal hearing, Respondent presented the testimony of one

witness, who was employed by Respondent's Office of Student

Financial Assistance, and presented a total of nine exhibits,

each of which was accepted into evidence. Petitioner did not

present any testimony or exhibits.

A transcript of the proceedings has been filed. The

Respondent filed a Proposed Recommended Order, which has been

duly considered by the undersigned in the preparation of this

Recommended Order. Petitioner did not timely file a proposed

recommended order.

FINDINGS OF FACT

1. As will be set forth in more detail, there are three

loans at issue in this proceeding. For ease of reference, these

loans will be referred to as Loans One, Two, and Three. 2

2. Loans One and Three were issued as Florida Guarantee

Student Loans, which are popularly known as Stafford Loans.

Loans Two and Four were supplemental loans issued by the Student

Loan Services program, which are referred to SLS loans. Loans

One, Two, and Three were funded and are at issue in this

proceeding.

THE STAFFORD LOANS, LOANS ONE AND THREE

3. On September 22, 1986, Petitioner executed an

Application and Promissory Note for a Guaranteed Student Loan,

number 545967. This Stafford Loan, referred to as Loan One, was

in the amount of $5,000. Loan One was disbursed in two equal

installments of $2,500 (less appropriate fees). The first

installment was disbursed on or about December 4, 1986, and the

second installment was disbursed on or about December 11, 1986.

4. On June 1, 1987, Petitioner executed an Application and

Promissory Note for a Guaranteed Student Loan, number 586917.

This Stafford Loan, referred to as Loan Three, was in the amount

of $2,261.00. Loan Three was disbursed in one installment of

$2,261.00 (less appropriate fees) on June 25, 1987.

5. The promissory notes and other paper work documenting

Loan One and Loan Three provided that interest at the rate of

8% per annum would begin to accrue on these loans six months

after Petitioner ceased to attend school on at least a half-time

basis. Because a Stafford Loan is guaranteed by the federal

government, the obligor may be eligible to receive periods of

deferment and periods of forbearance during which the federal

government may or may not make interest payments. If the federal

government made interest payments during a particular period,

Petitioner is not obligated for interest during that period. If

the federal government did not pay interest during a particular

period, Petitioner is obligated to pay interest for that period.

Respondent is not claiming any interest on Loans One and Three

for any period while interest was paid by the federal government.

6. While Petitioner was attending school on at least a

half-time basis and for six months thereafter (the grace period),

Loans One and Three were in periods of forbearance, and the

federal government paid the interest for both loans. Petitioner

ceased attending school on at least a half-time basis on

March 18, 1988. The six month grace period on Loans One and

Three ended on September 18, 1988, which is the date interest

began to accrue on Loans One and Three. As of that date, the

principal balance due on Loan One ($5,000.00) and on Loan Three

($2,261.00) totaled $7,261.00.

7. Between September 18, 1988, and January 23, 1997,

interest accrued on Loans One and Three in the total amount of

$4,744.75, as follows:

A. Between September 18, 1988, and June

15, 1993, interest accrued on these two loans

in the total amount of $2,754.80.

B. Between June 16, 1993, and October 6,

1993, interest accrued on these two loans in

the total amount of $245.87. Both loans were

in a period of administrative forbearance,

but the federal government did not pay the

interest.

C. Between October 7, 1993, and January 7,

1994, both loans were in a period of

deferment due to Petitioner's unemployment,

and the interest was paid by the federal

government.

D. Between January 8, 1994 and January 31,

1994, interest accrued on these two loans in

the total amount of $51.73. Both loans were

in a period of administrative forbearance,

but the federal government did not pay the

interest.

E. Between February 1, 1994, and April 30,

1994, both loans were in a period of

deferment due to Petitioner's unemployment,

and the interest was paid by the federal

government.

F. Between May 1, 1994, and July 24, 1994,

interest accrued on these two loans in the

total amount of $189.88. Both loans were in

a period of administrative forbearance, but

the federal government did not pay the

interest.

G. Between July 25, 1994, and April 30,

1995, both loans were in a period of

deferment due to Petitioner's unemployment,

and the interest was paid by the federal

government.

H. Between May 1, 1995, and December 1,

1995, interest accrued on these two loans in

the total amount of $492.65. Both loans were

in a period of forbearance, but the federal

government did not pay the interest.

I. Between December 2, 1995, and January

23, 1997, interest accrued on these two loans

in the total amount of $1,009.82.

8. Petitioner defaulted on the repayment of Loan One.

Petitioner has not made any principal or interest payment since

the loan was disbursed.

9. Petitioner defaulted on the repayment of Loan Three.

Petitioner has not made any principal or interest payment since

the loan was disbursed.

10. On January 23, 1997, Respondent purchased Loan One and

Loan Three. 3

11. As January 23, 1997, the principal and the accrued

interest for Loan One, plus the principal and the accrued

interest for Loan Three, totaled $12,005.75.

THE SLS LOAN: LOAN TWO

12. On January 31, 1987, Petitioner executed Auxiliary Loan

Application and Promissory Note number 8914 for a supplemental

student loan through the Student Loan Services program (Loan

Two). This type loan, generally referred to as an SLS loan, was

in the principal amount of $4,000.00. Loan Two was disbursed in

one installment of $4,000.00 (less appropriate fees) on or about

April 9, 1987.

13. The promissory notes and other paper work documenting

Loan Two provided that interest at the rate of 12% per annum

would begin to accrue upon disbursement. SLS loans also provide

for periods of deferment and forbearance during which no payment

is due. The federal government does not make interest payments

during a period of deferment or forbearance. The borrower is

obligated to pay all of the interest from date of disbursement. 4

14. Petitioner defaulted on the repayment of Loan Two.

Petitioner has not made any principal or interest payment since

the loan was disbursed.

15. Respondent purchased Loan Two from the holder on

September 11, 1997. 5 Interest in the amount of $7,348.91 accrued

on Loan Two between April 9, 1987, the date the loan was

disbursed, and September 11, 1997. The total principal balance

and accrued interest for Loan Two as of September 11, 1997, was

$11,348.91.

COLLECTION COSTS

16. Section 682.410(b)(2) of Title 34, C.F.R., provides

that Respondent 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

guaranty 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 costs may include, but are not

limited to, all attorney's fees, collection

agency charges, and court costs. Except as

provided in §§ 682.401(b)(27) and

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

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 CFR 30.60; or

(ii) The amount the same borrower would be

charged for the cost of collection if the

loan was held by the U.S. Department of

Education.

17. Respondent established that the amount of the annual

collection cost mandated by 34 C.F.R. 682.410(b)(2) for each

defaulted loan at issue in this proceeding should be calculated

at the rate of 25% of the outstanding principal and accrued

interest.

PRINCIPAL, INTEREST, AND COLLECTION COSTS AS OF JUNE 1, 1998

18. Respondent calculated the principal, interest, and

collection costs for each loan as of June 1, 1998.

19. For Loan One the amount of the collection costs

assessed by the Respondent was $2,231.60. Interest that accrued

between January 23, 1997, and June 1, 1998, totaled $895.13. As

of June 1, 1998, the total principal, interest, and collection

costs for Loan One totaled $11,394.01.

20. For Loan Two the amount of the collection costs

assessed by the Respondent was $2,961.20. Interest that accrued

between September 11, 1997, and June 1, 1998, totaled $981.29.

As of June 1, 1998, the total principal, interest, and collection

costs for Loan One totaled $15,291.39.

21. For Loan Three the amount of the collection costs

assessed by the Respondent was $1,009.13. Interest that accrued

between January 23, 1997, and June 1, 1998, totaled $404.78. As

of June 1, 1998, the total principal, interest, and collection

costs for Loan One totaled $5,152.39.

22. The total amount due from Petitioner as of June 1,

1998, for Loans One, Two, and Three for principal, interest, and

collection costs is $31,837.79.

WAGE WITHHOLDING

23. Petitioner is a social worker employed by Dade County,

a political subdivision of the State of Florida.

24. 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 subdivisions who have defaulted on an

education loan made or guaranteed by the State of Florida.

25. Respondent notified Petitioner in writing by letter

dated October 1, 1997, that Loans One, Two, and Three were in

default and offered him the opportunity to make voluntary

payments on these loans. The letter also advised Petitioner that

the Respondent would seek to make involuntary withholdings if he

did not make voluntary payments. Petitioner thereafter elected

to request the formal hearing that triggered this proceeding.

CONCLUSIONS OF LAW

26. The Division of Administrative Hearings has

jurisdiction of the parties to and the subject of this

proceeding. Section 120.57(1), Florida Statutes.

27. Section 112.175, Florida Statutes, provides, in

pertinent part, as follows:

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 loan. 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 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 or 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.

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

Administration Commission has adopted Chapter 28-40, Florida

Administrative Code, to implement Section 112.175, Florida

Statutes. Respondent has complied with the procedural

requirements of those rules.

29. 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. Respondent has followed

those procedures in this proceeding.

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

the methodology to be followed in calculating the amount of the

involuntary withholding.

31. The total due for Loans One, Two, and Three as of

June 1, 1998, is $31,837.79. Respondent is entitled to make

involuntary withdrawals from Petitioner's pay pursuant to the

provisions of Section 112.175, Florida Statutes, and

Chapter 28-40, Florida Administrative Code. The amount of the

withdrawals should be calculated pursuant to Rule 28-40.007,

Florida Administrative Code. Interest will continue to accrue on

these debts as provided by law.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that Respondent enter a Final Order that

adopts the findings of fact and conclusions of law contained

herein, finds that Petitioner, as of June 1, 1998, owes the sum

of $31,837.79, and orders the involuntary wage withholding of

Petitioner's pay through his employer, Dade County, Florida,

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

Florida Administrative Code.

DONE AND ENTERED this 7th day of August, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

CLAUDE B. ARRINGTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 7th day of August, 1998

ENDNOTES

1/ The hearing for June 10, 1998, was scheduled for video.

Prior to the start of the hearing, the Petitioner informed the

undersigned by telephone that he was too ill to attend the video

site, but that he wished to proceed by telephone. Petitioner

knowingly waived his right to testify (because there was no

notary to swear him as a witness) and to present documentary

evidence.

2/ Petitioner made application for a SLS Loan, numbered 13214

(Loan Four) for the period August 25, 1987, through May 1, 1988.

The application was for the sum of $4,000. This loan was not

funded and is not at issue in this proceeding. The only reason

Loan Four is mentioned is the erroneous reference to that loan

number by one of the exhibits.

3/ There is a reason that these notes were not purchased by

Respondent until January 23, 1997. On July 16, 1989, the lender

lost the guarantee on Loans One and Three because the lender had

failed to exercise due diligence in collecting the loans.

Respondent failed to pay the lender for the loans as long as the

lender did not have the guarantee. On June 15, 1993, the loss of

guarantee was cured. From June 16, 1993, to December 1, 1995,

Loans One and Three were in various periods of deferment or

forbearance. After December 1, 1995, the two loans went back

into repayment status. The first installment (referred to as the

Final Due Date of the First Unpaid Installment) was due

January 1, 1996, one month after the last period of forbearance

expired. No payment was received. Respondent purchased the two

loans from the holder thereof on January 23, 1997.

4/ Loan Two was in various periods of deferment or forbearance.

It is not necessary to set forth these periods because interest

accrued on Loan Two during either period.

5/ The reason that the Respondent did not purchase Loan Two

until September 1997 is that the lender had lost the guarantee

for a period of time, the guarantee was subsequently reinstated,

and the loan was thereafter placed in periods of forbearance or

deferment. As with Loans One and Three, Loan Two was placed back

in repayment status on December 1, 1995, and the first

installment was due January 1, 1996.

COPIES FURNISHED:

Edwin Nwaefulu

Post Office Box 680471

Miami, Florida 33168

Ronald G. Stowers, Esquire

Department of Education

The Capitol, Suite 1701

Tallahassee, Florida 32399-0400

Frank T. Brogan

Commissioner of Education

The Capitol, Plaza Level 08

Tallahassee, Florida 32399-0400

Michael H. Olenick, General Counsel

Department of Education

The Capitol, Plaza Level 08

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.