On August 31, 2020, the Tenth Circuit affirmed the United States Bankruptcy Court for the District of Colorado finding that certain student loans unsecured by a government unit may be discharged in bankruptcy.
Navient Solutions, LLC argued that debtors’ student loans were excluded from their Chapter 13 discharge under 11 USC § 523 (a) (8) (A) (ii) which excludes “an obligation to repay funds received as an educational benefit, scholarship, or stipend. The bankruptcy court dissected the provision and ruled that debtors’ tuition loans are not “obligations to repay funds received as a benefit.” educative “.
In reaching this conclusion, the bankruptcy court focused on a few key points:
- First, “an adjacent paragraph of the law excludes from the discharge ‘a education allowance overpayment Where to lend done, insured or guaranteed by a government unit. ‘ (Emphasis added.) So an education benefit is different from a loan.
- Second, the adjacent subsections expressly use the word “loans” and “it was not likely that Congress intended the exception in § 523 (a) (8) (A) (ii) to cover loans because he doesn’t mention the word ready at all. .
- Third, reading the word “loans” in § 523 (a) (8) (A) (ii) ”would violate the canon against overage.
- Fourth, student loans are not included in the term “funds received as an education allowance” because “each of the terms in the series” education allowance, scholarship or allowance “means conditional grants of money. which generally do not need to be reimbursed by their beneficiaries. , while the loaned money must be repaid.
The Tenth Circuit found the bankruptcy court’s reasoning to be sound and found it clear that “the obligation to repay funds received as an education allowance” and “student loans” have different meanings. The Court of Appeal went on to note that the term “education benefit”, similar to other benefits – retirement benefit or health benefit – is something that “does not generally need to be reimbursed” .
Ultimately, the Tenth Circuit found that § 523 (a) (8) (A) (ii), when read correctly in its opinion, “means a conditional funding grant for education – similar a stipend and a scholarship – as opposed to a loan of education funds.
The ruling weakens bankruptcy protections for private student lenders and signals the possibility for other courts across the country to follow suit and pay off some private student loans.