FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MICHAEL ERIC HEDLUND,

Plaintiff-Appellant,

v.

THE EDUCATIONAL RESOURCES

INSTITUTE INC.; and PENNSYLVANIA

HIGHER EDUCATION ASSISTANCE

AGENCY,

Defendants-Appellees.

No. 12-35258

D.C. No.

6:11-cv-6281-

AA

OPINION

Appeal from the United States District Court

for the District of Oregon

Ann L. Aiken, Chief District Judge, Presiding

Argued and Submitted

March 11, 2013—Pasadena, California

Filed May 22, 2013

Before: Harry Pregerson, A. Wallace Tashima,

and Milan D. Smith, Jr., Circuit Judges.

Opinion by Judge Tashima
2 HEDLUND V. EDUCATIONAL RESOURCES INST.

SUMMARY*

Bankruptcy

Reversing the district court’s judgment, the panel held

that the bankruptcy court did not err in granting a partial

discharge of the debtor’s student loans under 11 U.S.C.

§ 523(a)(8).

The panel held that the district court erred by reviewing

the bankruptcy court’s good faith finding de novo, rather than

for clear error. The panel concluded that the good faith

finding was not clearly erroneous, and remanded the case to

the district court with instructions to reinstate the partial

discharge ordered by the bankruptcy court.

COUNSEL

Yonatan Braude (argued) and Derek Foran, Morrison &

Foerster LLP, San Francisco, California; and Natalie Scott,

The Scott Law Group, Eugene, Oregon, for PlaintiffAppellant.

Daniel Steinberg (argued) and Sanford Landress, Greene &

Markley, P.C., Portland, Oregon, for Defendant-Appellee.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
HEDLUND V. EDUCATIONAL RESOURCES INST. 3

OPINION

TASHIMA, Circuit Judge:

Michael Hedlund is a law school graduate who asserts

that he cannot pay off his student loans. After filing for

bankruptcy, he sought a discharge of his student loans under

11 U.S.C. § 523(a)(8). The bankruptcy court granted a partial

discharge, but, on appeal, the district court reinstated the

student loan debt in full as non-dischargeable. Specifically,

the district court ruled that Hedlund had not acted in good

faith, which is one of three prerequisites for relief under

§ 523(a)(8).

We hold that the district court erred in reviewing the

bankruptcy court’s good faith finding de novo. In a

§ 523(a)(8) proceeding, the good faith finding should be

reviewed for clear error. Under the proper standard of

review, we affirm the bankruptcy court’s ruling.

I.

Hedlund was thirty-three years old at the time of the

bankruptcy proceedings. He had earned a bachelor’s degree

in business administration from the University of Oregon and

a law degree from Willamette Law School. Hedlund financed

his education with Stafford loans, which were held in part by

The Education Resources Institute (“TERI”) and in part by

the Pennsylvania Higher Education Assistance Agency

(“PHEAA”).

After law school, Hedlund took a bar preparation course

for the Oregon bar and then took the bar examination in July

1997. While awaiting the results, he worked as an intern for
4 HEDLUND V. EDUCATIONAL RESOURCES INST.

the Klamath County District Attorney. He failed the exam,

re-sat in February 1998, and failed again. He lost his job at

the District Attorney’s office for failure to pass the bar exam

on his second try. He then obtained full-time employment as

a Juvenile Counselor with the Klamath County Juvenile

Department. While employed full time as a Juvenile

Counselor, he enrolled in another bar preparation course and

took two months off to study. En route to the exam, however,

when he stopped for coffee, he inadvertently locked his keys

in his car. He missed the exam. Hedlund married in 2000

and became a father in 2001.

Hedlund’s loans went into repayment in January 1999,1

while he was working as an intern at the District Attorney’s

office. He owed PHEAA over $85,000, on which the

monthly payments exceeded $800. Because he was making

only $10 per hour, he sought and obtained various hardship

forbearances. After the extensions ended and in an effort to

reduce his monthly payments, Hedlund applied to consolidate

his loans. When he later called to verify the status of his

consolidation application, he was told that it had never been

received and that, because he was now in default, he was

ineligible for consolidation. Hedlund then researched his

potential eligibility for the Income Contingent Repayment

Plan (“ICRP”).2 Based on his online research – and on the

1 Student loan recipients typically are not required to begin making

payments to pay back their loans until some point after the borrower has

completed his or her educational program.

2 Under the ICRP, the debtor pays the lesser of: (1) payments based on

a 12-year amortization derived by application of an annually adjusted

percentage of the debtor’s adjusted gross income; or (2) 20% of the
HEDLUND V. EDUCATIONAL RESOURCES INST. 5

loan provider’s representation that he was ineligible for

consolidation due to the default – Hedlund concluded that he

would not qualify for the ICRP.

In September 1999, Hedlund received a $5,000

inheritance. He paid $954.72 to PHEAA, and the rest went

to other creditors. Still unable to make his monthly

payments, Hedlund tried to negotiate a less onerous payment

schedule. According to Hedlund, PHEAA offered two

options: (1) pay $10,000 up front, then $1,300 a month for

ten months, and then an adjusted monthly payment; or (2) pay

a lump sum of approximately $80,000. Neither option was

feasible for Hedlund, but he did offer to make a $5,000

payment – which he would have borrowed from his parents

– in exchange for a more lenient payment schedule. PHEAA

declined Hedlund’s offer.3

PHEAA began garnishing Hedlund’s wages in January

2002 at the rate of about $250 per month. These

garnishments continued uncontested until May 2003 and

amounted to $4,272.52. At that time, Hedlund’s other student

loan creditor, TERI, obtained a collection action judgment

against Hedlund and garnished $1,100 directly from

Hedlund’s bank account. On May 7, 2003, Hedlund filed a

Chapter 7 bankruptcy petition.

On June 16, 2003, Hedlund commenced an adversary

proceeding against PHEAA and TERI, seeking partial

debtor’s annually adjusted discretionary income, defined as adjusted gross

income less applicable federal poverty guidelines. See 34 C.F.R.

§ 685.209.

3 The record is unclear on when precisely these negotiations took place.
6 HEDLUND V. EDUCATIONAL RESOURCES INST.

discharge of his loans under 11 U.S.C. § 523(a)(8). He

settled with TERI before trial, agreeing to pay down

$17,718.15 at a rate of $50 per month. In other pretrial

negotiations, PHEAA offered three potential repayment plans

“if the Loans [were] determined not to be dischargeable . . . .” 

All three options called for payment of the entire loan balance

over the course of 30 years. The first option called for

monthly payments of approximately $420; the remaining

options began with monthly payments of $307 and rose to

$430 and $440 respectively. Hedlund did not, and has not,

pursued any of these options.

After trial, the bankruptcy court granted a partial

discharge of all but $30,000 of the PHEAA debt. On appeal,

the Bankruptcy Appellate Panel (“BAP”) reversed and

reinstated the debt in its entirety. Hedlund appealed to this

Court, and we vacated the BAP decision and remanded for

further proceedings. We held that the bankruptcy court failed

to consider all of the evidence and properly to apply the three

factors from Brunner v. New York Higher Education Services

Corp., 831 F.2d 395 (2d Cir. 1987).4See Hedlund v. Penn.

Higher Educ. Assistance Agency (In re Hedlund),

368 F. App’x 819 (9th Cir. 2010).

On remand to the bankruptcy court, the parties agreed to

proceed on the original 2003 record and the case was reargued and submitted. After the case was submitted for

decision, however, the originally assigned judge, Judge

Albert Radcliffe, passed away, and the case was reassigned to

Judge Philip Brandt. Judge Brandt ruled in Hedlund’s favor

and discharged all but $32,080 of his debt to PHEAA. 

4 We adopted the Brunnertest in United Student Aid Funds, Inc. v. Pena

(In re Pena), 155 F.3d 1108, 1111–12 (9th Cir. 1998).
HEDLUND V. EDUCATIONAL RESOURCES INST. 7

Applying the three-factor Brunner test, Judge Brandt found

that: (1) Hedlund could not have maintained a minimal

standard of living, if required to repay the full loans; (2)

“additional circumstances” indicated that Hedlund’s inability

to repay his loans would persist into the future; and (3)

Hedlund had made good faith efforts to repay his loans.

PHEAA appealed and the district court reversed, finding

no error under the first two prongs, but concluding that the

bankruptcy court’s good faith ruling was erroneous. 

Accordingly, the district court reinstated the entirety of the

PHEAA loan. Hedlund timely appeals. We have jurisdiction

under 28 U.S.C. § 158(d), and we reverse the district court.

II.

A.

Student loan obligations are presumptively

nondischargeable in bankruptcy absent a showing of “undue

hardship.” 11 U.S.C. § 523(a)(8). To determine if a debtor

has shown undue hardship, we follow the three-part test from

Brunner. See In re Pena, 155 F.3d at 1111–12. Under

Brunner,

the debtor must prove that: (1) he cannot

maintain, based on current income and

expenses, a “minimal” standard of living for

himself and his dependents if required to

repay the loans; (2) additional circumstances

exist indicating that this state of affairs is

likely to persist for a significant portion of the

repayment period; and (3) the debtor has

made good faith efforts to repay the loans.
8 HEDLUND V. EDUCATIONAL RESOURCES INST.

Educ. Credit Mgmt. Corp. v. Mason (In re Mason), 464 F.3d

878, 882 (9th Cir. 2006). “[T]he burden of proving undue

hardship is on the debtor, and the debtor must prove all three

elements before discharge can be granted.” Rifino v. United

States (In re Rifino), 245 F.3d 1083, 1087–88 (9th Cir. 2001).

This appeal concerns only the good faith prong of

Brunner. The bankruptcy court ruled in Hedlund’s favor on

all three prongs, and the district court found error only with

respect to the last prong, good faith.5 Before addressing the

proper standard of review, we begin with a summary of the

bankruptcy court and district court rulings.

B.

“Good faith is measured by the debtor’s efforts to obtain

employment, maximize income, and minimize expenses.” 

Penn. Higher Educ. Assistance Agency v. Birrane (In re

Birrane), 287 B.R. 490, 499 (B.A.P. 9th Cir. 2002) (internal

quotation marks and citation omitted). “Courts will also

consider a debtor’s effort – or lack thereof – to negotiate a

repayment plan, although a history of making or not making

payments is, by itself, not dispositive.” In re Mason,

464 F.3d at 884 (internal quotation marks and citations

5 PHEAA makes a passing argument that the bankruptcy court’s rulings

on the first two Brunner prongs were erroneous. Without making any

cogent argument, PHEAA simply asks us to rely on the BAP’s 2004

reversal of the bankruptcy court during the first round of litigation, which

reviewed an entirely different bankruptcy court order and was vacated by

this Court’s remand order. Accordingly, PHEAA has waived these

arguments. See Leer v. Murphy, 844 F.2d 628, 634 (9th Cir. 1988)

(“Issues raised in a brief which are not supported by argument are deemed

abandoned.”).
HEDLUND V. EDUCATIONAL RESOURCES INST. 9

omitted). The bankruptcy court considered each of these

factors.

1. Efforts to obtain employment, maximize income, and

minimize expenses.

The bankruptcy court found that Hedlund was “wellplaced for his skills” and that there were no higher paying

jobs available to him in the Klamath Falls area. It also noted

that Hedlund had unsuccessfully applied for two higherpaying jobs. Finally, the court cited expert testimony

showing that, although higher paying jobs might be available

outside of Klamath Falls, the potential increase in salary

would be offset by increased living expenses.

Noting that Hedlund had tried three times to take the bar

exam, the bankruptcy court also found that Hedlund’s failure

to pass was not “within his control.” In any event, the court

found no evidence suggesting that Hedlund could make a

higher wage as a licensed attorney. The court also rejected

PHEAA’s argument that Hedlund should seek an additional

part time job, although the court did find that his wife could

be expected to work three days per week rather than one. 

Thus, the court found that Hedlund had sufficiently

maximized his income.

The bankruptcy court then reviewed Hedlund’s personal

budget, and concluded that certain expenses exceeded what

was reasonably necessary to maintain a minimal standard of

living.

6 Specifically, the court found that Hedlund’s clothing,

6 The court’s analysis of Hedlund’s expenses relied in part on its

findings under the first Brunner prong. There, the court had ruled that the

majority of Hedlund’s expenses were reasonably necessary, and thus that
10 HEDLUND V. EDUCATIONAL RESOURCES INST.

recreation (including cable and internet), and “miscellaneous”

budgets (including childcare and haircuts) could all be

reduced. By contrast, the court found no fault with Hedlund’s

budget for two cell phones (given that the Hedlunds had a

small child) and for the lease of a second car (given that the

Hedlund’s other car was older and unreliable). Taken

together, the court found that the failure fully to minimize

expenses did not “tip the balance away from a good faith

finding” because Hedlund and his family “have always lived

frugally.”

2. Efforts to negotiate a repayment plan; history of

payments; and timing of the attempt to discharge the

loan.

Under these factors, the court noted with approval that

Hedlund had waited four years before filing for bankruptcy

and that he had, in that time, made a voluntary payment of

approximately $950. The court also credited Hedlund for

“endur[ing],” without challenge,sixteen and a half months of

wage garnishments.

With regard to alternative repayment plans, the court

found that Hedlund had made adequate efforts to pursue one. 

The court noted that Hedlund had sought to consolidate loans,

but that the lender had lost his application. The court also

took into account Hedlund’s offer to make an immediate

payment of $5,000 in exchange for more lenient repayment

terms.

he could not maintain a minimal standard of living if required to repay the

loans in full.
HEDLUND V. EDUCATIONAL RESOURCES INST. 11

The court did not fault Hedlund for failing to apply for the

ICRP. Hedlund had investigated the ICRP option online but

concluded that he was not eligible because he was in default. 

Moreover, PHEAA had conceded that payments under the

ICRP would have been more per month than the three options

PHEAA had offered just before trial. Finally, the court found

that Hedlund was justified in rejecting the three repayment

options PHEAA had offered. The court stressed that the three

options all had monthly payments over $300, which was more

than Hedlund could afford without undue hardship.7 The

court also noted that each option called for a thirty-year plan,

and thus held that Hedlund was justified in refusing to

obligate himself “into his mid-60s” when his children would

likely be seeking to attend college.

Considering all of this evidence together, the bankruptcy

court found that Hedlund’s situation was not “self-inflicted”

and that he had carried his burden of showing good faith.

C.

The district court reviewed the good faith ruling de novo

and reversed. Although the district court agreed that Hedlund

had made sufficient efforts to obtain employment, it

concluded that Hedlund “ha[d] not used his best efforts to

maximize his income or minimize his expenses.” Hedlund v.

Educ. Res. Inst., Inc., 468 B.R. 901, 914 (D. Or. 2012). That

conclusion was apparently based on the court’s findings

under prong one that some of Hedlund’s expenses were

“immoderate.” Id. at 910. The court then found Hedlund’s

 

7

 $300 per month exceeded the bankruptcy court’s finding, on the first

Brunner prong, of how much income Hedlund could devote to student

loan payments.
12 HEDLUND V. EDUCATIONAL RESOURCES INST.

lack of effort in negotiating a repayment plan “even more

vexatious.” Id. at 910, 915. In that regard, the court felt that

Hedlund was “less than diligent” in exploring the ICRP

option, and it viewed Hedlund’s $5,000 payment offer as

unrealistic. Id. at 915. The court also faulted Hedlund for

rejecting the three pre-trial repayment plans offered by

PHEAA. Id. Finally, the court observed that Hedlund and

his wife had chosen to live as a single-income family, “a

lifestyle that few today can afford.” Id. at 916. Thus, the

district court reversed the bankruptcy court’s good faith

finding.

III.

A.

“Because this court is in as good a position as the district

court to review the findings of the bankruptcy court, it

independently reviews the bankruptcy court’s decision.” 

Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986). As a

threshold matter, we must resolve a dispute over the proper

standard of review of the bankruptcy court rulings. The

district court reviewed the good faith determination de novo,

but Hedlund contends that it should have applied clear error

review. We agree with Hedlund.

Although we review “the bankruptcy court’s

interpretation of the BankruptcyCode de novo and its factual

findings for clear error,” Miller v. Cardinale (In re DeVille),

361 F.3d 539, 547 (9th Cir. 2004) (internal quotation marks

and citations omitted), we have not expressly stated which

standard applies to the good faith prong of Brunner. 

Nevertheless, we have consistently reviewed the good faith

prong for clear error. See In re Mason, 464 F.3d at 885
HEDLUND V. EDUCATIONAL RESOURCES INST. 13

(“[T]he bankruptcy court clearly erred in finding that Mason

demonstrated good faith efforts to repay his loans.”); In re

Pena, 155 F.3d at 1114 (“[T]he bankruptcy court did not

clearly err in finding that the Penas exhibited good faith in

attempting to pay back the student loans.”).8 We have also

applied the deferential clear error standard of review to good

faith inquiries in other settings. See Figter Ltd. v. Teachers

Ins. & Annuity Assoc. of Am. (In re Figter Ltd.), 118 F.3d

635, 638 (9th Cir. 1997) (collecting cases and noting that

because good faith is “an essentially factual inquiry” this

Court has “in various contexts, declared that [it] will review

good faith determinations for clear error” (internal quotation

marks and citations omitted)). Accordingly, we now confirm

that a good faith finding under Brunner should be reviewed

for clear error.9

This directive does not preclude a reviewing court from

correcting errors of law that may arise in the midst of a good

faith analysis. For example, in In re Birrane the BAP held

that “the bankruptcy court erred as a matter of law in finding

that Birrane met the good faith prong.” 287 B.R. at 500. The

error in that case was one of law, reviewed de novo, because

8 At least one other circuit has expressly applied clear error to the § 523

good faith inquiry. See Krieger v. Educ. Credit Mgt. Corp., No. 12-3592,

2013 WL 1442305, at *2 (7th Cir. Apr. 10, 2013) (“[The good faith]

standard combines a state of mind (a fact) with a legal characterization (a

mixed question of law and fact). Findings of fact must stand unless

clearly erroneous, and . . . .mixed questions likewise are treated as factual

in nature.”).

9 We also note that under our established standard of review of

bankruptcy court rulings, after review by the district court or by the BAP,

see Ragsdale, 780 F.2d at 795, the district court’s ruling on the good faith

issue would not have been entitled to any deference, but would be

reviewed “independently.”
14 HEDLUND V. EDUCATIONAL RESOURCES INST.

the bankruptcycourt had failed to consider all factors relevant

to good faith. Instead, it had found good faith based solely on

the evidence of voluntary payments. Id. at 499. Thus,

although good faith is primarily a question of fact reviewed

for clear error, it can encompass questions of law that must be

reviewed de novo.

10

We now consider the good faith ruling in question.

B.

As an initial matter, the bankruptcycourt properlyapplied

all three Brunner prongs, and it considered the various factors

that are relevant to good faith. Thus, its ruling withstands our

de novo review of the legal questions involved. What

remains are the bankruptcy court’s factual findings. As

discussed below, those were not clearly erroneous.11

10 Similarly, clear error review is consistent with our observation that

“undue hardship requires a determination of the legal effect of the

bankruptcy court’s findings regarding the student’s circumstances, a

question of law which we review de novo.” In re Mason, 464 F.3d at 881

(internal quotation marks omitted). This is simply another way of stating

that we review the application of Brunner de novo, i.e., whether the

bankruptcy court properly applied the three-prong test. For instance, ifthe

bankruptcy court had granted a discharge based only on the first two

prongs of Brunner, we would reverse under de novo review.

11 Clear error applies even though Judge Brandt based his findings on the

trial transcript and other documentary evidence. See Anderson v. City of

Bessemer City, N.C., 470 U.S. 564, 574 (1985) (“Where there are two

permissible views of the evidence, the factfinder’s choice between them

cannot be clearly erroneous. This is so even when the [trial] court’s

findings do not rest on credibility determinations, but are based instead on

physical or documentary evidence or inferences from other facts.”

(internal citations omitted)); see also Fed. R. Civ. P. 52(a)(6).
HEDLUND V. EDUCATIONAL RESOURCES INST. 15

There was considerable evidence showing that Hedlund

had maximized his income, and the court properly declined

to attribute Mrs. Hedlund’s underemployment to Hedlund’s

bad faith. Although Hedlund had not fully minimized his

expenses, the court permissibly interpreted the excess

expenses as marginal. And although we might have viewed

certain expenses more skeptically – such as the new car lease

and the two cell phones – the court’s view of the expenses

was not clearly erroneous.

The record regarding efforts to negotiate and to make

voluntary payments is less favorable to Hedlund. Although

he did submit a consolidation application, his efforts

thereafter were minimal. His offer to pay $5,000 in exchange

for a more lenient plan was at best unrealistic, and his

research into ICRP eligibility could have been more

searching. Hedlund has also declined to pursue the three

revised repayment plans that PHEAA offered just before trial. 

Finally, in the four years prior to bankruptcy, Hedlund made

only a single voluntary payment of approximately $950.12

Although this evidence could be interpreted to support a

finding of lack of good faith, it was not so strong as to

demand such a finding. Indeed, the evidence of Hedlund’s

good faith is more substantial than in the two primary cases

relied upon by PHEAA. In In re Birrane, the debtor had

“failed to take any steps towards renegotiating a repayment

schedule under the ICRP program.” 287 B.R. at 500. In

contrast, Hedlund at least made an effort to research his

12 We need not determine if, as the bankruptcy court ruled, uncontested

garnishments demonstrate good faith. Even if this view of the evidence

was improper, the court’s interpretation of the record as a whole was not

clearly erroneous.
16 HEDLUND V. EDUCATIONAL RESOURCES INST.

eligibility. Moreover, unlike Hedlund, the debtor in In re

Birrane had maintained only part-time employment and thus

had failed to maximize her income. Id. at 499–500.

In In re Mason, the debtor had failed to pursue the ICRP

option “with diligence.” 464 F.3d at 885. Although the same

might be said of Hedlund’s efforts, other factors present in In

re Mason are not present here. Specifically, Mason had not

pursued full time employment and had only taken and failed

the bar exam once. In contrast, Hedlund has maximized

employment, made three attempts at the bar exam and, in any

event, submitted evidence that a law license would not

materially improve his financial situation. Also weighing in

Hedlund’s favor is the fact that he waited four years from the

beginning of his repayment obligations, during which period

he was subject to wage garnishments, before filing for

bankruptcy. See Brunner, 831 F.2d at 397 (finding bad faith

in part because debtor filed for discharge one month after first

payment date).

In sum, even though some might disagree with the

bankruptcy court’s good faith finding, it was not clearly

erroneous. The court relied on substantial evidence in the

record, and its factual inferences were permissible.

IV.

The bankruptcy court’s good faith finding was not clearly

erroneous; we, therefore, reverse the district court’s contrary

holding. We remand to the district court with instructions to

reinstate the partial discharge ordered by the bankruptcy

court.

REVERSED and REMANDED with directions.