Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors Be Impoverished to Discharge Educational Loans
![handle is hein.journals/tulr71 and id is 159 raw text is: Student Loans, Bankruptcy, and the Fresh
Start Policy: Must Debtors Be Impoverished
to Discharge Educational Loans?
Robert F. Salvin*
Most debts are dischargeable in bankruptcy without any inquiry into the debtor's ability
to effect repaynent. Student loans, however, are subject to unique treatment. During the first
seven years in which a student loan is in repayment, it is nondischargeable, except in cases
where continued liability will cause the debtor to experience undue hardship. The undue
hardship standard was not defined by Congress, and the courts have wrestled with its meaning.
Courts differ on the degree of the proof necessary to establish undue hardship and on the
appropriate test for determining its existence. The prevailing view is that undue hardship
should be interpreted strictly. Because most debtorsfacefinancial difficulty, and the repayrnent
of a loan will necessarily involve a degree of hardship, many courts state that undue hardship
is present only for debtors able to demonstrate unique and extraordinary circumstances or a
certainty of hopelessness. Consequently, debtors ofien face bankruptcy courts indifferent to
their circumstances and are commonly denied discharge of student loan indebtedness they will
have trouble repaying. This Article argues that the strict interpretation of the undue hardship
standard is at odds with the fresh start policy underlying the discharge of debt in bankruptcy.
Conditions of unmanageable indebtedness create a disincentive to productive participation in
the economy as a result of a debtor's inability to realize the benefits of his labor in the face of
creditor collection efforts. The fresh start policy seeks to restore debtors to productivity by
relieving them of debt they cannot otherwise pay. In the context of student loans, the fresh start
policy mandates that the undue hardship standard be interpreted in a manner that assures a
debtor s productive reintegration into the economy. Undue hardship should not be interpreted
so harshly as to leave debtors liable for student loans they will have to struggle to repay. To the
contrary, to provide debtors a stake in society and assure their reintegration in the economy,
undue hardship should be found to exist for any debtor who will not be able to maintain a
middle-class lifestyle and at the same time repay student-loan debt.
I. INTRODUCTION ............................................................................ 140
]I. LIMrING THE DISCHARGEABIL1TY OF EDUCATIONAL
LOANS iN BANKRupCY .............................................................. 144
A. Amending the Bankruptcy Code ........................................ 144
B. Interpreting the Undue Hardship Exception to the
Nondischargeability of Student Loans .............................. 149
* Judicial Clerk, United States Bankruptcy Court for the Eastern District of
Pennsylvania, Philadelphia, Pennsylvania. B.A., 1984, West Chester University; J.D., 1987,
University of Dayton. From 1991 to 1995, the author was a clinical instructor at Temple
University School of Law where he supervised a bankruptcy clinical program at the Temple
Legal Aid Office. The author wishes to thank Mary Hanna and Beryl Benson of the Temple
Legal Aid Office for their helpful comments on earlier drafts of this Article.](ViewImageLocal?handle=hein.journals/tulr71&div=12&collection=journals&method=preview&ext=.png&size=3)
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Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors Be Impoverished to Discharge Educational Loans
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