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Myth Buster: Private Student Loans May Now Be Discharged in States Within the Tenth Circuit [McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083 (10th Cir. 2020).]

Madlaine N. Farmer | March 26, 2021 | PDF Version (231 KB)

Summary: The United States Court of Appeals for the Tenth Circuit affirmed the Colorado Bankruptcy Court’s discharge of private student loans because the debtor did not use the loans exclusively to pay for education, and as a result, the loans were found not to be within the meaning of 11 U.S.C. § 523(a)(8). All courts should adopt the Tenth Circuit’s discharge of private student loans, which should be treated similarly to general consumer loans. Discharging private student loans promotes the purpose of the bankruptcy system—to supply a debtor with a fresh start—and equitable application of the law. Additionally, discharge of debt stimulates the economy and reduces universities’ incentive to increase tuition costs.

Preferred Citation: Madlaine N. Farmer, Myth Buster: Private Student Loans May Now Be Discharged in States Within the Tenth Circuit, 60 Washburn L.J. Online 69 (2021), https://washburnlaw.edu/wljonline/farmer-private-student-loans.

I. Introduction

As of 2020, 44.7 million people collectively owed private and federal student loan debt in the United States, totaling a crippling amount of $1.56 trillion.[1] Private student loan debt independently makes up an estimated $138.57 billion.[2] Private student loans are furnished by banks, credit unions, and state-chartered organizations, whereas federal student loans are supplied by the government.[3]

Federal student loans are regulated by law, include fixed interest rates, and offer multiple repayment plans that allow satisfaction of debts to be made anywhere between ten to thirty years.[4] These plans allow the debtor to adjust payments based on his income and make modifications at any time if his income changes.[5] Additionally, unlike private student loans, federal student loans have lending caps for each student.[6]

Alternatively, private student loans do not have any of the protections that are provided by federal student loans and, instead, are treated like private consumer loans.[7] Private student loans are typically utilized by students who are unable to qualify for federal loans or need additional assistance because federal loans could not cover the full cost of education.[8] With the power of the free market behind them, private lenders have greater control to set their desired interest rates and have less lenient repayment options because private lenders are not subject to loan term restrictions like federal lenders.[9] Thus, private student loans are typically more expensive than federal student loans.[10]

In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”)[11] making some private student loans nondischargeable, meaning the debt is not cleared at the close of the bankruptcy estate.[12] This amendment to the Bankruptcy Code, codified at 11 U.S.C. § 523(a)(8)(B), designated qualified student loans as excepted from discharge, meaning they are nondischargeable, unless the debtor can prove repayment imposes an undue hardship on the debtor and his family.[13] Prior to the 2005 Act, only federal student loans were nondischargeable.[14] As a result, some courts interpreted the 2005 amendment to signify that all student loans are presumptively nondischargeable.[15] However, in 2020, the Tenth Circuit determined that private student loans are not presumptively nondischargeable if they are not used exclusively for the cost of education.[16]

The Tenth Circuit held that the plain meaning and legislative history of 11 U.S.C. § 523(a)(8) clearly demonstrate that private student loans that are not exclusively used to pay for education are not within the meaning of the section.[17] Therefore, these private student loans are not excepted from discharge and, accordingly, are dischargeable.[18] Other jurisdictions should adopt this unambiguous interpretation because (1) private student loans are similar to general consumer debt and should be treated comparably; (2) the bankruptcy system aims to supply a debtor with a fresh start and ensure the law is equitably applied; and (3) allowing some private student loans to be discharged will diminish higher education institutions’ incentive to continue increasing tuition costs.

II. Background

A. Summary of the Facts and Procedural History of In re McDaniel

In 2009, Bryon and Laura McDaniel filed for Chapter 13 bankruptcy in the U.S. Bankruptcy Court for the District of Colorado.[19] In McDaniel v. Navient Solutions, LLC, the McDaniels alleged that, among other debts, they owed approximately $200 thousand to Sallie Mae (later Navient Solutions) for Tuition Answer loans that they borrowed to pay Laura McDaniel’s college expenses.[20] Because student loans were treated as an unsecured claim under the McDaniels’ Chapter 13 plan, payment was deferred until the end of the plan.[21]

After the bankruptcy court fully administered their bankruptcy estate, the McDaniels continued to make payments to Navient for two years in the amount of $37,460 for the Tuition Answer loans.[22] In 2017, the McDaniels requested that the bankruptcy court reopen their case, declare that their Tuition Answer loans were not excepted from discharge, and award them damages for Navient’s collection activities on the loans.[23] Navient moved to dismiss, alleging the loans were nondischargeable pursuant to § 523(a)(8)(A)(ii) because the loans represent “an obligation to repay funds received as an educational benefit.”[24] The bankruptcy court denied Navient’s motion to dismiss because “the plain language of [§ 523(a)(8)(A)(ii)] establishes that educational loans are not obligations to repay funds received as an educational benefit.”[25] Navient then filed a timely notice of appeal, asserting the same issue.[26]

B. Legal Background

Section 523(a)(8) describes three exceptions to student loan discharge: (1) educational benefit overpayment and governmental and nonprofit funded loans, per Subsection (A)(i); (2) obligation to repay funds received as an educational benefit, scholarship, or stipend, per Subsection (A)(ii); and (3) any other qualified educational loan per Subsection (B).[27] To discharge these loans, the debtor must prove that repayment of debt from one of these three categories imposes an “undue hardship on the debtor and the debtor’s dependents.”[28] This burden is exceedingly difficult to achieve, and many practitioners presume the student loan debt will not be discharged, even when the debtor is entitled to discharge.[29]

Circuit courts are split on the extent to which private student loans are within the scope of § 523(a)(8).[30] The Second Circuit in Desormes v. United States held that a private student loan, which was backed by the Charlotte School of Law, “was excepted from discharge under § 23(a)(8)(A)(ii).”[31] The court determined “[s]tudent loans are presumptively nondischargeable in bankruptcy,” and it is not necessary for funds to be transferred directly to a debtor to establish a loan.[32] Fortunately, this holding is not precedential authority because it was an unpublished opinion.[33]

Conversely, the Fifth Circuit held in Crocker v. Navient Solutions, LLC that statutory interpretation and legislative history demonstrate that private student loans are not within the meaning of § 523(a)(8)(A)(ii).[34] The consolidated debtors obtained private student loans from Navient Solutions for bar exam study and career training for a technical school.[35] The debtors scheduled these as “Educational Private loan[s].”[36] The court urged that all discharge exceptions should be “interpreted narrowly in favor of the debtor to preserve the ‘fresh start’” for debtors in bankruptcy.[37] The court held that § 523(a)(8)(A)(ii) does not include the word loan and instead refers to “payments with contingent obligations” that “may not need to be repaid.”[38] Further, the court noted that, “in response to the growing trend of commercial lending,” the BAPCPA amendment was implemented to make qualified student loans more difficult to discharge in bankruptcy.[39] However, the loans at issue were not recognized as qualified student loans, making the congressional intent of § 523(a)(8)(B) immaterial.[40] The court also found no congressional history supporting Navient’s argument that private student loans are nondischargeable under § 523(a)(8)(A)(ii).[41] Thus, the court held that these private student loans were dischargeable.[42]

III. Court’s Decision in In re McDaniel

In In re McDaniel, the Tenth Circuit held that debtors can discharge private student loans that are not exclusively used to meet the costs of education without requiring debtors to demonstrate undue hardship under 11 U.S.C. § 523(a)(8).[43] First, the court determined the private student loans at issue did not fall under § 523(a)(8)(A)(i) because they were not government-backed loans.[44] Second, the court determined that the private student loans were not within the scope of Subsection (B) because the private loans were not used “solely for the cost of attendance.”[45] Finally, the parties’ arguments centered on whether the private student loans should fall into § 523(a)(8)(A)(ii), as discussed below, and the court determined the private student loans did not.[46]

Contrary to Navient’s argument, the court held that student loans of any kind are not necessarily educational benefits under § 523(a)(8)(A)(ii).[47] The language in this subsection signifies “a conditional grant of funding for education—akin to a stipend and scholarship—as opposed to a loan of funds for education.”[48] Further, funds received as a scholarship or stipend are not comparable to student loans on the basis that they help their beneficiaries pay for education.[49] This would result in an exceedingly broad interpretation that would include, “among other things, any credit-card debt used to buy textbooks.”[50] Thus, the court determined that not all types of student loans are within the meaning of § 523(a)(8)(A)(ii).[51]

The court indicated Navient’s argument—that § 523(a)(8)(A)(ii) excepted the McDaniels’ loans from discharge—was meritless; additionally, the court provided support to repudiate Navient’s argument.[52] The court explained that interpreting § 523(a)(8)(A)(ii) to include private student loans would render Subsections 523(a)(8)(A)(i) and (B) superfluous.[53] Defining “educational benefit” to incorporate loans would unnecessarily encompass the public loans referred to in § 523(a)(8)(A)(i).[54] Further, the amendment under the BAPCPA excepting from discharge “any other educational loan that is a qualified education loan” under § 523(a)(8)(B) would be redundant if any and all educational loans are already contained within § 523(a)(8)(A)(ii).[55] Thus, the court found that the BAPCPA amendment did not “establish that Congress intended § 523(a)(8)(A)(ii) to cover educational loans and except them from discharge.”[56]

The court also refused to accept Navient’s assertion that all student loans are presumptively nondischargeable.[57] This theory stemmed from a Supreme Court decision that broadly stated in dicta, within a footnote, that “section 523(a)(8) renders student loan debt presumptively nondischargeable ‘unless’ a determination of undue hardship is made.”[58] This presumption only applies to student loans within the scope of § 523(a)(8), not student loans generally.[59] The court in In re McDaniel concluded that § 523(a)(8) does not generally apply to private student loans that are not exclusively used to pay for education; thus, private student loans are dischargeable without requiring the debtor to meet the “undue hardship” standard.[60] Accordingly, the court determined the § 523(a)(8) exception to discharge did not cover the McDaniels’ Tuition Answer loans.[61]

IV. Commentary

The Tenth Circuit, in In re McDaniel, and the Fifth Circuit, in In re Crocker, have debunked the myth that private student loans are “presumptively nondischargeable.”[62] Allowing debtors to discharge some private student loans through bankruptcy will advance the societal goal to reduce student loan debt, improve the lives of Americans, and boost the economy.[63] These policies provide the debtor with a fresh start and promote a fair and equitable application of the Bankruptcy Code.[64] Finally, discharge of private student loans may reduce the inflation of higher education costs.[65]

A. Private Student Loans Are Tantamount to General Unsecured Debt

Commentators have suggested that allowing private student loans to be discharged could harm other private borrowers who do not have to file bankruptcy because lenders will rely on these individuals to continue to supply capital, not only for loans but for their businesses generally.[66] This argument is unpersuasive, however, because this logic applies to all loans and ordinary consumer loans are dischargeable in bankruptcy.[67] Further, it is logical to make federal student loans nondischargeable unless the debtor can show it imposes undue hardship because these loans are guaranteed by the federal government.[68] Private student loans, conversely, are not guaranteed by the federal government and the burden to repay the loan is completely on the borrower.[69]

Debtors file bankruptcy to receive a “fresh start” from all of their debts to ensure they “are able to be economically productive again.”[70] Unfortunately, due to the harsh reality of interest accrual and the debtors’ inability to remain current on loan payments with their present income, individuals with student load indebtedness may actually be in a worse position after discharge than they were when they initially filed bankruptcy.[71] This is especially true in Chapter 13 cases, which last thirty-six to sixty months and the interest is not tolled by the bankruptcy.[72] In fact, the debtor could pay his student loan debt in full during his bankruptcy and still be subjected to interest payments at the close of his bankruptcy because of the lack of tolling.[73] Additionally, one commentator has suggested that a debtor who does not receive a fresh start has no incentive to work because all or some of his income “will in effect act as a wage reduction, which leads to a reduction in that individual’s supply of labor under normal assumptions.”[74] Thus, the debtor will not receive a legitimate fresh start, and the debtor’s reduced production will negatively affect the economy.[75]

The benefits of adequately providing a student loan debtor a fresh start are monumental.[76] Courts and commentators have suggested the ramifications of student loan debt for recent graduates include “delay[ing] marriage, defer[ring] car purchases, postpon[ing] home ownership, inhibit[ing] saving for retirement, and even hinder[ing] dating after college.”[77] Student loan debt is a problem that, if left unresolved, will have significant costs beyond just that of the student debtor.[78] Moreover, discharging private student loans can allow some debtors to be considered ordinary consumers, and thereby, avert the harm to taxpayers from forcing student loan debtors into social welfare programs.[79]

The Bankruptcy Code embraces equitable application of the law, and a “bankruptcy court is a court of equity and should invoke equitable principles and doctrines, refusing to do so only where their application would be ‘inconsistent’ with the Bankruptcy Code.”[80] Private student loans are similar to regular consumer loans, but they are not treated the same under the Bankruptcy Code.[81] Other debts have been made nondischargeable “to curtail rewards for ‘certain socially undesirable behaviors’” or because of their punitive nature.[82] Student loans, on the other hand, are nondischargeable because such a loan is made with no guarantees and lenders rely on “repayment solely on the debtor’s future increased income resulting from the education.”[83] This justification is reasonable for not discharging federal student loans; however, it seems illogical for private student loans because they often require a co-signor;[84] creditors are largely unregulated to provide the debtor protections like reasonable interest and repayment options;[85] and nondischargeability enables bad lending behavior, which allows universities to continue raising their tuition prices.[86] Further, it is inconsistent with the equitable purpose of the Bankruptcy Code to allow a debtor, who obtained additional student loans through private entities “to pay tuition and improve [his or] her life,” to be more “culpable than someone who, say, ran up charges on his or her credit card” or incurred a gambling debt.[87]

B. Discharging Private Student Loans Is Beneficial to Curtail Aggressive Inflation of Higher Education Tuition

Additionally, private student loans should be categorized as non-consumer loans because the cost of education has increased significantly in the last thirty years, which has caused students to take out many more student loans.[88] The cost of college tuition between 2008 and 2019 increased 3.1 percent per year—approximately double the annual increase of general inflation rates.[89] Over the last two decades, four-year public university tuition costs have increased significantly faster than the median income.[90] Additionally, 70 percent of “good jobs” require a college degree, so an American must obtain a degree to sit comfortably in the middle class.[91] Conversely, in the 1970s, 70 percent of the “good jobs” required only a high school degree.[92] Further, middle class parents cannot afford to pay for their children’s education because the costs of healthcare and housing have also significantly increased.[93] Unfortunately, these parents must still carry the burden of private student loans because lenders typically require students to have a co-signer.[94] Students frequently have their parent or grandparent co-sign for them, making co-signers jointly responsible for repayment if the student defaults.[95]

Colleges have also increased the cost of education in response to state budget cuts for higher education.[96] Public colleges rely heavily on state and local tax revenues.[97] States spent on average 13 percent less per student in 2018 than in 2008, even though their state revenues were “well above pre-recession levels.”[98] The consequences of funding cuts have resulted in public universities raising their tuition, reducing academic opportunities, and depleting student services.[99] Increased tuition has an even greater impact on racial and class inequality because it “deter[s] low-income students and students of color from college.”[100] Rising tuition also harms communities and states as a whole because they “increasingly rely on highly educated workforces to grow and thrive.”[101]

Allowing private student loans to be discharged compels universities to stop raising their tuition costs.[102] The ability of students to easily obtain a private loan, the absence of lending limits, and the presumption that all student loans are nondischargeable, incentivizes lenders to offer a large amount of money to students.[103] Universities capitalize on the deceptive nature of these loans by raising their tuition prices because students will continue taking out private student loans to meet the cost of attending the university.[104] If private student loans were dischargeable––as is sometimes the case in the Tenth and Fifth Circuits––universities would be forced to limit their tuition increases to the restrictions placed by federal student loans to maintain enrollment.[105] The resulting reduction in higher education tuition costs would greatly benefit low income and minority groups, who could then provide income to their community, and ultimately, the economy as a whole.[106]

V. Conclusion

Private student loans that are not used exclusively to pay for the cost of education are considered general unsecured debt in the Fifth and Tenth Circuits, as opposed to secured or federally-backed loans.[107] In effect, private student loans—like the McDaniels’ loan—are similar to credit cards, personal loans, and other general consumer debts that may be dischargeable without the debtor needing to demonstrate that the loans impose an undue hardship.[108] Allowing private student loans to be discharged ensures that the debtor receives a fresh start to be a more productive member of society.[109] Additionally, discharge guarantees equitable and consistent application of bankruptcy law.[110] Finally, although not all private student loans are dischargeable, the ability for students to discharge private student loans not used exclusively to pay for the cost of education may encourage universities to refrain from raising their cost of tuition.[111] All jurisdictions should implement policies and rules of law that aid in the student debt crisis, and the first step is to allow the discharge of private student loans not utilized exclusively for the cost of education.[112]

 

[1] Zack Friedman, Student Loan Debt Statistics in 2020: A Record $1.6 Trillion, Forbes (Feb. 3, 2020, 6:51 PM), https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/#70ecfdc1281f [https://perma.cc/9XZR-GVE6]. [Return to Text]

[2] Travis Hornsby, Student Loan Debt Statistics in 2021: A Look at the Numbers, Student Loan Planner (Jan. 19, 2021), https://www.studentloanplanner.com/student-loan-debt-statistics-average-student-loan-debt/ [https://perma.cc/YY8A-KHGB].  Between the 2010 and 2018 academic years, “private student loan originations grew by almost 78 percent” while federal student loan origination “fell by more than 25 percent.”  Student Borrower Prot. Ctr., Private Student Lending 6 (2020), https://protectborrowers.org/wp-content/uploads/2020/04/PSL-Report_042020.pdf [https://perma.cc/HGM9-9BDY]. [Return to Text]

[3] Federal Versus Private Loans, Fed. Student Aid, https://studentaid.gov/understand-aid/types/loans/federal-vs-private [https://perma.cc/WK23-97E5] (last visited Feb. 13, 2021). [Return to Text]

[4] See id.  There are eight plans available: Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, Revised Pay As You Earn Repayment Plan (“REPAYE”), Pay As You Earn Repayment Plan (“PAYE”), Income-Based Repayment Plan (“IBR”), Income-Contingent Repayment Plan (“ICR”), and Income-Sensitive Repayment Plan.  Repayment Plans, Fed. Student Aid, https://studentaid.gov/manage-loans/repayment/plans [https://perma.cc/VJ68-RQMK] (last visited Feb. 13, 2021).  Under some plans, if federal student loans are not fully paid off within the designated time frame “[a]ny outstanding balance will be forgiven.”  Id.  Unfortunately, forgiving the federal student loans can be just as costly as continuing payments because the forgiven loan is considered taxable income.  See In re Engen, 561 B.R. 523, 548–49 (Bankr. D. Kan. 2016).  The tax obligation is then due within that tax year, which is a short period of time, and if the taxpayer fails to pay the tax, they are subjected to penalties and interest.  Id. at 549.  To make matters worse, this tax burden arises “at or near retirement—one of the worst possible times.”  Id. [Return to Text]

[5] Repayment Plans, supra note 4. [Return to Text]

[6] Preston Mueller, Comment, The Non-Dischargeability of Private Student Loans: A Looming Financial Crisis?, 32 Emory Bankr. Dev. J. 229, 238 (2015). [Return to Text]

[7] See Federal Versus Private Loans, supra note 3. [Return to Text]

[8] Matthew R. Johnson, Punishing Our Professionals: Why Student Loans Should Be Non-Consumer Debt, 18 Tenn. J. Bus. L. 235, 238–39 (2016). [Return to Text]

[9] John A. E. Pottow, The Nondischargeability of Student Loans in Personal Bankruptcy Proceedings: The Search for a Theory, 44 Canadian Bus. L.J. 245, 262 (2007).  Private student loan interest rates may be higher or lower than federal student loan rates.  Federal Versus Private Loans, supra note 3.  Private student loans are also generally not subsidized, which requires the borrower to be accountable for all the loan interest.  Id.  Alternatively, some federal loans allow a borrower who has financial difficulties to qualify for subsidized loans in which the government will pay the interest while the borrower is in school on at least a part-time basis.  Id. [Return to Text]

[10] Federal Versus Private Loans, supra note 3. [Return to Text]

[11] Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 109 Pub. L. 8, 119 Stat. 23 (codified as amended in scattered sections of 11 U.S.C.). [Return to Text]

[12] 11 U.S.C. § 523(a)(8)(B) (2018); see Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 223 (5th Cir. 2019). [Return to Text]

[13] See 11 U.S.C. § 523(a)(8)(B). [Return to Text]

[14] Crocker, 941 F.3d at 222–23 (recognizing that § 523(a)(8)(A)(ii) was implemented in 1990). [Return to Text]

[15] Desormes v. United States (In re Desormes), 569 F. App’x 42, 43 (2d Cir. 2014) (unpublished opinion). [Return to Text]

[16] McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1104 (10th Cir. 2020). [Return to Text]

[17] See generally id. at 1083. [Return to Text]

[18] Id. at 1104–05. [Return to Text]

[19] Id. at 1086. [Return to Text]

[20] Id.  Navient Solutions is a lending provider that offers government guaranteed loans and private loans for education and businesses.  Products & Services, Navient, https://about.navient.com/products-and-services [https://perma.cc/9G53-3M2T] (last visited Feb. 13, 2021).  The attached promissory notes certified that “all of the loan proceeds [were] to pay expenses directly related to attending” college.  Opening Brief of Appellant at 3, McDaniel v. Navient Sols., LLC, 973 F.3d 1083 (10th Cir. 2020) (No. 19-1445), 2019 WL 1112141, at *3. [Return to Text]

[21] In re McDaniel, 973 F.3d at 1090. [Return to Text]

[22] Id. at 1088.  At the close of the Chapter 13 plan, the McDaniels verified they had fulfilled all of their obligations under their plan payments and had even paid nearly twenty-seven thousand dollars to Navient’s debt claims.  Id. at 1087.  The discharging order did not specifically indicate that the student loans were excepted from discharge, only that “‘debts for most student loans’ were not discharged.”  Id. at 1087–88.  A few months later, the bankruptcy court determined that the McDaniels’ bankruptcy estate was fully administered.  Id. at 1088. [Return to Text]

[23] Id. [Return to Text]

[24] Id.  While it is not relevant to this Comment, Navient also moved to dismiss alleging “it is res judicata that their Tuition Answer Loans are excepted from discharge because their confirmed plan provided as much.”  Id.  The bankruptcy court ultimately ruled the issue was not res judicata and the circuit court affirmed.  Id. at 1090–91. [Return to Text]

[25] Id. at 1088 (internal quotations omitted). [Return to Text]

[26] Id. [Return to Text]

[27] 11 U.S.C. § 523(a)(8) (2018).  The relevant statutory language reads as follows: 

(a) A discharge under section 727, 1141, 1192, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . 

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for— 

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or 

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or 

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue code of 1986, incurred by a debtor who is an individual[.]  Id. [Return to Text]

[28] Id. [Return to Text]

[29] See, e.g., Educ. Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775 (8th Cir. 2009).  “Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt—while still allowing for a minimal standard of living—then the debt should not be discharged.”  Id. (citing Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554–55 (8th Cir. 2003)).  “Unless an educational debt falls within one of [the three exceptions to discharge], [the student loan] is dischargeable through the normal bankruptcy process.”  Jason Iuliano, Student Loan Bankruptcy and the Meaning of Educational Benefit, 93 Am. Bankr. L.J. 277, 282 (2019). [Return to Text]

[30] 11 U.S.C. § 523(a)(8).  Compare Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 224 (5th Cir. 2019), with Desormes v. United States (In re Desormes), 569 F. App’x 42, 43 (2d Cir. 2014) (unpublished opinion). [Return to Text]

[31] In re Desormes, 569 F. App’x at 43. [Return to Text]

[32] Id.  The court’s opinion was very brief and did not analyze the meaning of the three-item list or how private student loans applied within § 523(a)(8)(A)(ii).  See generally In re Desormes, 569 F. App’x at 43. [Return to Text]

[33] See In re Crocker, 941 F.3d at 222 n.12. [Return to Text]

[34] Id. at 223–24. [Return to Text]

[35] Id. at 209. [Return to Text]

[36] Id. [Return to Text]

[37] Id. at 217 (citing Hickman v. Texas (In re Hickman), 260 F.3d 400, 404–05 (5th Cir. 2001)). [Return to Text]

[38] Id. at 219.  The court explained that scholarships and stipends—though they may be conditional—are grants, not loans.  Id.  The court also found that if the term “educational benefits” incorporates loans, then it would encompass the government loans and qualified education loans in Subsections (A)(i) and (B), rendering the provisions useless and superfluous.  Id. at 220. [Return to Text]

[39] Id. at 223 (citing Thomas v. Dep’t of Educ. (In re Thomas), 931 F.3d 449, 453 (5th Cir. 2019)).  The court noted this addition of private student loans was “the only meaningful 2005 addition.”  Id.  Qualified education loans are primarily “any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses.”  26 U.S.C. § 221(d)(1) (2018).  Qualified expenses are “the cost of attendance . . . at an eligible educational institution, reduced by the sum of . . . the amount of any scholarship, allowance.”  Id. § 221(d)(2). [Return to Text]

[40] In re Crocker, 941 F.3d at 223. [Return to Text]

[41] Id. [Return to Text]

[42] Id. at 223–24. [Return to Text]

[43] McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1104–05 (10th Cir. 2020). [Return to Text]

[44] Id. at 1094. [Return to Text]

[45] Id. at 1088 (internal quotations omitted).  The court contrasted the subsections by declaring that the phrase “any other educational loan” in § 523(a)(8)(B) is not an all-inclusive phrase that includes any other loans outside of the scope of this section.  See id. at 1101. [Return to Text]

[46] Id. at 1104. [Return to Text]

[47] Id. at 1103. [Return to Text]

[48] Id. at 1098.  The court determined that although “an obligation to repay” may refer to a loan in other contexts, the term—as used in § 523(a)(8)(A)(ii)—is not construed on its own and is read in relation to repayment of an “educational benefit, scholarship, or stipend” that “are not the kinds of things that must normally be repaid.”  Id. at 1100. [Return to Text]

[49] Id. at 1103. [Return to Text]

[50] Id.  The court stated, “[b]ut if any funds that help a person meet ‘the costs of education’ were to constitute funds received as an educational benefit, Navient’s reading of the statute would be exceedingly broad—wallowing, among other things, any credit-card debt used to buy textbooks, as the McDaniels observe.”  Id. [Return to Text]

[51] Id. at 1104. [Return to Text]

[52] Id. at 1098. [Return to Text]

[53] Id. at 1101–02.  Courts insist on not interpreting the language of a statute in a way that “‘would render superfluous’ other adjoining portions of that statute.”  Id. (citing Yates v. United States, 574 U.S. 528, 543 (2015)). [Return to Text]

[54] Id.; see Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 220 (5th Cir. 2019).  “If an ‘obligation to repay funds including educational benefits’ includes repaying private student loans, that requires defining ‘educational benefit’ to include loans, which then means it also covers the public loans that are the focus of Subsection 523(a)(8)(A)(i).”  In re McDaniel, 973 F.3d at 1101–02. [Return to Text]

[55] In re McDaniel, 973 F.3d at 1101; see Nunez v. Key Educ. Res. (In re Nunez), 527 B.R. 410, 415 (Bankr. D. Or. 2015). [Return to Text]

[56] In re McDaniel, 973 F.3d at 1101. [Return to Text]

[57] Id. at 1099–1100. [Return to Text]

[58] Id. at 1099 (quoting United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 277 n.13 (2010)). [Return to Text]

[59] Id. at 1100. [Return to Text]

[60] Id. [Return to Text]

[61] Id. at 1104–05. [Return to Text]

[62] Compare Desormes v. United States (In re Desormes), 569 F. App’x 42, 43 (2d Cir. 2014) (unpublished opinion) (holding the private student loans at issue were presumptively nondischargeable and excepted from discharge), with In re McDaniel, 973 F.3d at 1099–1100, 1104–05 (criticizing the erroneous presumption from In re Desormes and allowing the discharge of the private student loans involved); Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 242–43 (5th Cir. 2019) (discharging the private student loans because they were not a type of student loan reached by § 523(a)(8)). [Return to Text]

[63] Alexander Bolton, Warren, Schumer Introduce Plan for Next President to Cancel $50,000 in Student Debt, Hill (Sept. 17, 2020, 5:24 PM), https://thehill.com/homenews/senate/516974-warren-schumer-introduce-plan-for-next-president-to-cancel-50000-in-student [https://perma.cc/J86J-R2J5]. [Return to Text]

[64] Id.; In re McDaniel, 973 F.3d at 1092–93 (quoting Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1758 (2018)). [Return to Text]

[65] Mueller, supra note 6, at 240. [Return to Text]

[66] Pottow, supra note 9, at 262. [Return to Text]

[67] Id. at 262–63. [Return to Text]

[68] Guaranteed Student Loans, Coll. Scholarships, http://www.collegescholarships.org/loans/guaranteed.htm [https://perma.cc/E8ZV-ANEY] (last visited Feb. 13, 2021); Johnson, supra note 8, at 238. [Return to Text]

[69] Guaranteed Student Loans, supra note 68. [Return to Text]

[70] McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1092–93 (10th Cir. 2020) (quoting Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1758 (2018)); Mueller, supra note 6, at 239. [Return to Text]

[71] For example, the United States Bankruptcy Court for the District of Kansas determined whether repayment of an elementary school teachers’ private Tuition Answer loan imposed an undue hardship.  Edwards v. Navient Sols., Inc. (In re Edwards), 561 B.R. 848, 855–61 (Bankr. D. Kan. 2016).  The court assessed that because the debtor had a fixed salary that was very unlikely to increase in the future, “this would leave Debtor paying almost nothing on these [student] loans for several years.”  Id. at 858.  The court found that the debtor had $450 worth of additional expenses that were not accounted for, when the debtor initially estimated the monthly balance after expenses was $1.44.  Id. at 857.  The court also calculated that the debtor would have to pay an impossible amount of $668 a month to repay the loan within the remaining repayment period.  Id. at 858.  Further, the debtor thought she could make payments of $50 a month, but the court determined that even if these payments were possible and she allocated an additional $500 to $700 a year, it “would not even retire the interest accruing on these loans.  She will thus owe much more in 3 years than she owes today.”  Id. at 859.  The court concluded repayment of these loans was an undue hardship.  Id. at 861.  Regardless of whether these loans were or were not used exclusively for the cost of education, In re Edwards provides a realistic example of how difficult and impractical repayment of student loans can be. [Return to Text]

[72] See Leeper v. Pa. Higher Educ. Assistance Agency, 49 F.3d 98, 103 (3d Cir. 1995). [Return to Text]

[73] Id. at 104.  Creditors cannot include in their claim “unmatured” or post-petition interests.  Id. at 100–01; see 11 U.S.C. § 502(b)(2) (2018). [Return to Text]

[74] Mueller, supra note 6, at 239–40. [Return to Text]

[75] Id. at 240. [Return to Text]

[76] See In re Engen, 561 B.R. 523, 546–47 (Bankr. D. Kan. 2016). [Return to Text]

[77] See id.  Another commentator stated, “burdens carried by former students are large drags on economic growth, social mobility, skills generation, and simply the well-being of vast numbers of past, current, and future students.”  John R. Brooks, Income-Driven Repayment and the Public Financing of Higher Education, 104 Geo. L.J. 229, 232 (2016). [Return to Text]

[78] Josh Mitchell & Laura Kusisto, Fed Says Student Debt Has Hurt the U.S. Housing Market, Wall St. J. (Jan. 16, 2019, 5:56 PM), https://www.wsj.com/articles/fed-says-student-debt-is-u-s-hurting-housing-market-11547657473 [https://perma.cc/AAY8-3AWW]. [Return to Text]

[79] See Iuliano, supra note 29, at 308 (“[A]n individual who is unable to get out from under her debts will likely turn to social welfare programs for assistance” and therefore “[place] taxpayers on the hook for debtors’ poor financial decisions.”); see Mitchell & Kusisto, supra note 78 (stating two conclusions: (1) that borrowers who defaulted on their student loans hurt their credit, which prevented them from qualifying for mortgages; and (2) “many others have good credit but are unable or unwilling to save for a down payment on a home because they funnel a chunk of their disposable incomes toward student debt”). [Return to Text]

[80] See In re Engen, 561 B.R. at 545 (citing Beaty v. Selinger (In re Beaty), 306 F.3d 914, 922 (9th Cir. 2002)). [Return to Text]

[81] Compare 11 U.S.C. § 523(a)(8) (2018) (making governmental student loans and qualified student loans nondischargeable), with Daniel A. Austin, Student Loan Debt in Bankruptcy: An Empirical Assessment, 48 Suffolk U.L. Rev. 577, 579 (2015) (stating that many consumer debts are freely dischargeable). [Return to Text]

[82] See In re Engen, 561 B.R. at 540 (quoting Deanne Loonin & Persis S. Yu, Nat’l Consumer L. Ctr., Student Loan Law § 11.9.3, at 234 (5th ed. 2015)).  Nondischargeable claims include: “false pretenses or fraud, embezzlement and larceny, intentional torts, criminal restitution, tax debts, and domestic support obligations.”  Id.  These debts are nondischargeable because they are “(a) wrongfully incurred—such as those for fraud, embezzlement, restitution, and other wrongdoing; (b) to protect innocent children to ensure an orderly society—child support obligations; or (c) to provide for familial obligations such as alimony and division of debts and property.”  Id. [Return to Text]

[83] Id. at 545 (citing H.R. Rep. No. 95-595, at 133 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6094). [Return to Text]

[84] Consumer Fin. Prot. Bureau, Snapshot of Older Consumers and Student Loan Debt 10 (2017), https://files.consumerfinance.gov/f/documents/201701_cfpb_OA-Student-Loan-Snapshot.pdf [https://perma.cc/4WJN-633X]. [Return to Text]

[85] Pottow, supra note 9, at 262. [Return to Text]

[86] Mueller, supra note 6, at 244. [Return to Text]

[87] Id. at 240; see also Kayla Webley, Why Can’t You Discharge Student Loans in Bankruptcy?, Time (Feb. 9, 2012), https://business.time.com/2012/02/09/why-cant-you-discharge-student-loans-in-bankruptcy/ [https://perma.cc/C62T-GUDP]. [Return to Text]

[88] Johnson, supra note 8, at 240. [Return to Text]

[89] Ron Carson, 7 Ways to Reduce College Costs, Forbes (Sept. 22, 2019, 9:01 AM), https://www.forbes.com/sites/rcarson/2019/09/22/7-ways-to-reduce-college-costs/#689c02165e77 [https://perma.cc/7ELZ-63JV.  The inflation rate in 2019 was 1.6 percent.  Id.  The average price of tuition at private institutions in 2001 was $16,987 and in 2021 rose to $41,411.  Briana Boyington & Emma Kerr, 20 Years of Tuition Growth at National Universities, U.S. News & World Rep. (Sept. 17, 2020), https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities?rec-type=usn [https://perma.cc/MNZ2-5H88].  The average for out-of-state tuition at public universities in 2001 was $10,101 and in 2021 rose to $26,809.  Id.  The average for in-state tuition at public universities in 2001 was $3,583 and in 2021 rose to $11,171.  Id. [Return to Text]

[90] Michael Mitchell, Michael Leachman & Matt Saenz, State Higher Education Funding Cuts Have Pushed Costs to Students, Worsened Inequality, Ctr. on Budget & Pol’y Priorities (Oct. 24, 2019), https://www.cbpp.org/research/state-budget-and-tax/state-higher-education-funding-cuts-have-pushed-costs-to-students [https://perma.cc/8HKD-DHSH]. [Return to Text]

[91] Erik Sherman, College Tuition Is Rising at Twice the Inflation Rate—While Students Learn at Home, Forbes (Aug. 31, 2020, 10:28 PM), https://www.forbes.com/sites/zengernews/2020/08/31/college-tuition-is-rising-at-twice-the-inflation-rate-while-students-learn-at-home/#131a7a912f98 [https://perma.cc/3Z8B-ZY6T].  In 2019, the median weekly earnings for a high school graduate was $746 and $1,248 for a person with a bachelor’s degree.  Id. [Return to Text]

[92] Id.  In the 1970s, the term “good jobs,” according to the Georgetown University Center on Education, entailed jobs with salaries starting at $35,000 a year and gradually increasing to $45,000 and $55,000 in current dollars.  Id. [Return to Text]

[93] Id. [Return to Text]

[94] Consumer Fin. Prot. Bureau, supra note 84. [Return to Text]

[95] Id. [Return to Text]

[96] Mitchell et al., supra note 90.  Other variables contribute to increasing education prices, such as institutional salaries, which are compared to competing schools, as well as expenses for complying with state and federal regulations.  Sherman, supra note 91. [Return to Text]

[97] Id. [Return to Text]

[98] Id.  Arizona reduced its funding for higher education the most, spending 54.9 percent less per student in 2018 than in 2008.  Id.  Only nine states between 2008 and 2018 have increased their funding per student for higher education, with Illinois being the highest at 31.7 percent.  Id. [Return to Text]

[99] Id.  Following the recession, “public colleges and universities cut faculty positions, eliminated course offerings, closed campuses, and reduced student services, among other cuts.”  Id. [Return to Text]

[100] Id. [Return to Text]

[101] Mitchell et al., supra note 90. [Return to Text]

[102] Mueller, supra note 6, at 244. [Return to Text]

[103] Id. [Return to Text]

[104] Id.  Limitless private student loans allow universities “to easily raise their tuitions year after year without significant pushback, as demonstrated by the astonishing rate of tuition increases since the 2005 amendments.”  Id. at 238. [Return to Text]

[105] Id. at 244. [Return to Text]

[106] Mitchell et al., supra note 90. [Return to Text]

[107] McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1104 (10th Cir. 2020). [Return to Text]

[108] Johnson, supra note 8, at 238–39. [Return to Text]

[109] See In re McDaniel, 973 F.3d at 1092–93 (quoting Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1758 (2018)); see also Mueller, supra note 6, at 239. [Return to Text]

[110] Mueller, supra note 6, at 240. [Return to Text]

[111] Id. at 244. [Return to Text]

[112] See In re McDaniel, 973 F.3d at 1104. [Return to Text]