By: Donald L Swanson
Before 1998, (i) all student loans from for-profit lenders were dischargeable in bankruptcy, but (ii) student loans backed by the federal government or from non-profits were dischargeable in only these circumstances:
- when the student loan “became due more than 7 years . . . before the date of the filing of the petition”; or
- earlier, when a no-discharge result “will impose an undue hardship on the debtor and the debtor’s dependents.”[Fn. 1]
In 1998, Congress amended § 523(a)(8) by eliminating the “more than 7 years” standard, leaving students with only the “undue hardship” standard for discharging a student loan backed by the federal government or from a non-profit.[Fn. 2]
“Undue Hardship” Standard for All Student Loans
In 2005, by enacting Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), Congress amended § 523(a)(8) to its present form. Such amendment:
- cemented the “undue hardship” standard as the sole basis for discharging student loans; and
- added student loans from for-profit lenders to the list of nondischargeable loans.[Fn. 3]
Harsh Meaning of “Undue Hardship”
The problem with BAPCPA cementing the “undue hardship” standard and making it applicable to all student loans is this:
- the “undue hardship” standard had already been given an extremely-harsh meaning by prior case law.
—Brunner Opinion
In 1987, the Second Circuit issued its Brunner opinion,[fn. 4] which establishes a harsh meaning for the “undue hardship” standard. Brunner requires a debtor, for discharging any student loan, to present evidence:
- “not only of current inability to pay”; but
- “also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time.”
Application of the Brunner standard by bankruptcy and appellate courts within the Second Circuit and elsewhere has been exceptionally harsh. It is almost impossible to obtain a discharge of any student loan—regardless of the actual hardships involved.
–“Certainty of Hopelessness” Standard
In 1981, an opinion (In re Briscoe) describes the “undue hardship” standard for discharging a student loan like this:
- “while the repayment of the debt might work a hardship on this debtor, because of the gap between her expenses and her income, it does not constitute ‘undue hardship’ within the meaning of the statute”; and
- “It is clear that this debtor’s circumstances are not of a level encountered in the category of ‘exceptional’ hardship cases.”
The Briscoe opinion adds, under § 523(a)(8), that “the dischargeability of student loans should be based upon”:
- “the certainty of hopelessness”; and
- “not simply [on] a present inability to fulfill financial commitment.”[Fn. 5]
Why BAPCPA’s “Undue Hardship” is Unduly Harsh
To be sure, the Brunner and Brisco applications of the “undue hardship” standard for denying discharge of a student loan are harsh.
But the harshness in those opinions is mitigated by a safety valve within the version of § 523(a)(8) existing at the time of those opinions.
When the Brunner and Brisco opinions came down, a debtor could discharge that same student loan, without showing an “undue hardship” by simply waiting a while:
- for a 5-years aging in Briscoe; and
- for a 7-years aging in Brunner.
What makes BAPCPA’s version of § 523(a)(8) particularly—and unduly—harsh are:
- the absence of any 5-years or 7-years safety valve; and
- the addition of student loans from for-profit lenders into the list of nondischargeable student loans.
Conclusion
BAPCPA blew the roof off all prior levels of harshness for discharging student loans in bankruptcy.
BAPCPA did so by:
- cementing the “undue hardship” standard into § 523(a)(8), with its “certainty of hopelessness” history; and
- expanding the application of § 523(a)(8) to make never-before-included loans from for-profit lenders nondischargeable under the “undue hardship” standard.
The fallout from such BAPCPA action has been horrendous for many, many students facing actual hardships.
And that’s a shame!
20th Anniversary!
NOTE: The year 2025 is the twenty-years anniversary of the enactment of BAPCPA. This article is the fifth in a series of seven articles looking back over what BAPCPA has wrought.
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Footnote 1. See 4 Collier on Bankruptcy Ch. 523, at 523-3 (15th Ed. 1998) (emphasis is added).
Footnote 2. See, Scott Pashman, Discharge of Student Loan Debt Under 11 U.S.C. § 523(A)(8): Reassessing “Undue Hardship” After the Elimination of the Seven-Year Exception, 44 N.Y.L. Sch. L. Rev. 605, 606 (2000).
Footnote 3. The BAPCPA addition of for-profit lenders to the list of nondischargeable student loans occurs by this language in § 523(a)(8)(B): “any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986.”
Footnote 4. Brunner v. New York State Higher Education Service, 831 F.2d 395 (2d Cir. 1987).
Footnote 5. In re Briscoe, 16 B.R. 128, 131 (Bankr. S.D.N.Y. 1981) (emphasis is added).
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