The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6685

June 19, 1991

MICHIGAN HIGHER EDUCATION ASSISTANCE AUTHORITY:

Recovery of defaulted student loans assigned to the United States Department of Education

ASSIGNMENT:

Recovery of defaulted student loans assigned to the United States Department of Education

Agencies of this state may not collect defaulted student loans made and/or guaranteed by the Michigan Higher Education Assistance Authority during periods that the Authority has assigned all of its right, title and interest in those loans to the United States Department of Education.

Gary D. Hawks

Acting Superintendent

Michigan Department of Education

P.O. Box 30008

Lansing, MI 48909

You have asked whether agencies of this state may collect defaulted student loans made and/ or guaranteed by the Michigan Higher Education Assistance Authority (MHEAA) during periods that the MHEAA has assigned all of its right, title and interest in those loans to the United States Department of Education.

The MHEAA, as a state guaranty agency, insures qualifying lenders against losses suffered as a result of defaulted student loans. It purchases from private lenders, as well as the state student loan agency, certain qualifying defaulted student loans. MCL 390.951 et seq; MSA 15.2097(1) et seq. The MHEAA is in turn reinsured by the United States Department of Education. 20 USC Sec. 1078(c)(1)(A).

Each agency is, of course, interested in facilitating recovery of sums from defaulting borrowers. Both the federal and state governments possess certain statutory and common law authority to offset debts owing persons otherwise indebted to the government.

The federal government from time to time, therefore, requires a state agency to assign claims to the United States Department of Education, in order that an offset of federal individual income tax refunds may be effected.

Two federal statutes provide authority for the reduction of tax refunds where a debt is due and owing to a federal agency. 31 USC Sec. 3720A(a); 26 USC Sec. 6402(d)(1).

The Secretary of Education has promulgated rules pursuant to 20 USC Sec. 1221e-3(a)(1), which provide for certification of the names of defaulted student loan borrowers to the Secretary of the Treasury for purposes of offset by the Internal Revenue Service (IRS). These regulations have been codified and are found in 34 CFR Part 30. More specifically, 34 CFR Sec. 30.33(a) reads as follows:

(a) If a named person owes a debt under a program or activity of the Department, the Secretary may refer the debt for offset to the Secretary of the Treasury after complying with the procedures in Secs. 30.20-30.28, as modified by this section.

The state statutes pertaining to tax refund offsets and collection through levy by the Department of Treasury are found at MCL 205.25; MSA 7.657(25), and MCL 205.30a; MSA 7.657(30a), respectively. Those statutes read in pertinent part as follows:

(1) The commissioner, or an authorized representative of the commissioner, may cause a demand to be made on a taxpayer for the payment of a tax, unpaid account, or amount due the state or any of its departments, institutions, or agencies, subject to administration under this act. If the liability remains unpaid for 10 days after the demand and proceedings are not taken to review the liability, the commissioner or an authorized representative of the commissioner may issue a warrant under the official seal of that office. [Emphasis added.]

MCL 205.25; MSA 7.657(25).

(1) If a taxpayer claims a refund which the department determines is valid, as provided in section 30(2), and the department identifies any liability of the taxpayer described in subsection (2), the department shall first apply the amount of the refund in the manner provided in subsections (2) and (3), and the excess, if any, shall be refunded or credited as provided in section 30.

(2) The amount of a refund described in subsection (1) shall be applied to the following in the order of priority stated:

 

 

(b) Any other known liability of the taxpayer to this state, including a liability to pay support if the right to receive the support has been assigned to the state and the liability is the basis of a request for tax refund offset from the office of child support. [Emphasis added.]

MCL 205.30a; MSA 7.657(30a).

As can be seen, federal IRS offset authority exists for debts due and owing any federal agency, while state offset and levy authority exists only with respect to debts due and owing the state. When MHEAA assigns a defaulted loan to the United States Department of Education for purposes of IRS offset, the underlying debt so assigned is no longer an "amount due the state." Indeed if reference is made to the Assignment executed by the MHEAA it provides:

[T]he Michigan Higher Education Assistance Authority ... hereby assigns to the United States Department of Education ... all of its right, title and interest in those student loans identified on the list enclosed with this letter. [Emphasis added.]

An assignment is a transfer to another of the whole of any real or personal property in possession or in action. Weston v Dowty, 163 MichApp 238, 242; 414 NW2d 165 (1987). The assignee of a cause of action is the real party in interest subsequent to the assignment and the assignor is divested of that status even though it retains an interest in the amount recovered. Sharrar v Wayne Savings Assoc, 254 Mich 456; 459; 236 NW 833 (1931); DeJong v BF Goodrich, 96 MichApp 36, 42; 292 NW2d 157 (1980). Once the assignment is made, the underlying debt is no longer an "amount due the State" and MHEAA loses its status as the real party in interest with respect to the debt.

It is my opinion, therefore, that agencies of this state may not collect defaulted student loans made and/or guaranteed by the MHEAA during periods that the MHEAA has assigned all of its right title and interest in those loans to the United States Department of Education.

Frank J. Kelley

Attorney General