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October 23, 1992

Linda A. Setlech, Plaintiff,
United States of America, Internal Revenue Service, U.S. Department of the Treasury, U.S. Department of Education, New York State Higher Education Services Corporation, and Columbia University, Defendants.


The opinion of the court was delivered by: ZACHARY W. CARTER



 This matter was referred to the undersigned by the Honorable Reena Raggi for a Report and Recommendation on the motion of federal defendants, the United States of America, the Internal Revenue Service (IRS), the United States Department of the Treasury (DOT), and the United States Department of Education (DOE) for summary judgment pursuant to 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 56(b). By separate orders dated July 5, 1990 and October 11, 1990, Judge Raggi dismissed all claims against defendants New York State Higher Education Services Corporation and Columbia University.


 Based on the pleadings and evidentiary submissions, the following facts are not in genuine dispute. Between 1969 and 1975, plaintiff, while a student at Columbia University, took out five student loans, totalling $ 5500, from the Banker's Trust Company under the federally Guaranteed Student Loan Program (GSL program). Higher Education Act, 20 U.S.C. §§ 1071 et seq., (1990). Following her graduation from Columbia on May 18, 1977, plaintiff executed a deferment promissory note which permitted her to defer payments on her GSL loans for one year. (Daggett Aff. P 19; Ex. 8). It is undisputed that plaintiff never repaid the loans.

 Under the GSL program, the New York State Higher Education Services Corporation (NYSHESC), a guaranty agency, guaranteed the loans that were extended to plaintiff by Banker's Trust, the lender. See Higher Education Act, 20 U.S.C. at § 1085(d) (defining lender) and § 1085(j) (defining guaranty agency). After plaintiff failed to repay her loans, Banker's Trust Company filed a default claim with NYSHESC. NYSHESC paid Banker's Trust honoring the default claim. The DOE then reimbursed NYSHESC in full for plaintiff's defaulted loans pursuant to its reinsurance agreement. (Daggett Aff. P 20, Ex. 9). See Games v. Cavazos, 737 F. Supp. 1368, 1373, 1382 (D. Del. 1990) (describing reinsurance provisions under GSL program).

 As part of the Deficit Reduction Act of 1984 (the DRA), Congress established a tax refund offset program. The tax offset program permits monies owed on federally insured and unpaid student loans to be deducted from a debtor's federal income tax refund and credited to the DOE. Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 2653, 98 Stat. 494, 1153-56 (1984), amended to continue in effect through 1994, 26 U.S.C. § 6402 and Note (effective and termination dates), 31 U.S.C. § 3720A. Before referring any debt to the IRS, a federal agency owed a past-due legally enforceable debt is required to notify the debtor of the intended referral and to give the individual at least sixty days to present evidence that all or part of the debt is not past due or legally enforceable. 31 U.S.C. § 3720A(b). See Setlech v. United States of America, et al., No. 89 Civ. 3903, Mem. and Order at 3 (E.D.N.Y. filed July 5, 1990) (Raggi, J.). The offset program also requires the DOT to provide post-offset notice to the debtor. 26 U.S.C. § 6402(d)(1)(C).

 Undisputed is the fact that a "pre-65 day letter" was sent in early October 1987 to the most current address available for each debtor listed on the pre-offset address tape. *fn1" (Daggett Aff. PP 5, 11, 13). The pre-65 day letter sent to plaintiff declared NYSHESC's intent to refer the defaulted loan accounts to the IRS which would then apply the debtors' anticipated refund to offset the debt owed to NYSHESC. (Id. at P 5; Ex. 2).

 On January 29, 1988, plaintiff, then a California resident, filed her 1987 federal income tax return. A letter was attached to the return that indicated a change of address to a post office box in Peoria, Illinois, effective April 1, 1988. In March of 1988, the IRS sent plaintiff a notice to the Peoria address informing her that the offset had occurred. (Daggett Aff. P 17; Ex. 7). According to plaintiff, until her arrival in Peoria on April 15, 1988, she was not aware that her anticipated refund of $ 2,473 had been paid to NYSHESC, the guarantee agency, in partial satisfaction of her outstanding student loans. (Pl.'s Reply Mem. at 6-7).

 In addition to recoupment of her tax refund, plaintiff seeks damages from each of the federal defendants, the United States of America, the IRS, the DOT, and the DOE for acute emotional and financial injuries caused by defendants' failure to provide her with notice as required by 31 U.S.C. section 3720A. (Pl.'s Reply Mem. at 6-7, 9).

 Plaintiff contends that defendants "misled and deceived" her into expecting a refund on her 1987 tax return by sending her a refund for the 1986 tax year and neglected to send Congress a report on the effects of the offset program as "required by 31 U.S. Code § 3720A." (Compl. PP 14, 18). Plaintiff alleges violations of 31 U.S.C. § 3720A on grounds that (1) the IRS "failed to confirm proper legal procedure for redistribution of plaintiff's income tax refund" permitting the federal agencies "to issue an illegal directive" to redistribute plaintiff's income tax. (Compl. P 15), (2) the federal defendants failed to "obtain sufficient, satisfactory and true evidence that co-defendant NYSHESC had communicated to plaintiff sixty (60) days prior to a request . . . for redistribution of tax monies . . ." (Compl. PP 33, 35), and (3) the "IRS had at all times in 1987 the true address of this plaintiff . . . but failed in a deliberate and reckless manner to provide plaintiff with reasonable and proper notice." (Pl.'s Reply Mem. at 17-18).

 Plaintiff also alleges that the DOE failed to provide student borrowers with "any guarantee of gainful employment or other increased advantages." Rather, she alleges that the loans extended to students only served to create additional debt. Plaintiff contends that she was deceived, enticed and lured into relocating from Peoria, Illinois to New York City and "aim for the stars" by attending Columbia University in order to ...

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