Written by: Robert DeMarco

There has been a great deal of discussion lately regarding the mounting student loan debt in this country. It has risen to obscene levels – something akin to a rising death spiral. How the $1.2 Trillion College Debt Crisis is Crippling Students, Parents and the Economy, Chris Denhart What I mean, is that as money for college becomes more available, demand for college increases. As demand for college increases, tuition increases. As tuition increases, more money needs to be borrowed, which funds remain readily available. The result: sky rocketing tuitions and unfathomable student debt.

The current student loan program is an outright failure. While it has made college more available, it has simultaneously devastated the lives of many college students. While students receive a college degree, the price paid for that degree is indentured servitude as many students graduate from college with student loan obligations in excess of fifty thousand dollars To compound this folly, there are too many college graduates for the work force to absorb. Expand Vocation Training, Cut College Enrollments to Attack Inequality, Peter Morici.

That being said, I have been paying more attention to bankruptcy cases that deal with student loans. An interesting case from Oregon involved the dischargeability of a student loan from a “for profit” flight school. In re Nunez, 527 BR 410 (Bankr. D. Oregon, 2015) involved a motion for summary judgment concerning a $120,105 loan from Key Education to finance Mr. Nunez’ flight education at Wings of the Cascades operated by Spirit Flight, Inc.

For financial reasons, Mr. Nunez never completed flight school and ultimately filed a chapter 7 bankruptcy petition.  During the chapter 7 bankruptcy, Mr. Nunez, through counsel, filed an adversary proceeding to determine the dischargeability of the Key Education loan.

The Bankruptcy Court, Andrew B. Harris presiding, concluded the debt was dischargeable under 11 U.S.C. § 523(8)(A), which ruling would be consistent with treatment of student loans prior to the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). See Plumbers Joint Apprenticeship and Journeyman Training Committee v. Rosen (In re Rosen), 179 B.R. 935 (Bankr.D.Or.1995).

Moreover, the Court, relying upon canons of statutory construction and the pre-BAPCPA treatment of 11 U.S.C. § 523(8), proceeded to analyze 11 U.S.C. § 523(8)(B) independent of 11 U.S.C. §§ 523(8)(A)(i) and (ii). A student loan is not dischargeable under 11 U.S.C. § 523(8)(B) so long as that loan is a “qualified education loan.” A “qualified education loan” means the cost of attendance at an “eligible educational institution” as defined in 26 U.S.C. § 25A(f)(2). “Eligible educational institutions” are defined in 26 U.S.C. § 25A(f)(2) as those institutions described in section 481 of the Higher Education Act of 1965 and which are eligible to participate under title IV of the Higher Education Act. The government maintains a list of all such schools, which list is updated annually. Neither Wings of the Cascades nor Spirit Flight, Inc., appear on that list at the relevant times. As such, the Key Education loan was found to be dischargeable.

As a practice pointer, one should always check the School Codes List in order to confirm whether or not your client has a student loan subject to 11 U.S.C. § 523(8)(B). The current School Codes List for the 2015-2016 school year may be found at the Federal Student Aid website.