Section 4.53 Student Loans

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

K. (§4.53) Student Loans

Under 11 U.S.C. § 523(a)(8), student loans are nondischargeable unless repayment would impose an undue hardship on the debtor or the debtor’s dependants. The debtor has the burden of establishing the hardship by a preponderance of the evidence. In re Reynolds, 425 F.3d 526, 528 (8^th Cir. 2005); In re Ford, 269 B.R. 673, 675 (B.A.P. 8^th Cir. 2001).

The BAPCPA amendments expanded the discharge exception to include any educational benefit, debt, or loan without regard to whether it was a debt to a profit-making entity, governmental entity, or government-guaranteed creditor. Section 523(a)(8). The BAPCPA amendments also expanded the nondischargeability provision to include qualified educational loans as defined in I.R.C. § 221(d)(1). Under § 221(d)(1), qualified educational loans are defined as debts incurred:

solely to pay educational expenses of the debtor or the debtor’s spouse or dependent; for expenses incurred a reasonable time before or after the debt is incurred; and while the recipient was an eligible student.

This includes refinancing of educational loans.

The main issue litigated in the discharge of student
loans is what constitutes “undue hardship,” which must be shown to receive the discharge. This determination has been left to the courts. In the Eighth Circuit, the applicable standard is the “totality of the circumstances.” In re Reynolds, 425 F.3d at 531–32; In re Long, 322 F.3d 549, 554 (8^th Cir. 2003) (reaffirming the Eighth Circuit’s totality-of-the-circumstances test originally set out in In re Andrews, 661 F.2d 702, 704 (8^th Cir. 1981)). The Long decision explained the totality-of-the-circumstances test as follows:

In evaluating the totality-of-the-circumstances, our bankruptcy reviewing courts should consider: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s and her dependent’s reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case. 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...