The opinion of the court was delivered by: MUNSON
The named plaintiff, on behalf of herself, her minor children residing with her, and all persons similarly situated, has instituted this class action, civil rights suit for declaratory, monetary, and injunctive relief, contesting the practice and policy of the defendants, administrators of New York's public assistance programs, of considering New York State Higher Education Services Corporation (HESC) loans as income for the purpose of determining medicaid eligibility. Ms. Markel contends that this practice violates not only the Higher Education Act of 1965, but also the Supremacy Clause and the Equal Protection Clause of the Fourteenth Amendment and various federal regulations governing the medicaid program.
Presently before the Court are motions by the named plaintiff for amendment of the complaint, class action certification and summary judgment, and by the defendants for dismissal of the complaint or, in the alternative, for cross-summary judgment. Before addressing these motions, however, it is necessary initially to consider briefly several separate sets of hopelessly complex statutes and regulations, which this action implicates, and then to examine in some detail the factual allegations of the plaintiff.
The Higher Education Act of 1965 and its amendments have created a comprehensive Guaranteed Student Loan Program (GSL Program), 20 U.S.C. §§ 1070 et seq.; see 45 C.F.R. § 177, which has been designed in part to make available to qualified students the opportunity to pursue postsecondary educations. Under this scheme, the United States Commissioner of Education (Commissioner) has been vested with broad administrative powers to foster the development of measures to effect the laudable purposes of the GSL Program. See 20 U.S.C. §§ 1070, 1071. In this regard, the principle features of the GSL Program are the insurance of loans, the payment of interest on loans, and the provision of funds for the operation of student loan programs.
Turning to a consideration of these features, by far the most prominent aspect of the GSL Program has been the loan insurance program, which operates in three ways. Firstly, under a federal insurance program, 20 U.S.C. § 1079, the Commissioner insures the student's loan directly, and according to the terms of an agreement executed between the Commissioner and the lender. Secondly, under a private, non-profit institution loan program, 20 U.S.C. §§ 1078(c), 1078-1, the institution initially insures the student's loan, and the Commissioner, pursuant to the terms of a contract between him or her and the institution, then guarantees reimbursement to the institution of a specified portion of the loan in the event that the student defaults upon repayment. Thirdly, under a state loan insurance plan, 20 U.S.C. §§ 1078(c), 1078-1, which operates like the private, non-profit institution plan, a state agency initially insures a student's loan, and then, pursuant to the terms of a guaranty agreement and/or supplemental guaranty agreement between the Commissioner and the agency, the federal government agrees to reimburse the state agency for a percentage of any default losses.
Besides the loan insurance program, the Commissioner is authorized to enter into interest subsidy agreements with state and nonprofit private institutions. 20 U.S.C. § 1078(a) and (b). Under this agreement the Commissioner, on behalf of the student, pays to the lender a portion of the interest on the student's insured loan.
Finally, these same lenders may execute with the Commissioner a reserve fund agreement. 20 U.S.C. § 1072. According to the terms of such an agreement, the Commissioner advances to these entities monies to help create or enhance the reserve fund of the relevant student loan insurance program.
New York is one of many states that has created a state agency, the HESC, that provides needed educational loans to qualified students. HESC, in turn, has availed itself of the above three features of the GSL Program. Thus, under the terms of a supplemental guaranty agreement, the Commissioner has agreed to reimburse HESC, in varying degrees, for losses on loans initially insured by HESC. In addition, pursuant to the terms of an interest subsidy agreement, the Commissioner has agreed to pay holders of HESC insured loans specified interest benefits. Furthermore, reserve fund agreements between the Commissioner and HESC have provided for advancements to HESC of at least nine million dollars.
The GSL Program, however, does not operate in a vacuum. Instead, to the extent that the Higher Education Act seeks, in part, to assist the economically needy, the Act's tortured provisions necessarily intertwines with the even more tortured provisions of the Social Security Act, which provides various forms of financial assistance to disadvantaged persons. Thus, in Section 507, a 1968 amendment to the Act, Congress specified that certain educational loans and grants would be disregarded in determining eligibility for several enumerated public assistance programs:
For the purposes of any program assisted under (inter alia, the AFDC or medicaid programs) of the Social Security Act, no grant or loan made or insured under any program administered by the Commissioner of Education shall be considered to be income or resources.
Higher Education Act Amendments of 1968, § 507, Public Law 90-575, 82 Stat. 1014 (emphasis supplied).
The terms of Section 507, in turn, find expression in various programs created by the Social Security Act. Under the AFDC program, for example, the Department of Health and Human Services (HHS) has promulgated a regulation which provides that
in determining eligibility for public assistance and the amount of the assistance payment, the following will be disregarded as income and resources ... (d) Any grant or loan to any undergraduate student for educational purposes made or insured under any programs administered by the Commissioner of Education.
45 C.F.R. § 233.20(a)(4)(ii)(d) (emphasis supplied). Moreover, because the medicaid program incorporates the income disregards of the AFDC program in computing medicaid eligibility, see 42 C.F.R. § 435.711, cf : 42 C.F.R. § 435.831(a), medicaid administrators for the AFDC categorically and medically needy subprograms, must exclude under the principle of comparability, any "grant or loan made or insured under any program administered by the Commissioner of Education."
As a participant in the AFDC and medicaid schemes, the State of New York must devise plans that comport with federal requirements. See 42 U.S.C. §§ 602; 1396; N.Y.Soc.Serv.Law § 363-a. Thus, the New York Department of Social Services has closely tracked the language of 45 C.F.R. § 233.20(a)(4)(ii)(d) in its AFDC provisions:
No grant or loan to an undergraduate student for educational purposes made or insured under any program administered by the United States Commissioner of Education shall be considered as income or resources in determining need and amount of assistance.
18 N.Y.C.R.R. § 352.16(d)(2) (emphasis supplied).
The issue in this case concerns whether New York HESC loans that are part of the GSL Program can be characterized as loans made or insured under any program administered by the Commissioner of Education, and thus regarded as exempt income in computing medicaid eligibility.
In December, 1977, the State Commissioner Barbara Blum promulgated Administrative Directive 77 ADM-134, declaring the HESC loans would not be excluded as exempt income in public assistance programs:
Federal Regulations provide that grants or loans to an undergraduate student for educational purposes made or insured by the U.S. Commissioner of Education are not to be considered in determining need and amount of assistance ...
Federal administered or insured programs which are totally exempt include:
1. Basic Educational Opportunity Grants (BEOG)
2. National Defense Student Loans
3. Supplemental Educational Opportunity ...