Student Loan Purpose and the Brunner Test

Abstract

This Article offers a new rationale for making student loans more readily dischargeable in bankruptcy: Doing so advances Congress’s purpose in creating federal student loan programs in the first place. Empirical research indicates that if it is too hard to discharge loans in bankruptcy, students are less likely to pursue higher education, more likely to drop out, less likely to consider lower-income but valuable career paths, and more likely to be harmed rather than aided by their student loans. All these effects undermine Congress’s express aims for the student loan programs. Courts have ignored Congress’s larger purpose in setting the standard for student-loan dischargeability. Specifically, in construing the Bankruptcy Code’s requirement that a debtor show “undue hardship” to get a discharge of student loans, the court that announced the prevailing Brunner test and many courts following it have focused narrowly on furthering the purposes of the specific provision that makes student loans harder to discharge than most other debts. They have not, in interpreting the open-ended “undue hardship” requirement, been guided by the overarching purposes of the student loan programs. As a result, “undue hardship” is often interpreted too harshly, hindering federal student loan programs from accomplishing their purposes. The Article proposes a replacement for the Brunner test that would align the interpretation of “undue hardship” more closely with Congress’s goals. The Article suggests that undue hardship should be presumed to exist when the debtor cannot repay student loans in a reasonable (10-20 year) period of time while maintaining a middle-class standard of living. The presumption could be rebutted by a showing that the debtor is engaged in the opportunistic abuse that Congress tried to combat by restricting discharge. The proposal would further Congress’s student-loan program goals of expanding the middle class and moderating the length of time borrowers are in repayment. The Article concludes by observing that considering the overarching purposes of the student-loan programs as it proposes does not just support its specific suggestion, but also offers a new basis for adopting other recent proposals for liberalizing student-loan dischargeability.