Bankruptcy and Student Loans
Released: 2018-02-22T00:00:00

Summary:
As overall student loan indebtedness in the United States has increased over the years, many borrowers have found themselves unable to repay their student loans. Ordinarily, declaring bankruptcy is a means by which a debtor may "discharge"—that is, obtain relief from—debts he is unable to repay. However, Congress, based upon its determination that allowing debtors to freely discharge student loans in bankruptcy could threaten the student loan program, has limited the circumstances in which a debtor may discharge a student loan. Under current law, a debtor may not discharge a student loan unless repaying the student loan would impose an "undue hardship" upon the debtor and his dependents.
The Bankruptcy Code does not define "undue hardship," and the legislative history of Section 523 does not precisely specify how courts should determine whether a debtor qualifies for an undue hardship discharge. The task of interpreting this statutory term has consequently fallen to the federal judiciary. Courts, however, have disagreed regarding exactly what a debtor must prove in order to discharge a student loan on undue hardship grounds.
The vast majority of courts have interpreted "undue hardship" to require the debtor to prove three things: (1) the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for himself and his dependents if forced to repay the loans; (2) additional circumstances exist indicating that the debtor's inability to pay is likely to persist for a significant portion of the repayment period of the student loans; and (3) the debtor has made good faith efforts to repay the loans. The debtor must prove each of these elements by a preponderance of the evidence. This standard is commonly called the "Brunner" test, after the case in which the standard originated. The Brunner test is highly fact-intensive, and not all courts apply the Brunner standard the same way. Indeed, each factor has resulted in various subsidiary splits in the courts with respect to a host of issues.
Whereas the vast majority of courts apply the Brunner test to determine whether excepting a student loan from discharge would impose an undue hardship upon the debtor, two courts have explicitly declined to adopt the Brunner standard. Instead, these courts apply an alternative standard known as "the totality-of-the-circumstances test," weighing numerous, nonexclusive factors when considering whether student loan debt should be discharged.
In response to this split of authority, some Members of Congress and commentators have advanced numerous proposals to alter the way that student loans are treated in bankruptcy. This report therefore provides a comprehensive overview of the various legal issues related to whether, and under what circumstances, a debtor may discharge a student loan in bankruptcy. The report begins by providing general background on bankruptcy law and the principles governing the discharge of outstanding debt. In so doing, the report explains how and why the Bankruptcy Code generally makes student loans nondischargeable absent an "undue hardship." The report then describes the various legal standards that courts have applied when determining whether a particular debtor is entitled to an undue hardship discharge. The report closes by describing various potential considerations for Congress, including ways in which Congress could alter the Bankruptcy Code's current treatment of student loans.

subsections: section_title: Introduction
paragraphs: The aggregate student loan debt owed by borrowers in the United States has increased markedly over time. According to the U.S. Department of Education (ED), "[a]verage tuition prices have more than doubled at U.S. colleges and universities over the past three decades, and over this time period a growing proportion of students borrowed money to finance their postsecondary education." Per ED's Federal Student Aid Data Center, the total amount of outstanding federal student loan debt is estimated to exceed $1.37 trillion at the end of the 2017 fiscal year.
As overall student loan indebtedness has increased, many borrowers have found themselves unable to repay their student loans. Statistics published by ED suggest that many borrowers face an average educational debt burden that exceeds the "manageable percentage of income that a borrower can" realistically "be expected to devote to loan payment" while still providing for the basic needs of himself and his household.
Declaring bankruptcy is one means by which an individual may potentially obtain relief from a student loan that he cannot repay. However, for public policy reasons, the Bankruptcy Code limits the circumstances in which a debtor may discharge—that is, obtain relief from—a student loan through the bankruptcy system. Unlike many other types of consumer debts, which are generally freely dischargeable in bankruptcy, student loans are dischargeable only if the debtor proves that repaying the debt "would impose an undue hardship on the debtor and the debtor's dependents." By requiring the debtor to demonstrate an undue hardship in order to discharge a student loan, Congress attempted to balance the goal of providing debtors in dire financial straits with a "fresh start" against the countervailing goals "of preventing abuse of the student loan program" and "protect[ing] student loan programs and their participants." However, as this report explains, courts have reached divergent conclusions regarding exactly what an "undue hardship" entails.
More broadly, some Members of Congress, courts, scholars, and other commentators have debated whether to amend the Bankruptcy Code to change the way that student loans are treated in bankruptcy in order to better balance these competing policy objectives. Whereas some support the law in its current form, there are presently several bills pending in the 115 th Congress that, if enacted, would modify the treatment of student loans in bankruptcy.
This report provides a comprehensive overview of the various legal issues related to whether—and under what circumstances—a debtor may discharge a student loan in bankruptcy. The report begins by providing general background on bankruptcy law and the principles governing the discharge of outstanding debt. In so doing, the report explains how and why the Bankruptcy Code generally makes student loans nondischargeable absent an "undue hardship." The report then describes the variou s legal standards that courts have applied when determining whether a particular debtor is entitled to an undue hardship discharge. The report closes by describing various potential considerations for Congress, including ways in which Congress could alter the Bankruptcy Code's current treatment of student loans.
section_title: Background on Bankruptcy Law
paragraphs: Declaring bankruptcy is a means by which individuals may potentially obtain relief from debts that they are unable to pay. According to the U.S. Supreme Court, one of the "central purposes" of the bankruptcy system "is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy 'a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.'" The Bankruptcy Code implements this "fresh start" principle by "forgiv[ing] [the debtor's] existing debt" and "restor[ing] the debtor to economic productivity" in exchange for the debtor giving up either a subset of his assets or a portion of his future income.
An individual may seek bankruptcy relief by filing a document known as a bankruptcy "petition" in a federal bankruptcy court—a specialized court authorized to resolve certain bankruptcy-related matters. If the debtor complies with certain requirements of the Bankruptcy Code, the bankruptcy court may grant the debtor a "discharge"—that is, relief from many of the debtor's outstanding debts. "In essence, this discharge means that a debtor will no longer face responsibility for" many debts that arose prior to the date upon which he filed bankruptcy, "even if the debtor has not repaid the debt in full during the bankruptcy."
section_title: The Dischargeability Exception for Student Loans
paragraphs: Although many types of consumer debts are freely dischargeable in bankruptcy, some categories of debts are categorically or presumptively nondischargeable. For example, whereas "medical debt is generally dischargeable in bankruptcy," a debt "for a domestic support obligation" or a debt "for death or personal injury" resulting from drunk driving is generally nondischargeable. "Congress has decided" that, with respect to the latter types of debts, "public policy considerations override the need to provide the debtor with a fresh start."
Under current law, student loans are among the types of debts that Congress has opted to make presumptively nondischargeable in bankruptcy. Section 523(a)(8) of the Bankruptcy Code provides that, absent an "undue hardship"—an exception that is discussed in more detail below—a debtor who files bankruptcy may not discharge any debt for
"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"; "An obligation to repay funds received as an educational benefit, scholarship, or stipend"; or "Any other educational loan that is a qualified education loan, as defined in [the Internal Revenue Code], incurred by a debtor who is an individual." 
As the Supreme Court has explained, Section 523(a)(8) is "self-executing"; the discharge that a debtor generally receives at the conclusion of his bankruptcy case will usually "not include a student loan debt" unless "the debtor affirmatively secures a hardship determination" in the manner described in the following section of this report. Thus, in many bankruptcy cases, student loans "pass through the bankruptcy process unaffected," such that the debtor will "emerge from bankruptcy with the continued obligation to repay his or her student loans."
section_title: The "Undue Hardship" Exception
paragraphs: However, notwithstanding the foregoing, Section 523(a)(8) as currently written allows a debtor to discharge a student loan if "excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents." In order to discharge a student loan on undue hardship grounds, the debtor must initiate a separate complaint against the creditor holding the student loan debt. The debtor must then prove by a preponderance of the evidence that repaying the student loan would impose an undue hardship on him.
section_title: The Genesis and Evolution of Section 523(a)(8)
paragraphs: For many years, student loans were generally freely dischargeable in bankruptcy. Starting in the 1970s, however, Congress enacted a series of statutes that made it progressively more difficult for debtors to discharge student loans. In order to explain the "undue hardship" standard, the policies underlying it, and potential ways in which Congress could alter the way student loans are currently treated in bankruptcy, this report first addresses why Congress enacted Section 523(a)(8) and how Congress has amended Section 523(a)(8) over time.
subsections: section_title: The Enactment of the Bankruptcy Code
paragraphs: The Bankruptcy Reform Act of 1978—which created the modern Bankruptcy Code that remains in effect in modified form today —contained the first version of Section 523(a)(8). Like the current version of Section 523(a)(8), the 1978 version rendered student loans presumptively nondischargeable in bankruptcy. Section 523(a)(8)'s sponsors offered several policy justifications discussed in the sections that follow for making student loans presumptively nondischargeable in bankruptcy.
First, several Members cited the country's interest in "keep[ing] our student loan programs intact" as a justification for making student loans presumptively nondischargeable. When a debtor defaults on a federal student loan, the taxpayers are the ones who must generally foot the bill. The Bankruptcy Reform Act of 1978 therefore reflected the view that allowing debtors to easily discharge student loans would adversely impact the public fisc and thereby prevent future students from obtaining federal student loans of their own. Section 523(a)(8)'s supporters in Congress therefore argued that, "if the student loan program is to remain viable," it was necessary to make student loans presumptively nondischargeable so that, in the words of one Member, "we insure our youngsters in the future that loan money will be available to them as it was to past generations."
Second, Section 523(a)(8)'s sponsors sought to address the concern "that student borrowers will abuse student loan programs by filing bankruptcy" immediately "after graduation, getting a discharge, and then enjoying a lifetime of income that education provides, but without the expense of paying back the loans." "When a student borrower graduates, the accumulated student debt almost always dwarfs the student's tangible assets" that could be distributed to creditors in bankruptcy. However, the debtor "will presumably use her loan-funded education to substantially increase her income in the near future." Put another way, although a recent graduate will likely be unable to immediately repay his student loans right after completing his degree, he will hopefully reap economic benefits from his education that will allow him to repay the debt over the long term. If, however, a student could freely discharge her loans immediately after graduation, a recent graduate could thereby obtain "debt relief at the point in time when her realizable assets and present income are at their lowest and her debt and future income are at their highest." At least one of the Members who supported Section 523(a)(8) therefore believed that declaring bankruptcy immediately after graduation—and thereby "making the taxpayers pick up the tab" for the debtor's student loans—would be "tantamount to fraud." Congress therefore intended Section 523(a)(8) to "prevent[] debtors from easily discharging their debts at the expense of the taxpayers who made possible their education."
Third, several Members who supported Section 523(a)(8) also emphasized that, in contrast to many other forms of consumer debt, a creditor cannot "repossess" what the debtor used the loan to obtain if the debtor defaults. Whereas a debt collector may repossess and resell a house if a homeowner fails to pay his mortgage, a creditor cannot remove a college education from a graduate's brain, nor can an auctioneer sell a defaulting debtor's degree on the open market. Members who supported Section 523(a)(8) therefore argued that these distinctions from other forms of consumer debt supported treating student loans differently in bankruptcy.
section_title: Subsequent Amendments to Section 523(a)(8)
paragraphs: Congress has periodically amended Section 523(a)(8) since 1978. Each of these amendments has made it more difficult for debtors to discharge student loans in bankruptcy. Two of these amendments are particularly important.
subsections: section_title: Elimination of the Temporal Discharge Option
paragraphs: In its original form, Section 523(a)(8) gave debtors two separate options for discharging student loans: the debtor could either (1) demonstrate an undue hardship or (2) prove that the loan first became due at least five years before the debtor filed for bankruptcy. Thus, if a debtor's student loan was more than five years old, he could potentially discharge that loan in bankruptcy without proving an undue hardship.
In 1990, Congress extended the five-year period to seven years. Thus, between 1990 and 1998, a "debtor seeking to discharge her educational loans in bankruptcy had to wait until seven years after those loans first became due to file if he hoped to discharge those loans without proving that their repayment constituted an undue hardship."
Then, in 1998, Congress entirely eliminated this "temporal discharge" option—that is, the option for debtors to discharge student loans without demonstrating an undue hardship if the loans first became due a sufficient number of years before the debtor filed bankruptcy. As a result, demonstrating an undue hardship is presently the only way a debtor may discharge a student loan in bankruptcy.
section_title: Expanding Section 523(a)(8) to Private Educational Loans
paragraphs: Although "the majority of borrowers" currently "rel[y] on federal student loans" to fund their education, "education loans are also available from such private sources as banks [and] credit unions." Whereas discharging a federal student loan will shift the cost of the debtor's default to American taxpayers, commentators have noted that taxpayers are not directly "footing the bill for private loan defaults."
As originally enacted, Section 523(a)(8) did not cover private loans; whereas federal student loans were presumptively nondischargeable in bankruptcy, private educational loans were generally freely dischargeable like many other forms of consumer debt. In 2005, however, Congress "changed the definition of student loans covered under § 523(a)(8) to include private loans, thus making any student loan, federal or not, essentially non-dischargeable in bankruptcy" absent a showing of undue hardship. Members who supported this amendment argued that it would "ensure that the [bankruptcy] system is fair for both debtors and creditors" and "eliminate abuse in the system." Thus, with limited exceptions, private education loans are now equally subject to the undue hardship requirement.
section_title: Interpreting "Undue Hardship"
paragraphs: The Bankruptcy Code does not define "undue hardship," and the legislative history of Section 523 does not precisely specify how courts should determine whether a debtor qualifies for an undue hardship discharge. The task of interpreting this statutory term has consequently fallen to the federal judiciary. However, the U.S. Supreme Court has not yet directly opined on the meaning of "undue hardship," and the Court recently denied certiorari in a case that presented the Court with the opportunity to further interpret that term.
In the absence of a controlling interpretation of Section 523(a)(8) from the Supreme Court, the lower courts have devised several different legal standards for determining whether declining to discharge a student loan would amount to an "undue hardship." The two most common standards are described below.
subsections: section_title: The Brunner Test
paragraphs: The vast majority of courts—specifically the U.S. Courts of Appeals for the Second, Third, Fourth, Fifth, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits, as well as the U.S. Bankruptcy Court for the District of Columbia—have interpreted "undue hardship" to require the debtor to prove three things:
1. the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for himself and his dependents if forced to repay the loans; 2. additional circumstances exist indicating that the debtor's inability to pay is likely to persist for a significant portion of the repayment period of the student loans; and 3. the debtor has made good faith efforts to repay the loans.
The debtor must prove each of these elements by a preponderance of the evidence.
This standard is commonly called the " Brunner " test, after the Second Circuit case in which the standard originated. The Brunner test is highly fact-intensive, and not all courts apply the Brunner standard the same way. Indeed, each factor has resulted in various subsidiary splits in the courts with respect to a host of issues, including
the types of expenses a debtor seeking an undue hardship discharge may permissibly incur; the legal standard the debtor must satisfy to prove that his inability to repay the student loans will likely persist into the future; whether a debtor who claims that a medical condition prevents him from repaying his student loans must introduce corroborating medical evidence to support his claim; whether a debtor seeking an undue hardship discharge must attempt to maximize his income by seeking employment opportunities outside his field of training; whether it is proper to consider the value of the education that the loan financed when determining a debtor's eligibility for an undue hardship discharge; and whether the "additional circumstances" mentioned in Brunner 's second prong must predate the issuance of the loan.
What follows is a description of the various factors that courts consider when evaluating each prong of the Brunner test that highlights areas of disagreement between the federal courts.
subsections: section_title: The First Requirement: Inability to Maintain Minimal Standard of Living
paragraphs: To obtain an undue hardship discharge in a Brunner jurisdiction, the debtor must first prove that she "cannot maintain, based on current income and expenses, a 'minimal' standard of living for herself and her dependents if forced to repay the loans." "Courts conduct this analysis by comparing [the] debtor's disposable income, determined as the difference between his monthly income and his reasonable and necessary monthly expenses, with the monthly payment necessary to repay the student loans." This inquiry in turn requires the court to "review the reasonableness of the [d]ebtor's budget—particularly the allocation of projected expenses in relation to projected income—as it determines [the debtor's] capability to pay the [student loans] without undue hardship." When evaluating whether the debtor's budget is reasonable, the court "should disregard 'expenses that are not necessary, and, if eliminated, that would provide funds that could be directed toward repayment of the loan.'" Although performing this inquiry often requires the court to scrutinize individual items in the debtor's budget, courts nonetheless generally conclude that it is unnecessary to "wade through a debtor's budget to find all possible ways to create a surplus"; instead, the court must "examine [the] debtor's expense budget as a whole" to evaluate whether that budget is reasonable.
Courts have typically held that the debtor need not "live in poverty in order to satisfy the first inquiry" of Brunner . Rather, "a minimal standard of living is a measure of comfort, supported by a level of income, sufficient to pay the costs of specific items recognized by both subjective and objective criteria as basic necessities." As explained in an influential judicial opinion,
A minimal standard of living in modern American society includes these elements:
1. People need shelter, shelter that must be furnished, maintained, kept clean, and free of pests. In most climates it also must be heated and cooled.
2. People need basic utilities such as electricity, water, and natural gas. People need to operate electrical lights, to cook, and to refrigerate. People need water for drinking, bathing, washing, cooking, and sewer. They need telephones to communicate.
3. People need food and personal hygiene products. They need decent clothing and footwear and the ability to clean those items when those items are dirty. They need the ability to replace them when they are worn.
4. People need vehicles to go to work, to go to stores, and to go to doctors. They must have insurance for and the ability to buy tags for those vehicles. They must pay for gasoline. They must have the ability to pay for routine maintenance such as oil changes and tire replacements and they must be able to pay for unexpected repairs.
5. People must have health insurance or have the ability to pay for medical and dental expenses when they arise. People must have at least small amounts of life insurance or other financial savings for burials and other final expenses.
6. People must have the ability to pay for some small diversion or source of recreation, even if it is just watching television or keeping a pet.
On the other hand, even though the debtor need not live an ascetic lifestyle to obtain an undue hardship discharge, the debtor is nonetheless not "sheltered from making some personal and financial sacrifices in order to repay the debt." Many courts have therefore denied undue hardship discharges in cases in which the debtor's expenses were excessive, such as where the debtor lived in an "unnecessarily large" home, dined too frequently in restaurants instead of cooking at home, or spent money on inessential items like recreational boats.
subsections: section_title: Judicial Disagreements Regarding the Reasonableness of Various Categories of Expenses
paragraphs: To "determine whether someone's expenses are unnecessary or unreasonable, whether someone is paying for something that is not needed, or whether someone is paying too much for something that is needed," courts often rely on "common sense, knowledge gained from ordinary observations in daily life, and general experience." As explained below, however, courts frequently disagree regarding what categories of expenses are unnecessary to maintain a minimal standard of living for the purposes of the first Brunner prong.
For example, courts have reached divergent conclusions regarding whether a debtor seeking an undue hardship discharge is permitted to tithe a portion of his income to a religious institution that could otherwise go toward repaying his educational debt. Some courts have categorically held that "tithing may not be done at the expense of student loan creditors." These courts reason that "if Congress intended to allow tithing . . . when determining undue hardship under § 523(a)(8) . . . Congress could have and would have drafted § 523(a)(8) to include a specific provision allowing charitable giving as it did" when enacting several other sections of the Bankruptcy Code. Other courts, by contrast, have held that "a bankruptcy judge should not override a debtor's commitment to tithing" when evaluating the reasonableness of a debtor's expenditures for the purposes of the Brunner test. The predominant approach, however, is to neither treat religious tithing as per se allowable nor per se prohibited, but instead to examine "bona fide tithing or charitable contributions . . . under the same reasonableness standard as other reasonable and necessary expenses under a § 523(a)(8) undue hardship analysis."
Courts have likewise "split on whether cigarette expenses may be counted toward a minimal standard of living" for the purposes of the Brunner test. A few courts have categorically held that a debtor may not "discharge a student-loan obligation, thereby placing liability for the debt upon the taxpayers, while continuing to pay for . . . cigarettes." The predominant approach, however, is to consider a debtor's cigarette expenses on a case-by-case basis, instead of "holding that cigarette expenses are per se unreasonable."
Similarly, courts have disagreed regarding whether a debtor seeking an undue hardship discharge may contribute money to a retirement account that could otherwise go toward repaying the student loan. Most courts have held that "401(k) contributions" and other retirement contributions "generally are not regarded as reasonably necessary for the support or maintenance of a debtor and thus may be considered as available income from which a debtor seeking a § 523(a)(8) undue hardship discharge could use to repay an educational loan." A few other courts have nonetheless held that expenses "for retirement contributions" are "allowable within the context of an 'undue hardship' analysis under § 523(a)(8)," at least "where a debtor is fairly close to retirement, has not thus far saved anything for retirement, and is not likely to improve his or her earnings ability such that he or she could otherwise save for retirement."
Nor have courts agreed regarding who may receive money that might otherwise go toward repaying the student loan. For instance, most courts have held that "a debtor seeking to discharge her educational loans under § 523(a)(8) is . . . not permitted to support emancipated children or other independent family members at the expense of her creditors." These courts reason that it is "unreasonable to expect creditors holding legitimate claims to remain unpaid to any extent while the Debtor is supporting any adult children" or other nondependent adults "in her home." A few other courts, however, have held that there is no "hard and fast rule" prohibiting a debtor seeking an undue hardship discharge from making "voluntary payments on behalf of adult children." These courts reason that "one's 'standard of living' may sometimes be affected more by the safety of one's children—grown or not—than by such things as the quality of one's residence." Importantly, however, the rule forbidding debtors from prioritizing their children over their creditors applies only to nondependent adult children; a debtor's obligation "to support his minor children certainly must be considered" as a necessary expense "when determining the [debtor's] ability to repay his debts."
Courts have likewise split on whether a debtor may argue that his monthly expenses prevent him from maintaining a minimal standard of living when the debtor expends a share of his income caring for a disabled parent. Some courts have denied an undue hardship discharge to debtors who chose to care for their disabled parents instead of seeking gainful employment, reasoning that a "moral obligation to a family member . . . does not take priority over [the debtor's] legal obligation to repay her educational loans." Several other courts, by contrast, have discharged student debt even where the debtor quit a profitable job or allocated a portion of his income in order to care for a disabled parent.
section_title: Consideration of the Debtor's Spouse's Income
paragraphs: "A majority of courts have determined that it is proper to consider the economics of the debtor and the debtor's spouse, as a family unit, when determining ability to pay" for the purposes of the first Brunner prong. Many courts likewise consider the income of a "live-in companion, life partner, [or] contributing co-habitant" when "conducting th[e] minimal standard of living analysis." Courts have therefore generally denied an undue hardship discharge where the debtor was married to a spouse "who could easily support them both, without any contribution from" the debtor.
section_title: The Second Requirement: Future Inability to Repay
paragraphs: If the debtor satisfies the first prong of Brunner , he must then prove that his inability to maintain a minimal standard of living if forced to repay the loans is likely to persist into the future. To make this showing, the debtor must show that "additional circumstances exist that illustrate he will not be able to repay the loans for a substantial part of the repayment period." Some courts describe this requirement as "the heart of the Brunner test. It most clearly reflects the congressional imperative that the debtor's hardship must be more than the normal hardship that accompanies any bankruptcy." As is the case with the first prong of the Brunner test, courts have applied different legal standards and considered various factors when conducting the second inquiry, as illustrated below.
subsections: section_title: The "Certainty of Hopelessness" and "Exceptional Circumstances" Requirements
paragraphs: For instance, to determine whether the debtor's inability to repay the loan while maintaining a minimal standard of living is likely to persist into the future, most courts have required the debtor to prove "that there is a 'certainty of hopelessness' that the debtor will be able to repay the loans within the repayment period." By contrast, a small number of courts have concluded that it is inappropriate to require debtors to demonstrate a "certainty of hopelessness" in order to obtain an undue hardship discharge. As one bankruptcy judge colorfully remarked,
If Congress ever were to require this writer to instruct a student loan debtor that he or she must carry the burden of proving that he or she has a "certainty of hopelessness," this writer would retire. There would be no way to reconcile such a command with the notion of a "fresh start" for honest debtors. Some debtors, faced with such a standard, would not seek bankruptcy relief at all, but rather would choose to be discharged by the Highest Authority.
Courts that reject the "certainty of hopelessness" standard instead make "a realistic look . . . into [the] debtor's circumstances and the debtor's ability to provide for adequate shelter, nutrition, health care, and the like" when determining whether the debtor's inability to repay is likely to persist into the future. Although at least one debtor has asked the Supreme Court to grant certiorari to determine whether the Brunner test requires debtors to demonstrate "a 'certainty of hopelessness,'" the Supreme Court has thus far declined the invitation.
Similarly, whereas most courts require the debtor to demonstrate "exceptional," "unique," "extraordinary," "extreme," or "rare" circumstances in order to satisfy the second Brunner prong, the Ninth Circuit has held that "'undue hardship' does not require an exceptional circumstance beyond the inability to pay now and for a substantial portion of the loan's repayment period."
section_title: Multifactor Standards
paragraphs: Some courts have developed lists of factors to consider when determining whether a debtor's inability to repay a student loan is likely to persist into the future. For instance, the Ninth Circuit has enumerated the following twelve nonexhaustive factors, which several courts outside the Ninth Circuit have also adopted:
serious mental or physical disability of the debtor or the debtor's dependents which prevents employment or advancement; the debtor's obligations to care for dependents; lack of, or severely limited education; poor quality of education; lack of usable or marketable job skills; underemployment; maximized income potential in the chosen educational field, and no other more lucrative job skills; limited number of years remaining in the debtor's work life to allow payment of the loan; age or other factors that prevent retraining or relocation as a means for payment of the loan; lack of assets, whether or not exempt from creditors in bankruptcy, which could be used to pay the loan; potentially increasing expenses that outweigh any potential appreciation in the value of the debtor's assets and/or likely increases in the debtor's income; and lack of better financial options elsewhere.
Other bankruptcy courts, by contrast, consider the following five factors:
the debt amount; the interest rate; whether the debtor has attempted to minimize expenses; the debtor's income, earning ability, health, education, dependents, age, wealth, and professional degree; and whether the debtor has attempted to maximize income by seeking or obtaining employment commensurate with his education and abilities.
Still other courts reject some or all of these factors. Moreover, as explained below, several discrete issues have split the courts with respect to how to apply Brunner 's second prong.
section_title: Medical Condition/Disability
paragraphs: Although many debtors who successfully satisfy the second Brunner prong suffer from a medical condition that renders them unable to repay their student loans, "the existence of a debilitating medical condition is not a prerequisite to establishing the existence of 'undue hardship' under § 523(a)(8)." But just as a medical disability is not a necessary condition to obtain an undue hardship discharge, nor is it a sufficient condition for satisfying the second Brunner prong; many courts have held that a medical condition will not support an undue hardship discharge unless it "impairs [the debtor's] ability to work." In these jurisdictions, "the debtor must precisely identify her problems and explain how her condition would impair her ability to work in the future" before she may receive an undue hardship discharge. The debtor must also establish that her "condition will likely persist for a significant portion of the repayment period of the student loans."
Courts have disagreed regarding the quantum of proof a debtor must introduce in order to establish that his medical condition renders him unable to pay his student loans. Some courts have held that the debtor is not required "to submit independent medical evidence to corroborate his testimony that his" medical condition "render[s] him unable to repay his student loans"; as long as the debtor's testimony regarding his medical condition is credible and sufficiently detailed, then the debtor's testimony alone can be sufficient to satisfy the second prong of the Brunner test. Courts that reach this conclusion reason that
requiring that [debtors] provide corroborative medical evidence beyond their own testimony in order to sustain the evidentiary burden for a hardship discharge of a student loan on medical grounds is likely to prevent . . . debtors from receiving the relief to which they are entitled because they "cannot afford to hire medical experts to testify to the effect of their disease on their earning capacity."
Other courts, by contrast, have held that although the debtor need not necessarily hire a medical expert to testify regarding the extent and severity of the debtor's disability, the debtor does need to introduce some form of corroborating medical evidence, such as medical records, or a letter from a treating physician. In these jurisdictions, the "debtor's testimony alone cannot establish prong two of the Brunner test if the debtor's health is at issue." These courts reason that, as laypersons, neither judges nor debtors "have a reliable basis to render" the "medical diagnosis and prognosis" necessary "to determine the nature, extent and likely duration of a disability" as contemplated by the second prong of Brunner .
section_title: Employment Opportunities Outside the Debtor's Chosen Field
paragraphs: Another issue that has divided the lower courts is whether a debtor may support his showing on the second Brunner element by demonstrating that he cannot obtain more lucrative employment in the field in which he received his degree, or if the debtor must instead attempt to maximize his income by pursuing a career outside his chosen field. A few courts, most notably the Ninth Circuit, have held that "a person who has chosen to go into a certain field and who, despite her best efforts, has topped out in her career with no possibility of future advancement," need not necessarily "switch careers to try to obtain a higher paying job" in order to satisfy the second Brunner prong. The majority of courts, however, have held that a debtor "who completed an education in a low-paying field may not be heard to complain on that basis alone that the field is too low-paying to permit repayment of the debts." If the debtor cannot maximize his income in the field in which he completed his education, most courts have required the debtor to pursue more profitable employment opportunities outside his chosen field.
Relatedly, most courts have held that a debtor cannot purposefully opt to work outside his area of expertise if he would make more money working in the field in which he has been trained. For example, a debtor with a medical degree generally cannot leave a lucrative medical practice to pursue less profitable work as a missionary and then argue that he lacks the ability to repay his loans. If "by education and experience" the debtor "qualifies for higher-paying work," most courts require the debtor "to seek work that would allow debt repayment before he can claim undue hardship."
section_title: Educational Value
paragraphs: Courts have likewise disagreed regarding whether the value of the education that the student loan financed should affect the debtor's ability to discharge the loan. Some courts have held that "it is not appropriate . . . to consider the 'value' of a debtor's chosen education" when determining "whether the three prongs of Brunner have been satisfied." According to these courts, considering whether
the education for which the loan paid has been of little use to [the debtor] is antithetical to the spirit of the guaranteed loan program . . . Consideration of the 'value' of the education in making a decision to discharge turns the government into an insurer of educational value. Those students who make wise choices prosper; those who do not seek to discharge their loans in bankruptcy. This is wholly improper.
These courts have therefore concluded that "the Brunner test . . . does not permit discharge of a student loan on the basis that the [d]ebtor made a poor career choice . . . in selecting the curriculum that the loan financed." These courts have likewise ruled that "a 'debtor is not entitled to an undue-hardship discharge by virtue of selecting an education that failed to return economic rewards.'" Several of these courts have further held that "the Brunner test . . . does not permit discharge of a student loan on the basis that" the school misled "the [d]ebtor . . . in selecting the curriculum that the loan financed." Some courts have accordingly denied undue hardship discharges even where the debtor contended that the school defrauded him out of his tuition payments. These courts justify their refusal to consider the educational value a debtor received on the ground that it is "ineffectual" to discharge a student's loans with the objective to "punish institutions for forcing on students loans which are not in their best interests" because the adverse economic consequences of the discharge are "borne not by the institution but by taxpayers, who absorb the cost of the default."
Other courts, by contrast, have held that it is proper to consider the quality of the debtor's education when determining whether to grant an undue hardship discharge. These courts have emphasized that, where a "school fails to educate the borrower properly, if at all," the debtor may be left "with no benefit from his 'education'" and therefore "no ability to repay." For instance, in one notable case, the bankruptcy court granted the debtor a discharge in part because "the actual course work offered by the" school that provided the debtor's education was "of dubious value." In support of this conclusion, the court noted that "in the 'marketing' course [the debtor] took 'the instructor showed films of "Batman" the whole class.'" Similarly, some jurisdictions consider whether the school closed before the debtor was able to complete the education that the student loan financed when determining whether the debtor is entitled to an undue hardship discharge.
section_title: The Debtor's Age
paragraphs: Courts have also diverged regarding whether a debtor's advanced age constitutes an "additional circumstance" that can support a finding of undue hardship. Some courts have held that a debtor's advanced age can support an undue hardship finding, emphasizing that a debtor's age can affect "not only her job prospects, but also the number of years she will be able to remain in the work force." Other courts, however, have concluded that "the age of the debtor" may not be "put forward as an additional circumstance to support the second prong under Brunner , at least where the age is standing alone unaccompanied by serious illness or disability." In particular, when a debtor incurs student loans later in life, these courts have ruled that the fact that the debtor must continue to pay his loans into advanced age is not sufficient in and of itself to satisfy Brunner 's second prong.
section_title: Whether the "Additional Circumstances" May Predate the Issuance of the Loans
paragraphs: A small minority of courts have held that "the 'additional circumstances' required to meet the second element" of the Brunner test "must be those that were not present at the time the debtor applied for the loans or were exacerbated since that time." These courts reason that, if the debtor "experienced an illness, developed a disability, or became responsible for a large number of dependents" before incurring the educational debt, he could have "calculated that factor into his cost-benefit analysis" when deciding whether to take out the student loan.
However, most courts do not explicitly impose any requirement that the requisite "additional circumstances" postdate the issuance of the loan. Indeed, a few courts have explicitly rejected any "distinction between pre-existing and later-arising 'additional circumstances,'" opining that "Congress could have easily stated that, in determining the existence of 'undue hardship,' a court must ignore any conditions a debtor might have had at the time she took out the loan she later seeks to discharge."
section_title: The Third Requirement: Good Faith Efforts to Repay
paragraphs: Finally, Brunner 's third prong requires the debtor to demonstrate "good faith efforts to repay the loans." Most courts agree that "good faith is measured by the debtor's efforts to obtain employment, maximize income, and minimize expenses." "The court may also consider whether the debtor has tried to make some payments when he or she could, or has sought to defer the loan or renegotiate the payment plan." Generally speaking, in order to satisfy the good faith requirement, the debtor's "default should result, not from his choices, but from factors beyond his reasonable control."
subsections: section_title: History of Payments
paragraphs: "In determining whether a debtor has made a good faith effort to repay a student loan obligation, a primary consideration is whether the debtor actually made any payments on the obligation, and if so, the total amount of payments." Nevertheless, "a debtor's 'failure to make a payment, standing alone, does not establish a lack of good faith,'" especially "where the debtor has no funds to make any repayments."
section_title: Length of Time Elapsed Before the Debtor Sought Discharge
paragraphs: As explained above, Congress enacted Section 523(a)(8) partly to address the concern that students "would file for bankruptcy relief immediately upon graduation." For that reason, "some courts have looked to the length of time between when the loan first became due and when the debtor sought discharge of the debt" when evaluating the debtor's good faith. The less time that has passed since the student loan first became due, the less likely it is that a court will conclude that the debtor is seeking to discharge the loan in good faith.
section_title: Ratio of Student Loan Debt to Total Indebtedness
paragraphs: Because Congress also sought to combat "consumer bankruptcies of former students motivated primarily to avoid payment of education loan debts" when enacting Section 523(a)(8), many courts also examine "the amount of the student loan debt as a percentage of the debtor's total indebtedness" when evaluating whether a debtor has satisfied Brunner 's good faith requirement. "Where a debtor's student loan debt constitutes a high percentage of the debtor's total debt," many "courts have found that the debtor has not made a good faith effort to repay the loan."
Other courts, while noting that the ratio of student loan debt to total indebtedness "may be relevant" to the debtor's good faith, nonetheless warn against "placing a substantial emphasis" on the percentage of student loan debt, especially when "the [d]ebtor is not seeking to have his student loans discharged prior to beginning a lucrative career." Some courts consequently advise against establishing a "bright-line percentage" above which "discharge of student-loan debt should be deemed to be the motivating factor for bankruptcy."
section_title: Maximizing Income by Pursuing Full-Time Employment
paragraphs: As part of the inquiry into whether the debtor is acting in good faith by "maximiz[ing] income," some courts evaluate whether the debtor has pursued opportunities for full-time employment. If a debtor is capable of obtaining full-time employment, yet is only working part-time because he has failed to pursue full-time employment or a second part-time job, a court may deny him an undue hardship discharge. However, if the debtor is already working a full-time job, courts will generally not require the debtor to also secure additional part-time employment in order to qualify for an undue hardship discharge.
section_title: A Debtor's Voluntary Decision to Have Children Does Not Evince a Lack of Good Faith
paragraphs: Notwithstanding the general rule that a debtor's "default should result, not from his choices, but from factors beyond his reasonable control," courts have overwhelmingly rejected arguments raised by creditors that a debtor's decision to have children constitutes a self-imposed lack of good faith, even if the concomitant increase in child care costs will ultimately hamper the debtor's ability to repay his student loans. In other words, courts will not require a debtor to abstain from having children as a prerequisite for obtaining an undue hardship discharge.
section_title: The "Totality-of-the-Circumstances" Test
paragraphs: Whereas the vast majority of courts apply the Brunner test to determine whether excepting a student loan from discharge would impose an undue hardship upon the debtor, two circuits have explicitly declined to adopt the Brunner standard.
subsections: section_title: The Eighth Circuit
paragraphs: The Eighth Circuit, for instance, has concluded that "requiring . . . bankruptcy courts to adhere to the strict parameters of a particular test" such as the Brunner standard "would diminish the inherent discretion contained" in the Bankruptcy Code to decide whether a particular student loan debt should be discharged. The Eighth Circuit has therefore explicitly declined to adopt Brunner . Instead, the Eighth Circuit applies an alternative standard known as "the totality-of-the-circumstances test" or the " Andrews standard." Under this test, a bankruptcy court should consider
the debtor's past, present, and reasonably reliable future financial resources; the debtor's and his dependents' reasonable necessary living expenses; and any other relevant facts and circumstances.
The third "other relevant facts and circumstances" factor in turn permits evaluation of a wide range of facts and issues that may be relevant to determining undue hardship, including
total present and future incapacity to pay debts for reasons not within the control of the debtor; whether the debtor has made a good faith effort to negotiate deferment or forbearance of the payment; whether the hardship will be long-term; whether the debtor has made payments on the student loan; whether there is permanent or long-term disability of the debtor; the ability of the debtor to obtain gainful employment in the area of study; whether the debtor has made a good faith effort to maximize income and minimize expenses; whether the dominant purpose of the bankruptcy petition was to discharge the student loan; and the ratio of student loan debt to total indebtedness.
"These numerous factors do not provide an exclusive list of items that courts may consider and also do not require a court to address each and every one in a particular case." According to the Eighth Circuit,
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. Certainly, this determination will require a special consideration of the debtor's present employment and financial situation—including assets, expenses, and earnings—along with the prospect of future changes—positive or adverse—in the debtor's financial position.
section_title: The First Circuit
paragraphs: While the First Circuit itself has explicitly declined to adopt any specific test for evaluating undue hardship, the U.S. Bankruptcy Appellate Panel (BAP) for the First Circuit has rejected the Brunner test in favor of the totality-of-the-circumstances test. The BAP has reasoned that the Bankruptcy Code's text does not support the Brunner test's requirements that the debtor demonstrate both "'unique' or 'extraordinary' circumstances" and "good faith" in order to obtain an undue hardship discharge. Bankruptcy courts within the First Circuit have also justified the totality-of-the-circumstances approach "on the grounds that a case-by-case approach that is fact sensitive . . . ensures an appropriate, equitable balance between concern for cases involving extreme abuse and concern for the overall fresh start policy" of the Bankruptcy Code.
Thus, when determining whether to discharge a student loan on undue hardship grounds, bankruptcy courts in the First Circuit consider "all relevant evidence," including
the debtor's income and expenses; the debtor's health, age, education, number of dependents, and other personal or family circumstances; the amount of the monthly payment required; the impact of the discharge that the debtor will receive in the bankruptcy case; the debtor's ability to find a higher-paying job; and the debtor's ability to reduce living expenses.
section_title: Comparing the Totality-of-the-Circumstances Test to Brunner
paragraphs: The central difference between the totality-of-the-circumstances test and the Brunner test concerns their relative flexibility. Whereas the totality-of-the-circumstances test is a more open-ended standard that permits the court to consider a wide variety of factors, the Brunner test is somewhat less malleable in that if a debtor fails to satisfy any one of the three separate prongs of Brunner , he cannot obtain a discharge. In particular, as one court has noted, "[t]he significant difference between the Brunner approach and the totality of the circumstances test is the requirement in Brunner that a debtor demonstrate that she has made good faith efforts to repay the educational loans at issue." This additional good faith requirement potentially makes the Brunner test "more restrictive" than the totality-of-the-circumstances standard because it affirmatively requires the court to scrutinize the debtor's conduct in addition to the debtor's economic circumstances.
Because "the totality of the circumstances test is a 'less restrictive approach' than the Brunner test," supporters of the Brunner test have opined that the totality-of-the-circumstances test is insufficiently predictable and affords judges too much discretion in determining whether any particular debtor qualifies for an undue hardship discharge. Opponents of Brunner respond that the totality-of-the-circumstances test is more faithful to the text of the Bankruptcy Code.
Courts and commentators disagree, however, regarding the extent to which the Brunner test actually varies from the totality-of-the-circumstances test as a practical matter. On the one hand, several courts have noted that "the distinctions between the two tests are modest, with many overlapping considerations." Perhaps for that reason, some statistical evidence suggests that student loan debtors do not fare systematically better or worse in Brunner jurisdictions than in totality-of-the-circumstances jurisdictions. On the other hand, however, the differences between the two tests are occasionally outcome-determinative, and there is some competing statistical evidence that suggests that it is in fact easier to obtain an undue hardship in totality-of-the-circumstances jurisdictions than in Brunner jurisdictions.
To that end, litigants have disputed whether the Supreme Court should grant certiorari to decide whether the Brunner test, the totality-of-the-circumstances test, or some other legal standard should govern undue hardship determinations under Section 523. Some litigants contend "that the differences between Brunner and the 'totality of the circumstances' tests" create "a gross inconsistency because some debtors may be discharged in" courts that apply the totality-of-the-circumstances test "when similarly situated debtors elsewhere will not be." Their opponents, by contrast, maintain that "despite the different verbal formulations" of the two tests, "there is no substantive split between the circuits on how to analyze undue hardship cases," as "both the Brunner test and the 'totality-of-the-circumstances' test use similar information and typically will lead to similar results." To date, the Supreme Court has not granted certiorari to resolve this dispute.
section_title: Additional Doctrinal Considerations
paragraphs: In addition to disagreeing over the proper legal standard to apply when deciding whether to discharge a student loan, courts have also disagreed regarding other issues that commonly arise in the undue hardship context. What follows is a survey of several issues that are frequently litigated in the student loan context that have divided the federal courts. These issues are equally relevant in both Brunner jurisdictions and totality-of-the-circumstances jurisdictions.
subsections: section_title: Partial Discharge
paragraphs: For one, courts have divided regarding whether a bankruptcy court possesses the authority to discharge only a portion of a student loan while declaring the remainder of the loan nondischargeable. Some courts have decided that the Bankruptcy Code "does not permit a court to discharge in part a single student loan obligation"; rather, the court must either discharge all of student loan debt or none of it. These courts conclude that Section 523(a)(8) contains no statutory language that would authorize a partial discharge of a student loan. These courts have further opined that authorizing partial discharges results in "'unpredictability,' 'lack of uniformity of outcomes,' and potential inequities inherent in the subjective application of § 523(a)(8)."
Other courts, by contrast, have concluded that if a debtor is able to repay some but not all of a student loan, then the bankruptcy court may discharge only a portion of the outstanding educational debt, rather than discharging the whole debt in its entirety. These courts reason that an "all-or-nothing approach"—whereby a student loan must either be discharged in its entirety or not discharged at all—"reward[s] 'irresponsible borrowing' and conversely punish[es] debtors who either borrow less or pay down their student loans before filing their bankruptcy petition." Importantly, however, most of the jurisdictions that do allow partial discharges have concluded that the court may grant a partial discharge only if the debtor has otherwise satisfied the undue hardship standard with respect to the discharged portion of the loan. In other words, in order to obtain a partial discharge, the debtor must generally satisfy the Brunner standard (or, in jurisdictions that have rejected Brunner , the totality-of-the-circumstances standard) as to the portion of the loan to be discharged, but not as to the portion that will remain after the court closes the bankruptcy case.
Still other courts forbid the partial discharge of a portion of a single student loan, yet allow debtors who hold multiple student loans to discharge some of those loans but not others. In other words, these courts "appl[y] § 523(a)(8) to a debtor's educational debt on a loan-by-loan basis, with the result that some of a debtor's student loans may be discharged while others may be found nondischargeable." According to its proponents, this approach "remains true to § 523(a)(8)'s statutory language"—which does not explicitly authorize partial discharges—"while reaching results that comport with Congress's underlying purpose" of "creat[ing] a higher dischargeability threshold for student loans vis-a-vis other debts." 
section_title: Income-Driven Repayment Plans
paragraphs: Whether a debtor is eligible for debt relief programs, as well as whether the debtor takes advantage of those programs, may also influence whether a court discharges a particular student loan debt. "To enable student borrowers to repay federal student loans, the federal government offers several income-driven repayment" (IDR) plans. IDR plans are nonbankruptcy debt relief programs that are "designed to make the student loan debt more manageable." They afford "borrowers who experience prolonged periods of low income the prospect of debt forgiveness" by offering those "borrowers the opportunity to make monthly payment amounts based on the relationship between their student loan debt and their incomes." If the debtor makes the required monthly payments over the course of a set repayment period, "the outstanding balance of a borrower's loans is then forgiven," and the debtor is "no longer responsible for payments on his loans."
Because the IDR plans are designed to alleviate the burden of student loan debt, a debtor's eligibility for an IDR plan can potentially affect whether the student loan imposes an undue hardship upon the debtor. The majority of courts have held that, although there is no per se rule requiring a debtor to participate in an IDR plan as a prerequisite to obtaining an undue hardship discharge, participation in an IDR plan (or the lack thereof) is nonetheless relevant to whether the debtor qualifies for a discharge. Many courts have therefore denied a debtor an undue hardship where the debtor could have taken advantage of an IDR plan yet failed to do so.
A debtor who participates in an IDR plan may potentially be subject to adverse tax consequences. Some courts have noted that "[f]orgiveness of any unpaid debt under" an IDR plan "may result in a taxable event" for the debtor, and "many tax obligations are," like student loans, generally "nondischargeable in bankruptcy." Consequently, there is a risk that some debtors who participate in an IDR plan may be merely "exchang[ing] a nondischargeable student loan debt for a nondischargeable tax debt," which may "provide[] little or no relief." As a result, participation in an IDR plan
may not be appropriate for some debtors because of the impact of the negative amortization of the debt over time when payments are not made and the tax implications arising after the debt is cancelled. Because of these considerations, [an IDR plan] may be beneficial for a borrower whose inability to pay is temporary and whose financial situation is expected to improve significantly in the future. Where no significant improvement is anticipated, however, such programs may be detrimental to the borrower's long-term financial health.
"Such potential for disastrous tax consequences" may be "particularly acute with respect to student loan debtors who are at or near retirement age when they commence a payment plan" under the IDR program because "such debtors have relatively little time left to substantially pay down their debt, which means that such debtors will likely have a substantial amount of debt that will then be discharged, with a consequentially large, nondischargeable tax obligation." Thus, if participation in an IDR plan would cause the debtor to incur a large tax bill at the end of the repayment period, many courts have concluded that the debtor's refusal or failure to participate in the plan does not evince a lack of good faith that would prevent the debtor from obtaining an undue hardship discharge.
Other courts, however, dispute the premise that participating in an IDR plan will frequently result in a substantial taxable event. Many of these courts cite exceptions in the Internal Revenue Code that exclude canceled debt from taxable income if the debt is canceled while the debtor is insolvent, which may prevent some debtors from incurring a large tax liability at the end of the IDR repayment period. Some courts, emphasizing that the repayment period under an IDR plan may extend for decades, reason that it would be too "speculative" to consider any potential tax liability a debtor might incur once the student loan is forgiven at the conclusion of the repayment period. Some courts have also disputed the notion that a debtor who participates in an IDR plan is merely exchanging one nondischargeable debt for another, as the debtor "would clearly not have to pay a tax equal to the entire amount cancelled—at most, it would be the amount cancelled multiplied by her applicable tax rate." Courts that are skeptical that participation in an IDR plan will frequently result in an adverse taxable event tend to place greater weight on a debtor's failure or refusal to participate in the IDR plan when evaluating whether a debtor is entitled to an undue hardship discharge.
Nor have courts agreed on whether a debtor may obtain an undue hardship discharge if his monthly payment under an IDR plan would be zero. In such a situation, an IDR plan would effectively relieve the debtor from the obligation to make any monthly student loan payments at all, thereby raising the question of whether the debtor can still plausibly claim that the debt nonetheless imposes an undue hardship. A few courts have held that "excluding the student loans from discharge" in such circumstances would not "impose any hardship" on the debtor "since, by virtue of the" IDR plan, the debtor is "not required to make any payments at all." The prevailing approach, however, is that a $0.00 monthly payment under an IDR plan does not necessarily preclude the debtor from receiving a discharge. These courts emphasize that, because the discharge of a student loan at the end of the IDR plan's repayment period may result in a significant taxable event, and because a debtor who makes zero loan payments over a series of many years will necessarily "be burdened by a huge and growing obligation that remains on her credit record," a student loan may impose an undue hardship even if the debtor is eligible to participate in a repayment option that would not require her to make monthly payments.
section_title: Administrative Discharge
paragraphs: U.S. Department of Education regulations also allow a debtor, under certain circumstances, to administratively discharge some types of student loans outside of the bankruptcy process, such as when the debtor suffers from a total and permanent disability, or when the debtor's school closes before the debtor could complete the program of study that the loan financed. As with participation in an IDR plan, the majority position is that a debtor need not necessarily seek an administrative discharge of his student loans as a mandatory prerequisite for obtaining an undue hardship discharge in bankruptcy. Nonetheless, a debtor's failure to pursue available remedies, including an administrative discharge, may still evince a lack of good faith for the purposes of the Brunner test.
section_title: Cosigner Liability for Student Loans
paragraphs: Student loan lenders sometimes "seek the security of a non-student co-signer . . . because there is a commercial risk in looking only to the student for credit assurance." Courts have disagreed regarding whether a debtor who agrees to be liable for another person's student loan—such as when a parent cosigns a student loan to pay for his child's college education, or when a fiancé cosigns a student loan with his future spouse —must satisfy the heightened undue hardship standard in order to discharge his obligation for the debt in his own bankruptcy case, even though he did not personally directly benefit from the education the student loan financed.
Most courts have held that a nonstudent debtor may not discharge a student loan for which he is obligated unless he demonstrates that excepting the loan from discharge would impose an undue hardship upon him. In other words, most courts have ruled that "Section 523(a)(8) . . . applies to all types of debtors responsible for student loan debt, be they maker, co-maker, student, or parent of a student." In reaching this conclusion, these courts emphasize that "the statutory language" of Section 523(a)(8) "is unambiguous and draws no distinction whatsoever between student and nonstudent obligors." These courts justify subjecting nonstudents to the undue hardship requirement—even though they did not personally directly benefit from the student's education—on the ground that "limiting the circumstances under which student loan obligations can be discharged in bankruptcy helps preserve the financial integrity of the student loan program," as "an unrepaid loan will adversely affect the financial integrity of the educational loan program equally whether the defaulting debtor is the student or the student's co-obligor."
A minority of courts, by contrast, have reached the opposite conclusion that parties who do not receive any direct educational benefit from student loans, such as parents who sign loans for their student children, may freely discharge such loans in bankruptcy without proving an undue hardship. These courts reason that the purpose of Section 523(a)(8)
is to except educational loans to students from discharge, and not to parents who are in a different economic position and period of their lives. The co-maker does not have the same motivations as a student fresh out of college with nothing to lose but student loan debt. The parent/co-maker generally has many other debt obligations besides being liable on an educational loan. It is unlikely that a parent will want or be able to exact the same sort of abuses on the educational system as a student recently finished with college or graduate studies.
section_title: Legal Issues Congress Could Consider
paragraphs: Some commentators maintain that the doctrinal splits described above are not consequential as a practical matter. Relatedly, given that at least one Member of the Congress that enacted Section 523(a)(8) believed that bankruptcy judges should be granted sufficient freedom "to determine in each case what is truly hardship, rather than define it" in a potentially restrictive manner, the fact that different courts have reached varying conclusions when presented with a specific petition may in fact be consistent with congressional intent. More broadly, some studies have suggested that debtors who truly need an undue hardship discharge of their student loans are generally able to obtain one under the existing legal regime. If Congress agrees with these assessments, then it may leave the current treatment of student loans in bankruptcy unchanged.
Others, however, contend that Congress should enact legislation to either clarify or modify the undue hardship standard or otherwise change the way student loans are treated in bankruptcy. If Congress seeks to modify the existing legal framework for discharging student loans in bankruptcy, it has several options available to it.
subsections: section_title: Modifying the "Undue Hardship" Standard
subsections: section_title: Defining "Undue Hardship" in the Text of the Bankruptcy Code
paragraphs: First, Congress could codify a definition of "undue hardship" in the text of the Bankruptcy Code itself. As noted above, the Bankruptcy Code does not define the term "undue hardship," and to date the Supreme Court has not supplied a controlling judicial definition of that phrase. For that reason, some commentators argue that neither the text nor the legislative history of Section 523(a)(8) provides litigants and courts with sufficient guidance regarding how to properly apply the "undue hardship" standard. According to some courts and scholars, this lack of interpretive guidance has led courts to apply Section 523(a)(8) in an inconsistent, nonuniform fashion, such that whether any given debtor receives an undue hardship discharge depends more on the identity of the judge deciding the case and the debtor's geographic location than on the debtor's personal and financial circumstances. For instance, one commentator has opined that the "ambiguous contours" of the undue hardship standards have created
rampant inconsistency. Judges define the standard differently, they impose different conceptual tests on debtors, and when undue hardship is found, relief is often dependent upon judicial philosophy rather than the merits of the case. In the end, similarly-situated debtors (and creditors) are treated differently based on the courts in which they find themselves, leaving an irony where inconsistency is the most consistent aspect of the standard's application.
Several commentators have therefore advocated codifying a definition of "undue hardship" in the Bankruptcy Code itself, which would allow Congress to explicitly specify which legal standards courts should use when determining whether debtors may discharge their student loans. Defining "undue hardship" would also allow Congress to resolve one or more of the aforementioned doctrinal splits that currently exist in the federal courts, such as
whether undue hardship determinations should be governed by the Brunner test, the totality-of-the-circumstances test, or some other legal standard; whether a debtor seeking an undue hardship discharge may tithe a portion of her income that might otherwise go toward repaying her student loans to a religious institution; whether a debtor must demonstrate "exceptional circumstances" or a "certainty of hopelessness" in order to obtain an undue hardship discharge; whether a debtor seeking an undue hardship discharge on the grounds of a medical disability must introduce corroborating medical evidence; whether the Bankruptcy Code authorizes the partial discharge of a student loan; whether, and to what extent, a debtor's eligibility for and participation in an IDR plan affects the debtor's eligibility for an undue hardship discharge; whether a cosigner of a student loan who does not directly obtain an educational benefit from the loan must demonstrate an undue hardship in order to discharge his own obligation for the loan in his own bankruptcy case; and whether courts should consider the value of the education that the loan financed when evaluating whether the debtor is entitled to an undue hardship discharge.
Advocates of supplying a textual definition of "undue hardship" argue that congressional guidance would engender greater doctrinal consistency and uniformity. Others, however, question whether "a congressional definition of undue hardship" would "give judges adequate guidance so that disparities in interpretation . . . do not occur." Given that each debtor's personal and financial circumstances may be unique, some have expressed concern that cabining the term "undue hardship" to "an 'inflexible dictionary definition' would defeat the discretionary interpretation of the facts in each case." To that end, at least one Member of the Congress that enacted Section 523(a)(8) in 1978 appeared to agree that bankruptcy judges should be granted sufficient freedom "to determine in each case what is truly hardship, rather than define it" in a potentially restrictive manner.
Legislation may not be the only means of altering the meaning of "undue hardship" under Section 523(a)(8). On February 21, 2018, the U.S. Department of Education (ED) requested
public comment on factors to be considered in evaluating undue hardship claims asserted by student loan borrowers in . . . bankruptcy cases, the weight to be given to such factors, whether the existence of two tests for evaluation of undue hardship claims [(namely, the Brunner test and the totality-of-the-circumstances test)] results in inequities among borrowers seeking undue hardship discharge.
ED will then consider "how all of these, and potentially additional, considerations should weigh into whether an undue hardship claim should be conceded by the loan holder."
section_title: Whether the Undue Hardship Standard Is Too Rigorous
paragraphs: Congress could also consider making the undue hardship standard easier for debtors to satisfy. On one hand, some commentators maintain that debtors who truly need an undue hardship discharge are generally able to receive one under the existing legal standards. Others, by contrast, believe it is currently too difficult for debtors experiencing severe financial stress to discharge their student loans in bankruptcy, and that Congress should therefore amend Section 523(a)(8) to make the standard for discharging a student loan less demanding.
If Congress decides to make the undue hardship standard more lenient, it could do so in several ways. For instance, some have advocated eliminating the second prong of the Brunner test, so that a debtor seeking an undue hardship discharge would not need to prove that his inability to repay his loans will likely persist into the future. Alternatively, Congress could eliminate the requirement imposed by most courts that the debtor demonstrate a "certainty of hopelessness" and "exceptional circumstances" in order to discharge a student loan.
section_title: Updating the Undue Hardship Standard in Response to Changed Conditions
paragraphs: Congress may also consider whether the Brunner test—which first originated in 1987 —is now outdated or obsolete in light of legislative, economic, and regulatory developments that have occurred in the past thirty years. The Bankruptcy Code and the student loan market have undergone several significant changes since 1987, including
the development of loan repayment and forgiveness programs, including IDR plans; Congress's aforementioned elimination of the temporal discharge option, pursuant to which a debtor could discharge certain student loans without demonstrating an undue hardship simply by waiting a sufficient number of years before filing bankruptcy; Congress's 2005 amendment to the Bankruptcy Code that made private education loans presumptively nondischargeable like their federal counterparts; the precipitous increase in the magnitude of debt carried by individual student loan borrowers, as well as total outstanding student loan debt in the United States overall; and the increase in aggregate borrowing limits for certain types of federal loans.
Some courts and commentators have therefore advocated updating the undue hardship standard to better reflect the current state of the bankruptcy system and the student loan market. For instance, Congress could amend Section 523(a)(8) to explicitly specify how a debtor's eligibility for and participation in an IDR plan affect the debtor's ability to obtain bankruptcy relief.
section_title: Repealing Section 523(a)(8)
paragraphs: Some commentators, instead of proposing modifications to Section 523(a)(8), have advocated repealing Section 523(a)(8) entirely and thereby making student loans freely dischargeable in bankruptcy. To that end, several Members of the 115 th Congress have introduced bills that would completely repeal Section 523(a)(8), including the Discharge Student Loans in Bankruptcy Act of 2017 and the Student Loan Borrowers' Bill of Rights Act of 2017.
section_title: Amending the Bankruptcy Code to Make Private Education Loans Freely Dischargeable
paragraphs: Rather than making all student loans freely dischargeable in bankruptcy, Congress could also consider making private education loans freely dischargeable, while leaving federal student loans unaffected. As noted above, whereas discharging a federal student loan will shift the cost of the debtor's default to American taxpayers, taxpayers generally do not directly "foot[] the bill for private loan defaults." Nevertheless, Congress amended Section 523(a)(8) in 2005 to make most private education loans presumptively nondischargeable like their federal counterparts.
A number of commentators have therefore advocated reverting to the pre-2005 version of Section 523(a)(8) and thereby making private nonfederal student loans presumptively dischargeable without requiring the debtor to demonstrate an undue hardship. Several Members of the 115 th Congress have introduced bills that would make private education loans presumptively dischargeable in bankruptcy by repealing the 2005 amendments to Section 523(a)(8), including the Private Student Loan Bankruptcy Fairness Act of 2017 and the Fairness for Struggling Students Act of 2017.
section_title: Reinstating the Temporal Discharge Option
paragraphs: As noted above, the pre-1998 versions of Section 523(a)(8) allowed a debtor to discharge a student loan—even in the absence of an undue hardship—if the loan first became due a certain number of years before the debtor filed bankruptcy. Congress eliminated this "temporal discharge" option in 1998, with the consequence that demonstrating an undue hardship is presently the only way a debtor may discharge a student loan in bankruptcy.
Some commentators have advocated reinstating the temporal discharge option to allow debtors to discharge older student loans without proving an undue hardship. These commentators argue that a student who waits several years after graduation to file for bankruptcy is less likely to be abusing the student loan program than a recent graduate who strategically declares bankruptcy immediately after obtaining his degree.
section_title: Procedural Changes to Obtaining an Undue Hardship Discharge
paragraphs: As discussed above, a debtor may generally not obtain a discharge of student loan debt without filing a separate full-fledged "lawsuit within the umbrella of the bankruptcy case." Some commentators have described this procedure as "an expensive venture, dependent as it is on elaborate factual proof that many debtors, particularly some of the worst off, have no hope of funding." Undue hardship litigation may be especially expensive in jurisdictions that require debtors to introduce corroborating medical evidence to demonstrate that they suffer from a medical condition that prevents them from paying their student loans.
If Congress seeks to alter the procedures for obtaining an undue hardship discharge, it could consider "shift[ing] the burden of bringing" a suit to determine the dischargeability of a student loan "from the debtor to the creditor." For instance, one scholar has suggested that Congress amend the Bankruptcy Code "to treat student loan debt obligations as presumptively dischargeable in bankruptcy unless the creditor can show a lack of good faith on the part of the debtor with respect to the obligation." The burden would then rest upon the creditor, rather than the debtor, to initiate a lawsuit to declare a student loan debt nondischargeable. Shifting the burden in this way would not be unprecedented, as creditors generally bear the burden to prove that debts other than student loans are nondischargeable pursuant to other subsections of Section 523(a).
Another potential procedural change that could reduce the financial burden of obtaining an undue hardship discharge would be to "provide for the payment of a debtor's attorney's fees where a creditor unsuccessfully challenges dischargeability without substantial justification." According to proponents of this approach, this amendment could potentially (1) "make representation by counsel more accessible to debtors in dischargeability actions by shifting the fee burden off debtors and onto the lender in actions where the challenge is not substantially justified" and (2) "protect debtors from overreaching or overaggressive litigation tactics by student loan lenders." Authorizing fee-shifting in such circumstances would not be unprecedented either, as the Bankruptcy Code already provides for fee-shifting in some proceedings to determine the dischargeability of certain types of nonstudent loan debt.
Some Members of the 115 th Congress have introduced legislation that would implement some of these proposed reforms. The Stopping Abusive Student Loan Collection Practices in Bankruptcy Act of 2017 would allow a debtor who receives an undue hardship discharge to recover court costs and attorney's fees from the creditor if the creditor's opposition to the discharge was not substantially justified. However, "because the federal government . . . holds the vast majority of student loan debt," in many cases the creditor potentially subject to penalties under this bill would be the federal government.