BAP Reverses Finding of Student Loan Exception from Discharge

Posted by NCBRC - December 7, 2018

Where evidence of the non-profit entity’s involvement in the debtor’s student loan was minimal, the bankruptcy appellate panel found that the lender should not have been granted summary judgment on the issue of nondischargeability. Page v. JP Morgan Chase Bank, No. 18-6011 (B.A.P. 8th Cir. Nov. 20, 2018).

Richelle Page obtained a loan from Chase Bank through its Education One Undergraduate Loan Program. The loan was then sold to the National Collegiate Student Loan Trust (NCSLT). When she filed for bankruptcy, NCSLT sought a finding that the loan was nondishargeable under section 523(a)(8). The bankruptcy court granted NCSLT’s motion for summary judgment.

Section 523(a)(8)(A)(i) creates an exception from discharge for “an educational . . . loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution.”

On appeal, Ms. Page challenged the bankruptcy court’s finding that the loan met the definition of “educational loan,” citing the loan’s commercial attributes. Though the loan specified that Ms. Page would be personally responsible for any amount not spent on her education, and Ms. Page, in fact, spent the funds on non-education-related expenses, the panel agreed with the bankruptcy court that the loan was an “educational loan.” The panel looked to the original purpose of the loan finding that it met the test for “educational loan,” because it was identified as an “undergraduate loan,” was made through an education loan program, covered the academic year, and specified that Ms. Page was enrolled in school.

The panel next addressed whether the loan was funded by a nonprofit institution, noting that many courts when faced with this issue apply a “meaningful contribution” test under which the entity argued to have funded the loan must have committed resources or other thing of value to make the program successful. In this case, the loan application specified that it be mailed to the non-profit organization, The Educational Resources Institute (TERI). The bankruptcy court concluded that TERI expended funds toward the loan by its role as recipient and processor of the Bank’s mail and that further evidence of a contribution was unnecessary. The panel, without deciding whether to adopt the meaningful contribution test, found the evidence upon which the bankruptcy court based its conclusion insufficient.

The panel noted that the application included a fax number for submission that was not identified as belonging to TERI, no evidence was presented indicating how Ms. Page submitted her loan application, there was no evidence that TERI employees actually processed the application, and there was conflicting evidence as to whether TERI guaranteed the loan.

Bearing in mind that exceptions to discharge must be read narrowly and that inferences in a motion for summary judgment must favor the non-moving party, the panel found the bankruptcy court’s conclusion that TERI funded the loan was in error. The panel reversed and remanded with instructions to the bankruptcy court to consider whether TERI guaranteed the loan or was otherwise more than peripherally involved in its processing.

Page BAP 8th Nov 2018


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