So yeah, it happened: I won my appeal against National Collegiate Student Loan trust. Earlier this year, I appealed after the bankruptcy court dismissed my client’s adversary proceeding on summary judgment. I thought the court got it wrong. Thankfully, the bankruptcy appellate panel for the 8th Circuit agreed with me.
The short of it is the case will return to the bankruptcy court for National Collegiate Trust and me to argue some more about whether their private student loan is dischargeable in bankruptcy.
Here’s the long of it:
You should be able to get rid of TERI student loans in bankruptcy
I hear people say all the time that student loans aren’t dischargeable in bankruptcy. They think the only way to get rid of student loans is to use a student loan lawsuit defense like waiting for the statute of limitations to run out.
Before I became a student loan lawyer, I thought the same thing. But now, with education and experience behind me, I know that there are times when a student loan can be discharged in bankruptcy — even without proving undue hardship.
True, most student loans are dischargeable in bankruptcy only if you can prove to repay them will cause you or your dependents an undue hardship.
Precisely what that means isn’t clear. But what is clear is that undue hardship implies something more than just being broke. In some cases, you have to have experienced prolonged abject poverty and some type of disability to meet the hardship standard.
That’s the case for most student loans. But there are some student loans — particularly private student loans — you may be able to get rid of in bankruptcy without proving undue hardship.
The case I appealed is one of those types of loans (I believe).
Here’s a little background on the loan:
- Chase Bank loaned my client almost $30 thousand for one semester at St Louis Community College;
- The loan was made under Chase Bank’s Education One Loan Program;
- The Education Resources Institute (TERI) purportedly guaranteed some loans made under the loan program; and
- After the loan was made, it was eventually sold to National Collegiate Student Loan Trust LLC and later placed into a numbered trust.
My argument is this loan, which was made by Chase Bank but purportedly guaranteed by TERI, is dischargeable.
- The government didn’t make the loan;[footnote]11 USC § 523(a)(8)(A)(i)[/footnote]
- Nor did a nonprofit fund the loan program the loan was made under;[footnote]§ 523(a)(8)(A)(i)[/footnote]
- The loan isn’t like a scholarship or grant;[footnote]§ USC 523(a)(8)(A)(ii)[/footnote] and
- The loan isn’t a qualified education loan.[footnote]§ 523(a)(8)(B)[/footnote]
Of the four, National Collegiate and I are arguing about the second: whether TERI’s participation in the loan program means it (partially) funded the loan program.
A guarantee isn’t the same as funded
National Collegiate has argued that because TERI guaranteed some of the loans made under the program, it thereby funded the program. In NCT’s mind, guaranteed means the same thing as funded.
The problem with that thinking is that the two words mean two different things.
An entity can fund a loan program by either depositing money into it or causing money to be deposited into it. On the other hand, an entity guarantees a loan by promising to repay a loan if a borrower defaults on the loan.
If the difference between the two words seems evident to you, you’d be right. But you’d also be wrong — at least according to some bankruptcy courts.
When you dig into the research of how courts have defined funded in the context of § 523(a)(8), you’ll find a line of cases holding a nonprofit funds a loan program by merely guaranteeing loans made under it.
I disagree with those cases. I think they’ve gotten the law wrong. I think they’ve ignored Congressional intent. And I think they’ve ignored statutory interpretation.
Right now, I’m waiting on a new court date. Next up, I’ll likely start drafting discovery requests to try and better understand what role TERI played in the Education One loan program.
Maybe that won’t be necessary because National Collegiate Trust offers my client a favorable settlement in exchange for dismissing the lawsuit.??
A few days before trial, National Collegiate offered my client a settlement to make everything go away.
I’ll let this video tell it:
Let’s talk if you’re thinking about discharging your private student loans in bankruptcy and you want some help.