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Texas Bankruptcy Judge Holds that Not Every Loan Related to Education is a Nondischargeable Student Loan in Purported Class Action

Bankruptcy Code Section 523(a)(8) generally prohibits a discharge of student loan debt, unless the student debtor can prove that paying it back would be an undue hardship—often a high bar. That does not stop student debtors from attempting to discharge certain loans related to their education, however, and bankruptcy courts appear increasingly willing to entertain such attempts in certain instances. A recent example is the March 2018 decision in Crocker v. Navient Solutions, LLC (In re Crocker) in the Southern District of Texas.


In Crocker, the Bankruptcy Court held that a debtor’s bar exam study loan and another debtor’s career training loan for tuition expenses at an unaccredited technical school were not nondischargeable. The student loan creditor has appealed this decision to the Fifth Circuit. This case has received additional attention because the plaintiffs sought to pursue their claims against the student loan creditor as a class action. In its decision, however, the Bankruptcy Court did not rule on whether the case can be brought as a class action.


Crocker did not break new ground in holding that either debt was dischargeable. In 2016, the Bankruptcy Court for the Eastern District of New York reached the same conclusion regarding a bar exam study loan in Campbell v. Citibank, N.A. (In re Campbell). And in 2002, the Bankruptcy Court for the Eastern District of Missouri held that a loan for a truck driving course from a business was not excepted from discharge in Scott v. Midwestern Training Center, Inc. (In re Scott).


Crocker, Campbell, Scott and more have focused on the definition of educational benefit as used in Section 523(a)(8) and found that the loans at issue did not provide the kind of educational benefit intended by Congress to be immune from the bankruptcy discharge. As the Crocker court put it, that definition does “not include all loans that were in some way used by a debtor for education. If such were the case, would not a loan for a car used by a commuter student to travel to and from school every day be nondischargeable?”


Some members of Congress have also shown a renewed interest in the Bankruptcy Code’s treatment of student loans. There are currently three bills introduced in the House of Representatives that would amend Section 523(a)(8). The Discharge Student Loans in Bankruptcy Act of 2017 (H.R. 2366) and the Student Loan Borrowers’ Bill of Rights Act of 2017 (H.R. 3630) both propose to eliminate Section 523(a)(8) entirely, rendering all student loans dischargeable. The Private Student Loan Bankruptcy Fairness Act of 2017 (H.R. 2527) takes a more modest approach. It only proposes to make all private student loans dischargeable. All three bills have been referred to committee, but, notably, The Discharge Student Loans in Bankruptcy Act of 2017 has bipartisan support.


Regardless of whether Congress amends (or eliminates) Section 523(a)(8), several bankruptcy courts seem willing to apply the existing statutory framework more flexibly, and to permit a discharge of education-related debt in certain instances. It will be interesting to see what the Courts of Appeals do with this emerging trend when a case is finally before them.