Tuition Credit Dischargeable

Posted by NCBRC - April 2, 2015

Where the debtor did not actually receive any funds, her debt based on a tuition credit agreement with a for-profit institution was not excepted from discharge under section 523(a)(8)(A)(ii). Institute of Imaginal Studies v. Christoff, No. 14-1336 (B.A.P. 9th Cir. March 27, 2015). Tarra Nicole Christoff attended Meridian University, a for-profit California university. Upon admission to Meridian, the debtor received $6,000 in financial aid in the form of a tuition credit for which she signed a promissory note incurring the obligation to repay the loan at a rate of $350/month, 9% interest. Later, she entered into another tuition credit agreement for $5,000, under the same terms. No funds were ever transferred to the debtor under these agreements. Christoff defaulted on the debts and filed for chapter 7 bankruptcy. Meridian filed an adversary proceeding seeking to have the debts found nondischargeable under section 523(a)(8)(A)(ii), and moved for summary judgment. The bankruptcy court overruled Meridian’s motion for summary judgment and granted judgment in favor of the debtor. Inst. of Imaginal Studies dba Meridian Univ. v. Christoff (In re Christoff), 510 B.R. 876 (Bankr. N.D.  Cal. 2014).

The BAP for the Ninth Circuit affirmed.

Section 523(a)(8) lists three student loans that are nondischargeable: (A)(i) an educational benefit or loan through a governmental unit; (A)(ii) “an obligation to repay funds received as an educational benefit”; and (B) an educational loan that satisfies the definition set forth in section 221(d)(1) of the Internal Revenue Code. It was undisputed that the loan at issue here, if nondischargeable at all, would be excepted from discharge under subparagraph (A)(ii). As in the bankruptcy court, the appeal turned on the language excepting from discharge, “an obligation to repay funds received.” Meridian argued that “funds received” was equivalent to “loans received” as used elsewhere in section 523(a)(8). The debtor countered that “funds” and “loans” were not intended to be equivalent and that different rules apply to the type of loan specified in section 523(a)(8)(A)(ii). The court agreed with the debtor.

Looking at pre-BAPCPA interpretation of similar language in section 523(a)(8), the court found that the Ninth Circuit had interpreted the phrase “funds received” to contemplate the actual transfer of funds to the debtor (citing Ohio Univ. v. Hawkins (In re Hawkins), 469 F.3d 1316, 1317 (9th Cir. 2006)). Turning to the statute as restructured by BAPCPA, the court said, “[w]e agree with the bankruptcy court that the language of § 523(a)(8) is plain and that it must be read in context with a view to the overall statutory scheme,” bearing in mind that exceptions to discharge are to be read narrowly. While it was clear that the agreements between Meridian and the debtor created an “obligation to repay” “educational benefits,” the debtor did not receive any funds by reason of the agreements.  As a for-profit institution, Meridian could not benefit from the broader exception set out in section 523(a)(8)(A)(i), referring to “loan made.” The panel agreed that when Congress restructured section 523(a)(8), it reinforced the distinction between “loan made” and “funds received” by delinking the loans made by for-profit institutions from governmental or non-profit lenders and emphasizing actual receipt of funds as a condition for nondischargeability.

Christoff BAP9th opinion


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