Opinion ID: 769836
Heading Depth: 2
Heading Rank: 3

Heading: Support From Other Case Law

Text: 40 Most courts that have addressed this issue, including the four below, have come to the same conclusion as we do here. Courts generally have held that nonpayment of tuition can qualify as an educational loan under § 523(a)(8) only in two classes of cases. In the first, funds have changed hands. For example, in In re Joyner, 171 B.R. 762, 763 (Bankr. E.D. Pa. 1994), the loan a college extended so that a student could pay for campus housing and a meal plan was ruled to be an educational benefit not dischargeable in bankruptcy. In the second, there is an agreement between the college and the student whereby the college extends credit to the student, permitting him to attend classes without paying tuition, in return for his agreement to pay tuition at a future date. Such an agreement may take the form of a promissory note, see Merchant, 958 F.2d at 740-41 (finding that there was a loan where student had signed promissory note for amount of indebtedness to university); Johnson, 218 B.R. at 450, 457 (similar); In re Oldham, 220 B.R. 607, 609, 611 (Bankr. N.D. Ill. 1998) (same), or some other written agreement to repay a specific amount of money, in cash or in kind, see In re Rosen, 179 B.R. 935, 937, 939-40 (Bankr. D. Or. 1995) (loan where debtor signed agreement providing that in return for $3,313.44 worth of training, he would work as journeyman for a number of years or repay the sum in cash), or an oral agreement, see In re Hill, 44 B.R. 645, 646-47 (Bankr. D. Mass. 1984) (short term credit for a term's tuition was educational loan where student, expecting financial assistance but unable to pay tuition before registration, negotiated permission to register for 30 days pending receipt of student loan); In re DePasquale, 225 B.R. 830, 833 (B.A.P. 1st Cir. 1998). 41 Of course, some cases involve both a transfer of funds and an agreement, and courts have found loans in those cases as well. See, e.g., United States Dep't of Health & Human Servs. v. Smith, 807 F.2d 122, 125, 127 (8th Cir. 1986) (loan where scholarship money advanced on condition that medical student practice in physician shortage area after graduation or repay the debt); In re Avila, 53 B.R. 933, 934, 937 (Bankr. W.D.N.Y. 1985) (similar). 42 Conversely, where these indicia of a prior agreement are absent, there is generally held to be no loan. See, e.g., In re Nelson, 188 B.R. 32, 33 (D.S.D. 1995) (no educational loan where student attended classes without paying tuition and after withdrawal signed payment plan application and promissory note acknowledging her indebtedness); Alibatya, 178 B.R. at 339 (no loan where student failed to pay student housing rent under lease agreement with university); In re Peller, 184 B.R. 663, 664, 668-69 (Bankr. D.N.J. 1994) (no loan where student signed Intent to Register form similar to Agreement in Renshaw and then attended classes without having paid tuition); Van Ess, 186 B.R. at 376-77, 379 (no loan where student did not participate in student loan program or sign a written agreement providing terms for payment, but attended classes without having paid tuition); In re Ellenburg, 89 B.R. 258, 262 (Bankr. D. Ga. 1988) (no loan where student attended classes under the mistaken belief that her mother was paying her tuition). III Analysis of Contrary Case Law 43 Not all courts have followed the line of cases holding that the absence of a prior agreement indicates no loan. In In re Pelzman, 233 B.R. 575, 580 (Bankr. D.D.C. 1999), the bankruptcy court held that nonpayment of university housing fees constituted a loan under § 523(a)(8). The opinion does not describe the lease agreement in any detail, but to the extent Pelzman is inconsistent with the principles just outlined, we disagree with it. We also decline to adopt the reasoning of some cases that have reached the same conclusion as we do in these appeals. Thus, we view the approach of In re Coole, 202 B.R. 518, 519 (Bankr. D.N.M. 1996), endorsed in In re Meinhart, 211 B.R. 750, 754-55 (Bankr. D. Colo. 1997), that would require money actually to change hands before a transaction could be considered a loan, as reading the exception to dischargeability too restrictively. Once an agreement has been reached the goods, college services or money may be advanced later, if it was the intent of the parties to enter into a loan agreement. 44 The colleges rely primarily on the Sixth Circuit's opinion in Merchant, 958 F.2d 738. The relevant issue there involved Merchant's obligation to her university for assistance with educational expenses. Merchant, facing the same issue we do here, based its definition of a loan on the Grand Union test. It read Grand Union to require that: (1) the student was aware of the credit extension and acknowledges the money owed; (2) the amount owed was liquidated; and (3) the extended credit was defined as 'a sum of money due to a person.' Merchant, 958 F.2d at 741 (citing Hill, 44 B.R. 645). 45 Merchant focused on two facts in reaching its decision: that the student had signed forms evidencing the amount of her indebtedness before she registered for classes, id. at 741, and that the assistance for educational expenses the university provided her was evidenced by promissory notes payable to the university, id. at 739. There was also evidence that the university orally agreed to permit Merchant to attend classes while her tuition remained unpaid, and negotiated repayment schedules with her. See Appendix at 26-27, Merchant, 958 F.2d 738. 46 Some courts have distinguished Merchant on the basis of the promissory notes. See Nelson, 188 B.R. at 34; Van Ess, 186 B.R. at 377, 380 (same). It is not entirely clear from the opinion when Merchant executed the promissory notes; if it was after her school attendance ended, we would not find it relevant to the existence of a loan while she was attending classes. To the extent the Sixth Circuit based its decision on prior or contemporaneous agreements between Merchant and her university as to the amount of credit it would extend her and the amount and time of her future repayment, it is easily distinguishable from the present cases. IV Extension of an Educational Benefit 47 In addition to educational loans, § 523(a)(8) excepts from discharge obligation[s] to repay funds received as an educational benefit, scholarship or stipend and certain educational benefit overpayment[s]. The colleges wisely do not rely on the obligation to repay funds received provision because it is undisputed that neither student received funds. However, Cazenovia argues that the educational benefit overpayment provision applies to its case. 48 Cazenovia proposes that we follow In re Najafi, 154 B.R. 185, 190 (Bankr. E.D. Pa. 1993), and read for an educational benefit overpayment or loan as including an educational benefit, an educational overpayment, or an educational loan. See also Stone, 180 B.R. at 501 n.5 (adopting Najafi's approach). The bankruptcy court and appellate panel below disagreed, reasoning that the phrase refers to a loan or an overpayment of an educational benefit. See Renshaw, 229 B.R. at 556 n.8 (An 'educational benefit overpayment' is an overpayment from a program such as the GI Bill where... if the students receive payments after they have left the school, that is an educational benefit overpayment.); see also Coole, 202 B.R. at 519 (same). Because there was no overpayment here and we have already concluded that there was no loan, the present case does not fall within the meaning of the phrase. See Nelson, 188 B.R. at 33; Alibatya, 178 B.R. at 338 (No linguistic gyration can twist a no payment or underpayment by [the student] into an overpayment by [the school].). 49 Cazenovia urges that the word benefit may not be used to modify a noun in the first phrase of § 523(a)(8) and then as an independent noun in the last phrase of the same subsection. While ingenious, this argument is unpersuasive. When a word can have various grammatical functions, Congress is free to use any or all of them. In accordance with common English usage, when Congress wishes to indicate that a series of items is a set of alternatives, it consistently separates the items by commas and uses an or before the last one. That is precisely what it does elsewhere in § 523(a)(8) itself: made, insured or guaranteed; educational benefit, scholarship or stipend. If Congress had meant educational benefit, overpayment or loan, the statute would not read educational benefit overpayment or loan. 50 Moreover, the term educational benefit overpayment was added as a unit in 1990. See Federal Debt Collection Procedures Act § 3621(1), 104 Stat. at 4964-65. The sensible reading of the phrase is therefore that it includes loans or overpayments of educational benefits. See Peller, 184 B.R. at 669; Van Ess, 186 B.R. at 380 (describing Najafi's reading of the clause as strained, and contrary to not only its plain language, but also the legislative history).