Eligibility for REPAYE Relevant Consideration for Student Loan Discharge

Posted by NCBRC - August 17, 2021

The 51-year-old debtor with no mental or physical impairments, no dependents, and a history of underemployment, could not discharge her over $650,000 in student loans as undue hardship but must participate in the offered income-based repayment plan. Parvizi v. U.S. Dept. of Ed., No. 18-30578, Adv. Proc. No. 19-3003, 2021 WL 1921121 (Bankr. D. Mass. May 12, 2021), motion to amend judgment granted, July 28, 2021.

The pro se chapter 7 debtor entered bankruptcy with a student loan debt of over $650,000 which she sought to discharge as undue hardship under section 523(a)(8). She was 51-years-old, had no dependents, spoke four languages, and had no physical or mental impairments standing in the way of employment. She obtained multiple degrees including a medical degree though she never completed a medical residency. She described years of under-employment, most often in education. She made clear that so long as she could live comfortably, she sought employment for personal fulfillment rather than for maximizing her income. Though she could avail herself of an income-based repayment plan at a rate of $80/month, she chose not to, in part because she blamed the psychiatric residency program from which she voluntarily withdrew for failing to provide her with the education it promised.

In determining whether the debtor was entitled to discharge of the student loan balance, the court applied a totality of circumstances test under which it considers “all relevant evidence—the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under chapter 7 and the debtor’s ability to find a higher-paying job, move or cut living expenses.” The court also considered the debtor’s future ability to earn an income and the availability of an income-based repayment plan.

Applying these factors, the court found the debtor had marketable skills, many more years of earning potential ahead of her, and had not maximized her income. The court weighed these considerations against the size of the student loan, finding that “common sense” suggested that even if the debtor maximized her income, repaying the $650,000 loan would not be possible. It went on to find, however, that “the Debtor’s ability to participate in the REPAYE program weighs heavily against the Debtor’s argument that repayment of the student loans would impose an undue hardship.” It found in favor of the DOE.

In its original decision, the court ordered that “judgment will enter for the DOE, except that pursuant to § 105(a), the Court will order that any student loan debt remaining unpaid upon the Debtor’s completion of the REPAYE program or any comparable program is deemed discharged as an undue hardship pursuant to § 523(a)(8).” Upon the DOE’s motion to amend judgment, the court withdrew that portion of the order of discharge under section 105(a) as exceeding the scope of arguments raised and evidence raised by the debtor stating: “Accordingly, the Court will enter an amended judgment in favor of the DOE which removes the provision that any remaining student loan debt owed to the DOE after the completion of the REPAYE or similar program is deemed excepted from the Debtor’s discharge pursuant to 11 U.S.C. § 523(a)(8).”

The debtor has appealed this decision to the Bankruptcy Appellate Panel for the First Circuit, case no. 21-21.

Parvizi Bankr. Mass May 2021

Parvizi amended order




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