The economic downturn of the early 1990s has brought with it a dramatic increase in the number of defaults on student loans.' Legislators have thrashed about trying to plug the collection leaks with a myriad of legislative proposals. Despite this congressional movement, the United States Court of Appeals for the Fifth Circuit recently removed another rock from the dike of federal regulations that prevents the student loan program from completely drowning in unpaid debt. In Grider v. Cavazos, the Fifth Circuit held that Department of the Treasury (Treasury Department) regulations prohibit the Internal Revenue Service (IRS) from offsetting a delinquent debtor's tax refund in order to collect an assigned student loan if ten years have passed since the debt became delinquent in the hands of the school that originally issued the loan. In so doing, the Grider court rejected the reasoning of an earlier holding by the Eleventh Circuit. In Jones v. Cavazos, the Eleventh Circuit had held that the IRS can offset a debtor's tax refund until the Department of Education has held the note for ten years, irrespective of when the debtor originally on her payments.
The source of this circuit split is the two courts' differing interpretations of the word "delinquent" in the context of the relevant Treasury Department regulations.' Their conflicting views on the nature of statutory interpretation and on the importance of precedent account for the two courts' different determinations of when a student loan becomes delinquent for purposes of the tax refund offset program. The differences in the two courts' reasoning and results creates an interesting anomaly. The Grider court's blind adherence to the "plain meaning rule" leads them to the same conclusion as a more deliberative inquiry that considers other factors such as policy and precedent. The Jones court's more insightful recognition of the statute's ambiguity and more credible use of precedent actually brings it to the opposite conclusion than that which those insights should bring. A careful consideration of the policy and precedent behind the tax refund offset program mitigates in favor of future courts holding that student loans become "delinquent" when the student defaults on her payments to the original lending institution.
Part II of this Note describes the National Direct Student Loan program and the Treasury Department regulation. Part III traces the precedential history leading to the Jones and Grider decisions, dis- cusses the factual and legal issues that the two courts confronted, and outlines the reasoning behind their conclusions. Part IV addresses the merits and inadequacies of each court's factual interpretation and legal reasoning. It also argues that neither decision provides a satisfactory answer to the question of when the ten-year limitation on tax offset begins to toll for a government agency that is the subsequent assignee of an unpaid loan." Part V recommends that the courts decide the time of delinquency issue using a more reasoned policy analysis and a more careful examination of precedent than the courts applied in Jones or Grider. This Note concludes that such an analysis requires future courts to hold that a student loan is delinquent for tax offset purposes at the time of original default. This interpretation bars the Treasury Department from offsetting income tax returns after a loan is delinquent for ten years.
Michael S. Smith,
Third Party Assignment, Statutes of Limitation, and the Tax Refund Offset Program: Breathe a Little Easier Student Deadbeats, the Fifth Circuit Is on Your Side,
46 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol46/iss2/4