Please cite at least 15 sources to support the essay
Essay Prompt: Before 1976, many debtors in bankruptcy proceedings could discharge student
loan debt, whether public or private. In 1976, Congress amended the Higher Education Act of
1965 to include Section 439A, which makes student loans non-dischargeable in bankruptcy
unless (a) more than five (5) years have passed since the repayment plan was entered into, or (b)
not discharging the loans would cause the debtor and their dependents an undue hardship. In
1978, Congress passed the Bankruptcy Reform Act, commonly referred to as the Bankruptcy
Code, which has been periodically amended to further limit a debtor’s ability to discharge
student loan debt. The most recent changes to the code were passed in 2005 when Congress
passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). Under
BAPCPA, Congress excepted certain student loans from discharge, namely, (i) if they were
made, insured or guaranteed by the government, (ii) made under any loan program funded in
whole or in part by the government or nonprofit institution, or (iii) private loans which are
considered “qualified education loans”.
Currently, the majority of Bankruptcy Courts apply the three-pronged “Brunner Test”,
established in Brunner v. New York State Higher Education Services Corp. (S.D.N.Y. Oct. 14,
1987) to discharge a student loan based upon an “undue hardship”. To establish an undue
hardship under Brunner, a debtor must show (1) based upon debtor’s current income and
expenses, they cannot maintain a normal standard of living for themselves or their dependents if
forced to repay the loans, (2) the state of affairs is likely to persists for a significant portion of the
repayment period, and (3) the debtor has made good-faith efforts to repay the loans. A minority
of circuits apply the “totality of the circumstances test” which does not require the third-prong in
Brunner.
According to the Education Data Initiative, approximately $43.2 million American student
borrowers are in debt by an average of $39,351 each.[1] Currently, student loan debt in the
United States totals $1.75 trillion and grows six (6) times faster than the nation’s economy. Id.
Please Discuss:
(1) both the history and current bankruptcy court policies regarding the dischargeability of
student loan debt;
(2) how this policy could be changed to balance the competing interests of alleviating the burden
imposed on student borrowers versus preventing abuse by borrowers; and
(3) to what extent should bankruptcy law and the bankruptcy courts be used to resolve the
student loan dilemma, and how can bankruptcy policy be part of larger national policy approach
to remedy the crisis in funding higher education.