Judges affirm DOE can counterclaim for repayment of student loans

The 7th Circuit Court of Appeals agreed with the lower court that the U.S. Department of Education’s counterclaim for loan repayment, filed in a man’s lawsuit seeking to not have to repay his student loans, is not barred.

Frederick V. Greene and his wife filed for bankruptcy in 2005 and had all of their debts discharged except $207,000 in student loans dating back to 1987. They sought an order that the Department of Education cancel their debt on the ground that having to repay it would inflict undue hardship on them. In 2010, the DOE began garnishing Greene’s wages, giving rise to this lawsuit and the department’s counterclaim, on which judgment was entered in its favor.

The District Court ruled that the counterclaim was not barred, either as a compulsory counterclaim in previous litigation or by res judicata or collateral estoppel. The reasons for making some counterclaims compulsory are to prevent harassment by the filing of repeated claims by defendants and to avoid duplicative litigation.

“Had the government filed a counterclaim in the adversary proceedings, seeking repayment of the Greenes’ student loans – as it could have done – and had lost, it could not have refiled its claim as a counterclaim in the present suit,” Judge Richard Posner wrote. “That would have been harassment. But the government had sound reasons from holding off from seeking affirmative relief in the adversary proceeding. Better to block discharge of Greene’s student loan debt, and thus reserve the right to sue later to collect the money owed it, than to try to draw water from a stone.”

“The government’s claim for repayment and Greene’s quest for cancellation of the debt by reason of undue hardship had a common origin, namely the student loans … but it was a remote common origin,” Posner continued in Frederick V. Greene v. United States Department of Education, 13-3257.

“We therefore agree with the district court that the Department’s counterclaim is not barred. As for Greene’s alternative grounds for barring the Department’s claim for repayment of his student loans – res judicata and collateral estoppel – they fall within his compulsory-counterclaim argument.”