SCOTUS Petitioned To Rule On Undue Hardship And Student Loans
The Supreme Court of the United States was petitioned to provide clarity on which test should be used to determine “undue hardship” regarding school loans during a petition for bankruptcy relief.
According a recent report by CNBC, 40 million borrowers owe an estimated $1.2 trillion in outstanding student loan debt. This translates to an average balance of $29,000 per borrower. This debt results from the combination of a tough job market and high tuition costs. In an attempt to find a fresh start, one former student is fighting back, attempting to discharge student loan
debt through bankruptcy.
In most cases, discharging student loan debt through bankruptcy is difficult. The Bankruptcy Code allows for student loans to be discharged in cases of “undue hardship.” Unfortunately, different courts apply different tests to determine if an applicant’s situation merits “undue hardship.” As a result, whether or not a petition to discharge student loan debt is accepted may depend on the court considering the application. This issue leads to the case at hand. Essentially, the student behind the case is asking for the Supreme Court of the United States (SCOTUS) to rule on which test is right.
Tests used to determine undue hardship
As stated in the Petition for a Writ of Certiorari, some courts use the
Brunner test. This test, developed in the case
Brunner v. N.Y. State Higher Education Services Corp., includes a review of three elements. The issue revolves around one of these elements. Some courts require the applicant to establish a past good faith effort to repay the loans and a “certainty of hopelessness” that the applicant will ever repay the loans in the future. Other courts apply a different version of this test. Instead of requiring a “certainty of hopelessness” they require that the applicant’s inability to pay is “likely to persist for a significant portion of the repayment period.”
Still other courts apply a more lenient “totality of the circumstances” standard.
Issue in this case
The applicant is asking SCOTUS to determine whether the
Brunner test is the test courts should use determine if the applicant’s student loans create an “undue hardship” and qualify for discharge through bankruptcy. If the court determines this is the appropriate test, the applicant also asks SCOTUS to remove the “good faith effort to repay loans” language. The case also contends that the language of the rule should establish that the applicant only needs to show by a preponderance of evidence that the inability to pay the loans is “likely to persist for a significant portion of the repayment period” as opposed to showing a “certainty of hopelessness.”
Impact of the case
If SCOTUS agrees to hear the case, it could result in a bright line rule used by courts throughout the country. This rule would likely ease the difficulties of discharging student loan debt in bankruptcy.