Stuart Ing, Esq.
Eric M. Boeing
Brian D. Flick, Esq.
Adam G. Schachter
John Hilla
Katie New
Kristen Wood, Esq.
Michael Goldstein
Morgan Teague
Peter Bricks
Tobias LickerAre obligations to repay tuition credits student loans? That’s the question addressed in a recent case out of the Bankruptcy Court for the Northern District of California.
Determining whether or not a particular debt is a student loan has become incredibly important in recent years. Congress’s 2005 reworking of the bankruptcy laws (“BAPCPA”) made student loans almost impossible to discharge. In the meantime, total student loan debt load in this country has risen to over one trillion dollars.
How does the Bankruptcy Code currently define student loans? They are either:
- “Educational benefits or loans” made or backed by the government;
- “Obligations to repay funds received as an educational benefit, scholarship, or stipend”; or
- Debts incurred solely to pay the cost of attendance at a higher education institution eligible to participate in federal student aid programs.
The case (Institute of Imaginal Studies v. Christoff, No.13-10808, A.P. 13-3186 (Bankr. N.D. Cal. June 11, 2014)) involved a woman who had enrolled in a school in 2002. That year, the school agreed to give her a $6,000 tuition reduction, which she agreed to repay at $350/month upon completion of coursework or withdrawal from the school. In 2003 they entered into a similar agreement for a principal amount of $5,000. In 2009, she withdrew, having completed her coursework but not her dissertation. She filed her Chapter 7 bankruptcy case in 2013, and sought to determine the dischargeability of these debts. All parties agreed these were not loans made or backed by the government, and that the school was not a qualified higher education institution. That left the second category as the only possible basis for exception from discharge.
The Court treated the matter as one of straightforward statutory interpretation: The Bankruptcy Code specifically mentions obligations to “repay funds received” (Section 523(a)(8)(ii)). Here, no funds were received; the school simply reduced its tuition. Previous cases had reached the opposite result, but the Court pointed out that they all dealt with the pre-BAPCPA law, which did not distinguish “funds received” from “loans”.
The decision has been appealed to the Ninth Circuit Bankruptcy Appellate Panel, but if it stands, it represents an exciting new way to chip away at the margins of the draconian student loan laws as they currently exist.
Bankruptcyblog.org 