Spring 2025 Scholarship Essay Contest – Essay Topic and Application

• Bankruptcy Solutions
• Foreclosure Solutions
• Modification & Negotiation
• Credit Card Debt Relief

**SPRING 2025 SCHOLARSHIP ESSAY**
History of Student Loan Forgiveness: Laws, Policy, and Politics; as it Interacted with Bankruptcy Law

The Spring 2025 Scholarship Essay topic is based on the history of student loan forgiveness, policy, and governmental structure. To complete the Essay, reference Part I. “Background Facts,” to develop a workable understanding of the topics at issue. After reviewing Part I, including the footnotes or doing your own research, go to Part II. “Essay Questions.” After reading the essay questions, choose one or more questions to write a 2,500-word essay about. In your essay, take a position on the issues raised and use citations to support your arguments. Lastly, make sure to state what question you are answering in your essay.

I. BACKGROUND FACTS

• General Background

The historical treatment of student loan forgiveness, especially student loan forgiveness in bankruptcy is nuanced, complex and wrapped up in a vacillating interplay of politics, policy and law. It is an interesting study of the division of powers – between legislative, executive and judicial – in our intentionally divided and hopefully balanced system of government.

• Historical Efforts

Student loans have a long history dating back to 1944. Congress enacted the student program to help more Americans obtain higher education, but not without a price. Today, the United States has $1.75 trillion dollars in student debt.

Discharging student loans through bankruptcy has become more challenging over time, beginning in 1976 when the Higher Education Act was amended. The amendment prevented debtors from discharging their student loans during the first 5-years of repayment, unless the debtor was experiencing undue hardship. Following the amendments to the Higher Education Act, Congressed enacted 11 U.S.C. §523(a)(8) (hereinafter “§523(a)(8)”) to address concerns about abusive student debtors. In 1990, under the Crime Control Act of 1990, the discharge period was lengthened from 5 years to 7 years In Every Issue:, Legislative Update, Student Loans and Bankruptcy: Recommendations for Reform, 39-3 ABIJ 8.). In 1998, the Higher Education Act amended the bankruptcy code and “eliminated the 7-year exception, leaving only the undue hardship exception to [discharging student debt].” In 2005, Congress enacted the “Bankruptcy Abuse Prevention and Consumer Protections Act of 2005.” §220 of the Act amended §523(a)(8) of the Bankruptcy Code and codified the exemption of private student loans from being discharged. Since the 1998 amendments to §523(a)(8), courts developed their own tests for identifying undue hardship, since Congress never stipulated what undue hardship is. The Brunner Test, set forth by the Second Circuit Court of Appeals in New York in 1987, is the most widely used test for determining undue hardship. Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). When Brunner was decided debtors could discharge their student loans after five-years, or by proving undue hardship. The policy reason behind undue hardship was that “a loan… that enables a person to earn substantially greater income over his working life as a matter of policy should not be dischargeable before he has demonstrated that for any reason, he is unable to earn sufficient income to maintain himself and his dependents.” Most attorneys and litigants would agree that the Brunner Test (Brunner) is extremely difficult to overcome. Under the “Brunner Test” the debtor must demonstrate: “(1) that the debtor cannot, based on current income and expenses, maintain a “minimal” standard of living for himself or herself and his or her dependents if forced to repay the loans, (2) that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan, and (3) that the debtor has made good faith efforts to repay the loans.” (Id). The “Brunner Test” is not applied liberally, undue hardship is based on the debtor’s certainty of hopelessness under the “Brunner Test.” However, the 1st and 8th Circuits have adopted a more humanistic test for analyzing undue hardship, the “totality of the circumstances” test. “Courts that have adopted the totality of the circumstances approach to undue hardship usually do so on the grounds that ‘case-by-case approach that is fact sensitive’…’affords a determination that contextually considers both the debtor’s situation and the policies underlying §523(a)(8) …’” Hicks v.Educ. Credit Mgmt. Corp. (In re Hicks), 331 B.R. 18, 24 (Bankr. D. Mass. 2005)) The “totality of the circumstances” test “reflects the fact that the lives of all debtors are complex and each individual case is entitled to be evaluated in its context.”  Id.) “Under the totality of the circumstances test, debtors must prove, by preponderance of the evidence, that continuing to be obligated to their student loans would impose undue hardship.” Three factors are examined under the totality of the circumstances test, (1) the debtors past, present, and reasonably reliable future financial resources; (2) the debtor’s reasonably necessary living expenses; and (3) “the Court examines debtors’ undue hardship argument ‘on the unique facts and circumstances surrounding the particular bankruptcy’”.) In re Swafford, 604 BR 46, 49 [Bankr ND Iowa 2019].) Based solely on the language of the two tests, it is clear to see why debtors in a “totality of the circumstances” jurisdiction are more likely to have their student loans discharged. Therefore, in America, whether a debtor’s can successfully discharge their student loans through bankruptcy depends on where they live. Today, both “Brunner” courts and “Totality of The Circumstances” courts consider and sometimes request, the debtor’s enrollment in an income-based repayment (IBR) plan before they resort to bankruptcy. Evidence of IBR is commonly used to demonstrate good faith efforts to repay the loan and helps debtors who cannot maintain their standard of living while making IBR payments prove “undue hardship.”

• Present Efforts

In 2012, when our nation’s student debt reached $1 trillion, a union for debtors began advocating for the debt to be forgiven. In 2022, President Joe Biden, announced that he would cancel up to $20,000 of an individual debtor’s student loans. However, Biden’s student loan forgiveness program was short lived, as it was quickly shut down by the Supreme Court who deemed the program “unconstitutional.” There are many reasons why student loans should not be forgiven, as some argue that forgiving student loans seem like an unwarranted gift to those with higher earning potential and privilege. However, the Biden-Harris administration is continuing to work on a plan that will likely forgive student loans by October 2024.  They’ve announced numerous plans that, if, implemented would provide over $30 Million in debt relief. 

In 2022, The Justice Department (DOJ) in collaboration with the Department of Education (DOE) rolled out a “successful” new process for discharging federal student loans through bankruptcy. 2023 data showed, “that the new process is making it easier for eligible debtors” to discharge their student debt through bankruptcy. The DOJ’s and DOE’s “new process” is striking because Congress’s standard for discharging student debt through bankruptcy remains higher than for discharging other kinds of debt. Additionally, the 2022 guidance shows a significant shift within our federal government, as the issue of discharging student loans has not been addressed in decades. The new process provides DOJ attorneys with guidance for how to evaluate “undue hardship.” The goal was to (1) set forth clear and consistent expectations of discharge; (2) simplify the fact gathering process; and (3) when supported by fact, increase the number of cases where the government recommends discharge. In This Issue:, Consumer Corner, DOJ Provides Guidance on Evaluating Federal Student Loan Discharge Requests in Bankruptcy, 42-4 ABIJ 14) As a result, the new process will help bankruptcy judges in proving relief for debtors, and help them interpret Congress’s “undue hardship” standard for discharging student debt through bankruptcy. A debtor is eligible for the discharge of student loans if they can show that they’re likely to experience an “undue hardship.” During an undue hardship analysis the debtor’s past, present and future financial circumstances are evaluated. The DOJ’s and DOE’s new process uses the DOE’s data and the debtor’s completed attestation when deciding whether to recommend that the bankruptcy judge discharges the debtor’s student loan debt. The debtor has the burden of proving “undue hardship.” After the debtor files for bankruptcy, the debtor will prepare and submit the attestation to the DOJ. The DOE then provides a litigation report to the DOJ, the litigation report contains information about the debtor’s student loan and educational history, which reduce the debtors burden of proving undue hardship. Together, the agencies make a recommendation. The new process is meant to provide judges and litigants with insight into what the agency believes is “undue hardship.”  “Ultimately bankruptcy judges will have the final say as to whether the debtor meets the undue hardship standard.” By way of illustration, the court in re Love stated that, “there is no requirement of law that administrative remedies have been exhausted before a § 523(a)(8) ‘undue hardship’ action is ripe for decision.” Love v. U.S. Dep’t of Educ. (In re Love), 649 B.R. 556 (Bankr. E.D. Cal. 2023). Still, under this new process debtors should have confidence about whether they meet the requirements of undue hardship.

• Recent Supreme Court Ruling

The history of student loan forgiveness and how this issue is addressed by different branches of our government, has recently had a potential update with the United States’s Supreme Court decision on June 28, 2024, in Loper Bright Enterprises v. Raimondo. The question remains, will the overruling of the Chevron Doctrine affect the effectiveness of the DOJ’s and DOE’s new process for discharging federal student loans? Prior to Loper, under the Chevron Doctrine, when faced with an ambiguous statute, the courts would refer to the administrative agency’s interpretation. Chevron deference protected agencies’ interpretations of ambiguous statutes from being overturned by federal courts. Chevron, U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837 (1985). The overturning of the Chevron Doctrine curtails agencies’ powers, and directly affects their influence over federal courts decisions. In Loper Bright Enterprises v. Raimondo  , the Supreme Court held that courts must exercise their independent judgment in deciding whether an agency has acted within its regulatory authority. Additionally, courts can no longer defer to an agency’s interpretation of an ambiguous statute.Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024). The Loper decision can have a harsh impact on the DOJ’s and DOE’s ability to implement their new process for discharging student loans through bankruptcy. The DOJ’s and DOE’s new process may be affected by the overturning of the Chevron Doctrine because, courts are no longer allowed to defer to agencies’ interpretations of ambiguous statutes. Under 11 U.S.C. §523(a)(8) for the bankruptcy code, the term “undue hardship” was never defined by Congress. Courts were left to determine what constitutes “undue hardship” and in some jurisdictions it has become almost impossible to discharge student loan debt. The new process was developed to help the DOJ evaluate “undue hardship” so they could make a recommendation to the court. Therefore, Loper may make the DOJ’s and DOE’s recommendations regarding debtors’ eligibility less influential, which could put a wrench in the new process. However, the agencies may rely on the Skidmore Doctrine and continue to move forward with the new process. The Skidmore Doctrine only applies when the statutory language is ambiguous. Under the Skidmore Doctrine, agencies’ interpretations and opinions are not controlling on the court. Instead, their interpretations and opinions are viewed as experiences and informed judgments that courts can resort to for guidance.