The Revival of Student Loan Discharge in Bankruptcy by the Tenth and Second Circuits

Introduction

As of 2020, the collective American student loan debt was approximately $1.6 trillion, a number that has doubled in the last ten years and is projected to grow to $3 trillion or more in the next ten years.1Abigail Johnson Hess, How Student Debt Became a $1.6 Trillion Crisis, CNBC make it (June 12, 2020, 11:33 AM), https://www.cnbc.com/‌2020/‌06/‌12/‌how-student-debt-became-a-1point6-trillion-crisis.html [https://perma.cc/‌7P9Q-JNMB]; Daniel M. Johnson, What Will It Take to Solve the Student Loan Crisis?, Harv. Bus. Rev. (Sept. 23, 2019), https://hbr.org/‌2019/‌09/‌what-will-it-take-to-solve-the-student-loan-crisis [https://perma.cc/‌5LGR-8ZU2]; Wesley Whistle, What Is Driving the $1.5 Trillion Student Debt Crisis, Forbes (Sept. 1, 2020, 2:00 PM), https://www.forbes.com/‌sites/‌wesleywhistle/‌2020/‌09/01/‌what-drives-the-15-trillion-student-debt-crisis [https://perma.cc/‌9BFH-R8Q5]. This is not a new phenomenon, and the reasons for its staggering growth have been quite clear: increased cost of attendance, stagnant federal grants, increased enrollment, and increased importance of graduate degrees and professional doctorates.2See Whistle, supra note 1. Student loan debt is one of the largest amounts of debt, exceeding credit card and auto loans, and only falling behind mortgage debt.3Zack Friedman, Student Loan Debt Statistics in 2020: A Record $1.6 Trillion, Forbes (Feb. 3, 2020, 6:51 PM), https://www.forbes.com/‌sites/‌zackfriedman/‌2020/‌02/‌03/‌student-loan-debt-statistics [https://perma.cc/‌36D3-95AU].

Meanwhile, the purpose of the Bankruptcy Code is to rehabilitate honest debtors and give them a fresh start to their economic life by discharging their debts.4See Aaron N. Taylor & Daniel J. Sheffner, Oh, What a Relief It (Sometimes) Is: An Analysis of Chapter 7 Bankruptcy Petitions to Discharge Student Loans, 27 Stan. L. & Pol’y Rev. 295, 300 (2016). Unfortunately, the Bankruptcy Code does little to provide relief for students who are honest but unfortunate debtors who became victims of predatory private student loans.5See Elizabeth K. Lamphier, Are Student Loans No Longer the “Third Rail” of Bankruptcy?, 37 Am. Bankr. Inst. J. 56, 56 (2018). Section 523(a)(8) of the Bankruptcy Code automatically excepts most student loans from discharge, unless the student can prove that repayment of the loan is an undue hardship.6Id.; see also infra Section I.A.1. In order to get a student loan discharge, debtors must go through an adversary proceeding7See David Gray Carlson, The Federal Rules of Bankruptcy Procedure in Reorganization Cases: Do They Have a Constitutional Dimension?, 84 Am. Bankr. L.J. 251, 254 (2010) (“[A]ccording to the Bankruptcy Rules, certain actions can only be accomplished in an adversary proceeding. Salient on the list is the avoidance of liens. . . . Also on the adversary proceeding list is ‘(6) a proceeding to determine the dischargeability of a debt.’” (footnote omitted)). to prove undue hardship—a standard that has been harshly interpreted by the courts.8See Edward Paul Canterbury, Comment, The Discharge of Student Loans in Bankruptcy: A Debtor’s Guide to Obtaining Relief, 32 Ohio N.U. L. Rev. 149, 159 (2006). “Incredibly, only 0.1 percent of student loan debtors who have filed for bankruptcy attempt to discharge their student loans.” Jason Iuliano, An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard, 86 Am. Bankr. L.J. 495, 495 (2012). Iuliano’s study found that judges grant full discharges to twenty-five percent of debtors and partial discharges to fourteen percent of debtors. Id. at 505, 507. Most students who were granted discharges showed they had difficulty finding employment, had a medical hardship, and had lower annual incomes the year prior to filing for bankruptcy. Id. at 501.

Student debtors can avoid the undue hardship standard if their loans are not student loans, and not all loans taken out by students are inherently student loans. Section 523(a)(8)(A)(i) excepts student loans “guaranteed by a governmental unit” from discharge.911 U.S.C. § 523(a)(8)(A)(i). This refers to federal student loans. In 2005, Congress added § 523(a)(8)(B),10Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 220, 119 Stat. 23, 59 (codified as amended at 11 U.S.C. § 523(a)(8)). which rendered nondischargeable private and for-profit student loans that are considered “qualified education loan[s]”11“Qualified education loan” is defined as follows: [A]ny indebtedness incurred by the taxpayer solely to pay qualified higher education expenses— (A) which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, (B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and (C) which are attributable to education furnished during a period during which the recipient was an eligible student. I.R.C. § 221(d)(1). under § 221(d)(1) of the Internal Revenue Code.

There is, however, a third concept, besides governmentally guaranteed student loans and qualified education loans. According to Bankruptcy Code § 523(a)(8)(A)(ii), no discharge is available for “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”1211 U.S.C. § 523(a)(8)(A)(ii).

Recently, the Tenth and Second Circuits adopted narrow readings of § 523(a)(8)(A)(ii), creating more protection for student debtors.13See McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083 (10th Cir. 2020); Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 599 (2d Cir. 2021). In McDaniel v. Navient Solutions, LLC (In re McDaniel) and Homaidan v. Sallie Mae, Inc., Sallie Mae—later Navient—advanced private loans14McDaniel, 973 F.3d at 1086; Homaidan, 3 F.4th at 598. that were not guaranteed by the government15See 11 U.S.C. § 523(a)(8)(A)(i). and were not a qualified education loan under Internal Revenue Code § 221(d)(1).16See id. § 523(a)(8)(B). Navient therefore appealed to the third idea for nondischargeability in § 523(a)(8).17See McDaniel, 973 F.3d at 1086; Homaidan, 3 F.4th at 599. Navient argued that the loan fell under § 523(a)(8)(A)(ii)’s “educational benefit.”18See 11 U.S.C. § 523(a)(8)(A)(ii); McDaniel, 973 F.3d at 1098; Homaidan, 3 F.4th at 599. The claims were rejected by the Tenth and Second Circuits.19See McDaniel, 973 F.3d at 1104; Homaidan, 3 F.4th at 599.

The Tenth and Second Circuits’ decisions then raise the question: When is a loan to a student not a student loan as described by § 523(a)(8)? If a student debtor can prove that the loan is not government guaranteed nor a “qualified education loan,” the student deserves a discharge of their loan obligation, even in the absence of an undue hardship caused by repayment. This Note will answer that question and discuss when a loan is not within § 523(a)(8)’s reach by examining the Tenth and Second Circuits’ interpretation of “educational benefit” in McDaniel and Homaidan.

This Note proceeds in two Parts. First, Part I provides the background regarding student loan discharge in bankruptcy proceedings. It first explains discharges generally, with a brief discussion of the difficult standard for undue hardship for repayment of genuine student loans. Part I then reviews § 523(a)(8)(A)(i)’s government-guaranteed loans. Next, Part I describes § 523(a)(8)(B)’s private qualified education loans as defined by the IRS. Part I closes with a discussion of § 523(a)(8)(A)(ii)’s educational benefits, stipends, and scholarships, focusing on McDaniel and Homaidan.

Part II gives an analysis of the Tenth and Second Circuits’ holdings. First, Part II explains the judicial shift towards the narrow reading of “educational benefit.” Then, Part II discusses what the McDaniel and Homaidan decisions mean for student debtors and explores how past student loan discharge decisions may be different under these decisions. Lastly, Part II looks forward and addresses the impact of McDaniel and Homaidan on the student loan system.

I. Background and Prior Law

A. What Is a Loan Discharge?

For many individual debtors, discharge of debt is the end goal of filing for bankruptcy.20See Mark S. Zuckerberg & Amanda K. Quick, Bankruptcy: Exceptions to the Bankruptcy Discharge, Res Gestæ, Oct. 2013, at 32, 32 (“A personal bankruptcy filing immediately gives debtors relief from their financial burdens by means of the automatic stay. At the end of a bankruptcy case, debtors are able to get a fresh financial start by discharging the vast majority of their debts.”). Bankruptcy Code § 524 lays out the effects of discharge.2111 U.S.C. § 524. Under § 524(a)(1), any prepetition judgment against a debtor is rendered void.22Id. § 524(a)(1) (“A discharge . . . voids any judgment at any time obtained . . . .”). As a result, a creditor is deprived of the ability to execute on any such judgment.23See Zuckerberg & Quick, supra note 20, at 32 (“Creditors, on the other hand, are generally left with no recourse against debtors who have obtained a bankruptcy discharge.”). A discharge also operates as a permanent injunction to prohibit creditors from taking any collection or legal action on the debts and from communicating with the debtor about the discharged obligation.2411 U.S.C. § 524(a)(2) (“A discharge . . . operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset any such debt . . . .”). However, a loan discharge does not mean the loan obligation disappears completely. Although the creditor can no longer take collection action on the loan, § 524(f) allows the debtor to voluntarily repay the loan.25Id. § 524(f) (“Nothing . . . prevents a debtor from voluntarily repaying any debt.”). This means that the loan, although discharged, continues to exist, and the debtor may repay the loan if she believes it should be repaid.26See William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 Am. Bankr. L.J. 397, 401 (1994) (“[M]any debtors have ethical objections to obtaining a bankruptcy discharge for debts to which there is no defense. However, there is nothing about a discharge in bankruptcy that prevents a debtor from repaying loans that the debtor believes should be repaid.”). There is no legally enforceable obligation on her to do so.2711 U.S.C. § 524(f).

In a Chapter 728Chapter 7 provides for the liquidation of a debtor’s nonexempt assets. See Taylor & Sheffner, supra note 4, at 299–300. There is no repayment plan in Chapter 7 as all repayments are made with the debtor’s liquidated assets. See id. at 300. Debtors will keep their exempt assets, such as their residence, car, retirement accounts, and any necessary property to earn a living. See id.; David Haynes, What Is Chapter 7 Bankruptcy?, balance (Feb. 24, 2021), https://www.thebalance.com/‌what-is-chapter-7-bankruptcy-316202 [https://perma.cc/‌2TMB-GCU8]. In most Chapter 7 cases, individual debtors will receive a discharge. See Taylor & Sheffner, supra note 4, at 300–01. case, the court may grant a discharge if there are no objections to discharge or motions to dismiss filed.29See 11 U.S.C. § 727(a), (c)(1); see also Fed. R. Bankr. P. 4004(c)(1) (“In a chapter 7 case, on expiration of the times fixed for objecting to discharge and for filing a motion to dismiss the case under Rule 1017(e), the court shall forthwith grant the discharge . . . .”). The whole process, from filing to discharge, usually lasts four to six months, making Chapter 7 the fastest means to receive a discharge.30See A. Mechele Dickerson, Lifestyles of the Not-So-Rich or Famous: The Role of Choice and Sacrifice in Bankruptcy, 45 Buff. L. Rev. 629, 652 (1997) (“Chapter 7 cases typically are closed fairly quickly . . . .”); Haynes, supra note 28 (“[The] [p]rocess generally takes four to six months . . . .”). In a Chapter 1331Chapter 13 of the Bankruptcy Code affords individuals receiving regular income an opportunity to obtain some relief from their debts while retaining their property. To proceed under Chapter 13, a debtor must propose a plan to use future income to repay a portion (or in the rare case all) of his debts over the next three to five years. If the bankruptcy court confirms the plan and the debtor successfully carries it out, he receives a discharge of his debts according to the plan. McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1086 n.2 (10th Cir. 2020) (quoting Bullard v. Blue Hills Bank, 575 U.S. 496, 498 (2015)). case, after the debtor fulfills all the requirements of her repayment plan, the court will grant the debtor a discharge.3211 U.S.C. § 1328(a) (“[A]s soon as practicable after completion by the debtor of all payments under the plan . . . the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title . . . .”). Discharges in a Chapter 13 case are deferred until the end of the plan.33In extenuating circumstances, debtors do not need to wait until the end of the plan and can ask for a “hardship discharge.” See id. § 1328(b) (“[T]he court may grant a discharge to a debtor that has not completed payments under the plan only if—(1) the debtor’s failure to complete such payments is due to circumstances for which the debtor should not justly be held accountable . . . .”). The plan can last from three to five years.34See id. § 1325(b)(4)(A).

Debtors are not guaranteed a discharge when they file for bankruptcy. A discharge may generally be denied if a debtor commits one of the acts described in § 727(a), such as concealing property or falsifying information.35Id. § 727(a). In either a Chapter 7 or a Chapter 13 case, creditors or the trustee have the right to object to a discharge under Federal Rule of Bankruptcy Procedure 4004(a).36Fed. R. Bankr. P. 4004(a). Creditors must file an adversary proceeding objecting to discharge within sixty days after the first scheduled meeting of creditors.37Id. (“In a chapter 7 case . . . objecti[ons] to the debtor’s discharge shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a). . . . In a chapter 13 case, a motion objecting to the debtor’s discharge under § 1328(f) shall be filed no later than 60 days after the first date set for the meeting of creditors under § 341(a).”). Bankruptcy Code § 523 states the exceptions to discharge.3811 U.S.C. § 523. Section 523(a) does not allow a debtor to discharge debts such as taxes,39Id. § 523(a)(1) (excluding “a tax or a customs duty”). penalties,40Id. § 523(a)(7) (excluding “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit”). certain court judgments,41Id. § 523(a)(6) (excluding debts incurred due to “willful and malicious injury by the debtor”); id. § 523(a)(9) (excluding debts “for death or personal injury”).and debts owed under family court orders.42Id. § 523(a)(5) (excluding debts categorized as “a domestic support obligation”); id. § 523(a)(15) (excluding debts owed “to a spouse, former spouse, or child of the debtor . . . incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record”). Section 523(a)(8) excepts most (but not all) student loans from discharge.43Id. § 523(a)(8). Each subsection of § 523(a)(8) will be explained in detail later in this Note.44See infra Sections I.B–I.D.

For regular debtors—that is, debtors not seeking a student loan discharge—after they complete the bankruptcy plan, judges will grant a discharge as soon as possible.45See 11 U.S.C. §§ 727(a), 1328(a). A student debtor must file a separate action in bankruptcy court (an adversary proceeding) seeking a student loan discharge.46See Fed. R. Bankr. P. 7001 (“The following are adversary proceedings . . . (6) a proceeding to determine the dischargeability of a debt . . . .”). Student debtors must prove repaying the loan imposes an “undue hardship” on them and their dependents.4711 U.S.C. § 523(a)(8) (prohibiting discharge “unless excepting such [student] debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents”).

In a rare instance, the Supreme Court affirmed a discharge of student loans where the debtor did not file an adversary proceeding and the bankruptcy court did not make a finding of undue hardship.48United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 264–65, 268–70, 276 (2010) (affirming a Chapter 13 plan that discharged student loans without an adversary proceeding). In United Student Aid Funds, Inc. v. Espinosa, Espinosa’s Chapter 13 plan proposed to pay the principal and discharge the interest of the student loan after the principal was fully repaid.49Id. at 264. The debtor did not initiate an adversary proceeding seeking a discharge and the creditor did not object to confirmation of the plan.50Id. at 265. The bankruptcy court confirmed Espinosa’s plan without an adversary proceeding or a finding of undue hardship.51Id. The Supreme Court did not void the confirmation and found that the bankruptcy court made a legal error by failing to find undue hardship.52Id. at 274–75. The creditor had notice of the error and failed to object, thus making the confirmed Chapter 13 plan enforceable and binding.53Id. The Supreme Court made clear at the end of its decision that debtors should not hope to recreate Espinosa to get an easy discharge and that such bad-faith efforts will be met by penalties.54See id. at 278–79. To read more about the impact of the Espinosa decision on due process and the notice standard in bankruptcy proceedings, see Carlson, supra note 7. As such, in order to receive a discharge of student loans, debtors will probably need to file an adversary proceeding to show undue hardship, which has been notoriously difficult to prove.

1. The Undue Hardship Standard

The initial burden is on the creditor to prove the existence of the debt. This is accomplished by the filing of a proof of claim, which is prima facie evidence that the debt exists.55See 11 U.S.C. §§ 501(a), 502(a). If a debt falls into one of the statutory exceptions to discharge, it is not discharged. An exception exists when the debt is based on fraud, embezzlement, or willful and malicious injury.56See id. §§ 523(a), 727(a), 1328(a). In such cases, the creditor must step forward and prove that the debt is not dischargeable; otherwise, the debt is discharged.57Id. § 523(c). This shift of the burden of proof to the creditor does not apply to student loans. Rather, the burden shifts to the debtor to prove that the loan imposes an undue hardship.58See Espinosa, 559 U.S. at 268–69 (“[T]he Bankruptcy Rules require a party seeking to determine the dischargeability of a student loan debt to commence an adversary proceeding by serving a summons and complaint on affected creditors.”); see also Taylor & Sheffner, supra note 4, at 308 (“The debtor who wishes to have her student loan debt discharged by the bankruptcy court, therefore, must initiate the process by filing an adversary proceeding in the bankruptcy court. To successfully initiate her adversary proceeding, the debtor must file a complaint and serve process on all interested parties. In this procedural posture, the debtor is now a plaintiff, and the student loan lender a defendant.” (footnotes omitted)); id. at 309. Section 523(a)(8) does not define undue hardship, and Congress has never clarified how a debtor can meet undue hardship to qualify for a student loan discharge.59See Kevin J. Smith, Defining the Brunner Test’s Three Parts: Time to Set a National Standard for All Three Parts to Determine When to Allow the Discharge of Federal Student Loans, 58 S.D. L. Rev. 250, 250–51 (2013). In its place, courts have adopted one of two tests60All circuits, except the First and Eighth Circuits, have adopted the Second Circuit Brunner test for undue hardship. Rebekah Keller, Note, The “Undue Hardship” Test: The Dangers of a Subjective Test in Determining the Dischargeability of Student Loan Debt in Bankruptcy, 82 Mo. L. Rev. 211, 224–28 (2017). The Eighth Circuit uses the totality of circumstances test. Sarah Edstrom Smith, Note, Should the Eighth Circuit Continue to Be the Loan Ranger? A Look at the Totality of the Circumstances Test for Discharging Student Loans Under the Undue Hardship Exception in Bankruptcy, 29 Hamline L. Rev. 601, 619–20 (2006). The First Circuit has never decided on which undue hardship test to adopt and prefers to leave the decision to the lower courts. Anthony Bowers, Note, Discharging Student Loans via Bankruptcy: Undue Hardship Doctrine in the First Circuit, 4 S. New Eng. Roundtable Symp. L.J. 143, 143 (2009). Most, but not all, bankruptcy courts in the First Circuit have rejected the Brunner test in favor of the totality of circumstances test. Id. at 145. for undue hardship: the Brunner test61See Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987) (per curiam). The Brunner test requires the debtor to show: (1) they cannot maintain, with their current income and expenses, a “minimal standard of living,” if they are required to repay; (2) additional circumstances that will cause this difficulty to persist throughout a significant portion of the repayment period; and (3) there was a good-faith effort to repay the loans. Paul B. Porvaznik, Is Discharging Student Loan Debt in Bankruptcy Getting Easier?, 102 Ill. Bar J. 540, 542 (2014). Under the Brunner test, the debtor must provide exceptional evidence of a current and future prolonged inability to repay their loans. Keller, supra note 60, at 224. or the totality of circumstances test.62The totality of circumstances test was first set forth in Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir. 1981). Compared to the Brunner test, the totality of circumstances test is more flexible and looks to the particular set of facts and circumstances around each case to make its decision on discharge. Under the totality of circumstances test, the court will look at: (1) the debtor’s past, present, and future financial resources; (2) the debtor’s and their dependents’ living expenses; and (3) any other relevant facts and circumstances. See Richard D. Burke III, Note, Student Loans for Life, the Discharge of Student Loans under 11 U.S.C. § 523(a)(8)—Using the Eighth Circuit’s Totality-of-the-Circumstances Test and the Partial Discharge Method, 41 U. Ark. Little Rock L. Rev. 97, 105 (2018); see also Porvaznik, supra note 61, at 543.

The Brunner test is notoriously stricter than the totality of circumstances test.63See Burke, supra note 62, at 104–05; Alan M. Ahart, How the Courts Have Gone Astray in Refusing to Discharge Student Loans: The Folly of Brunner, of Rewriting Repayment Terms, of Issuing Partial Discharges and of Considering Income-Based Repayment Plans, 95 Am. Bankr. L.J. 53 (2021) (arguing that the Brunner test’s misinterpretation of § 523(a)(8) has practically precluded debtors from seeking student loan discharges and making suggestions on how to fix Brunner issues). To qualify for discharge, courts using the Brunner test require debtors to have exhausted all means and to show a “certainty of hopelessness” before filing for bankruptcy.64G. Michael Bedinger VI, Note, Time for a Fresh Look at the “Undue Hardship” Bankruptcy Standard for Student Debtors, 99 Iowa L. Rev. 1817, 1825 (2014). If the debtor fails to meet one of the elements of the Brunner test, many judges will not grant a discharge.65But see Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 919–20 (B.A.P. 9th Cir. 2013) (granting a discharge to a sixty-four-year-old debtor who did not meet the good-faith effort to repay because entering a twenty-five-year repayment plan now would be pointless). In this case, the debtor was extremely lucky to receive a discharge, but in other cases, debtors who do not meet all the elements will be barred from discharge. Michael J. Fletcher & J. Jackson Waste, Student Loan Discharge Decisions Poke Holes in the Brunner Test, 33 Am. Bankr. Inst. J. (2014) (“Each of Brunner’s three prongs must be satisfied in order to obtain a discharge.”). This shows that the court and the judge the debtor is assigned to is just as impactful toward discharge, which further exasperates the inconsistences of the undue hardship tests, even among the circuits that have adopted the same test. There have also been disagreements on how to apply the Brunner test among the circuits that have adopted it.66Compare Educ. Credit Mgmt. Corp. v. Boykin (In re Boykin), 313 B.R. 516, 520–21 (M.D. Ga. 2004) (criticizing the Tenth Circuit’s lenient application of the undue hardship standard in order to fulfill the Bankruptcy Code’s fresh-start principle), with Educ. Credit Mgmt. Corp. v. Nys (In re Nys), 446 F.3d 938, 947 (9th Cir. 2006) (finding the value of education to the debtor as an important factor of undue hardship to soften the strictness of the Brunner test).

The totality of circumstances test is more flexible than the Brunner test. The balancing approach of the test means that failure to meet a single factor will not prevent a debtor from discharge and that a judge is required to weigh all the necessary factors.67See Ben Wallen, One Standard to Rule Them All: An Argument for Consistency in Education Debt Discharge in Bankruptcy Proceedings, 16 Hous. Bus. & Tax L.J. 232, 243 (2016). However, inconsistencies in applying the totality of circumstances test appear in its third factor: the catchall factor that allows courts to look at whatever evidence the debtor presents to show undue hardship.68Id. Extenuating circumstances are weighed uniquely in each case, and a list of circumstances that a debtor may present continues to grow, leading to inconsistencies in how judges weigh this factor.69Id.

This Note assumes, however, that the student debtor cannot sustain her burden of showing that repayment of the loan constitutes an undue hardship. She should then argue, if she can, that her student loan is not a qualifying educational debt under § 523(a)(8).

B. Section 523(a)(8)(A)(i): Government-Guaranteed Loans

Bankruptcy Code § 523(a)(8)(A)(i) excepts any “educational benefit overpayment or 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” from discharge.7011 U.S.C. § 523(a)(8)(A)(i). This subsection was designed to protect American taxpayers and nonprofit organizations from bearing the burden of defaulted loans.71Jason Iuliano, Student Loan Bankruptcy and the Meaning of Educational Benefit, 93 Am. Bankr. L.J. 277, 283 (2019) (“This is a straightforward exception that is designed to protect American taxpayers and nonprofit organizations from bearing the burden of widespread student loan defaults.”).

Section 523(a)(8)(A)(i) is most frequently applied to student loan programs that are funded and made by a governmental unit.72See id. Stafford Loans and Parental PLUS Loans are common examples of federal student loans that fall under the Federal Family Education Loan (FFEL) program.73See Xiaoling Ang & Alexei Alexandrov, Choice Architecture Versus Price: Comparing the Effects of Changes in the U.S. Student Loan Market, 14 J. Empirical Legal Stud. 762, 769 (2017) (“Federal loans include Subsidized and Unsubsidized Stafford Loans, which have universal borrowing limits, and Parental PLUS and Graduate PLUS Loans, which can cover costs up to cost of attendance. Stafford Loans and Graduate PLUS Loans are made in the name of the student, while Parental PLUS Loans are taken out in a parent’s name to cover his or her child’s undergraduate expenses.”). In Murphy v. Pennsylvania Higher Education Assistance Agency (In re Murphy), the Fifth Circuit decided that loans disbursed through the FFEL program are nondischargeable under § 523(a)(8)(A)(i).74See Murphy v. Pa. Higher Educ. Assistance Agency (In re Murphy), 282 F.3d 868, 870 (5th Cir. 2002) (“We conclude that the text of the Bankruptcy Code, the Federal Family Education Loan Program (“FFELP”), and Murphy’s promissory notes support nondischargeability.”). Similarly, students who obtain the Graduate PLUS loan75Cooper Murphy, Note, Side Stepping the Brunner Test: An Easier Path to Student Loan Discharge, 30 S. Cal. Rev. L. & Soc. Just. 453, 460 (2021). through the William D. Ford Federal Direct Loan Program cannot discharge their student loans.76See Halatek v. William D. Ford Fed. Direct Loan (Direct Loan) Program (In re Halatek), 592 B.R. 86, 99 (Bankr. E.D.N.C. 2018) (granting summary judgment in favor of the creditor and declaring that debtor’s student loans are nondischargeable). Loans disbursed by state universities are likewise nondischargeable because state universities bear the status of a governmental unit.77See 11 U.S.C. § 101(27); see also Columbus Coll. v. Shore (In re Shore), 707 F.2d 1337, 1339 (11th Cir. 1983) (per curiam) (“Columbus College is a governmental unit . . . . [A] governmental unit . . . include[s] a state or department, agency, or instrumentality of a state.”).

Additionally, § 523(a)(8)(A)(i) is applied to loans made by nonprofit institutions.7811 U.S.C. § 523(a)(8)(A)(i). For the debt to be excepted from discharge, the lender must establish its nonprofit-institution status, usually decided by courts based on the organization’s tax-exemption status.79See Sw. Student Servs. Corp. v. Jong I Ma, 820 N.Y.S.2d 394, 394 (App. Div. 2006) (finding that plaintiff is “a corporation organized under the not-for-profit laws of the State of Arizona”). In Vuini v. Zions Bank (In re Vuini), the lender proved its status by showing that the company was organized and operated as a nonprofit for charitable and educational purposes.80Vuini v. Zions Bank (In re Vuini), Bankr. Case No. 11-bk-07559, Adv. No. 11-ap-00227, 2012 WL 5554406, at *3 & n.33 (Bankr. M.D. Fla. Nov. 14, 2012). Furthermore, the debtor herself acknowledged the lender’s nonprofit status when she applied for the loans, making the organization’s nonprofit status clear and the loan’s exemption from discharge indisputable under § 523(a)(8)(A)(i).81Id. at *9–10.

Loans originally disbursed by private for-profit lenders but insured, guaranteed by, or later transferred to a governmental unit or nonprofit are likewise nondischargeable.82See Siegel v. U.S.A. Grp. Guarantee Servs. (In re Siegel), 282 B.R. 629, 632 (Bankr. N.D. Ohio 2002) (finding that the key question is not “whether a private entity made the student loan, but instead whether the loan was insured or guaranteed by a governmental unit”). Section 523(a)(8)(A)(i) explicitly excepts loans that are insured or guaranteed by a governmental unit or nonprofit from discharge.8311 U.S.C. § 523(a)(8)(A)(i); see also Cleveland v. Educ. Credit Mgmt. Corp. (In re Cleveland), 559 B.R. 265, 271 (Bankr. N.D. Ga. 2016). In McClain v. American Student Assistance (In re McClain), the court found that loans funded by a for-profit bank and conditioned upon a nonprofit’s guarantee fell within the scope of § 523(a)(8) because the nonprofit played a significant role in the “procurement of the loans.”84McClain v. Am. Student Assistance (In re McClain), 272 B.R. 42, 46 (Bankr. D.N.H. 2002); see also O’Brien v. First Marblehead Educ. Res., Inc. (In re O’Brien), 419 F.3d 104, 105–06 (2d Cir. 2005) (per curiam) (applying § 523(a)(8) to student loans made by a loan program funded by a nonprofit, which also paid the lender upon debtor’s default); Decker v. EduCap, Inc., 476 B.R. 463, 467–68 (W.D. Pa. 2012) (finding student loans made by a private lender nondischargeable where a nonprofit was the disbursement agent as well as the student loan servicer and agreed to pay lender the outstanding balance upon debtor’s default). The final part of § 523(a)(8)(A)(i) further states that the loans do not need to be fully funded by a governmental unit or nonprofit to be exempt from discharge.85Section 523(a)(8)(A)(i) excepts from discharge “an educational benefit overpayment or 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.” 11 U.S.C. § 523(a)(8)(A)(i) (emphasis added). Keilig v. Massachusetts Higher Education Assistance Corp. (In re LaFlamme) found that although the loans originated from a private bank, the government had in fact paid a substantial amount on its guarantee of the loans, making the loan nondischargeable.86Keilig v. Mass. Higher Educ. Assistance Corp. (In re LaFlamme), 188 B.R. 867, 869–70 (Bankr. D.N.H. 1995).

C. Section 523(a)(8)(B): Qualified Education Loans

Section 523(a)(8)(B) covers private and for-profit student loans that are considered “qualified education loan[s]”87“Qualified education loan” is defined as follows: [A]ny indebtedness incurred by the taxpayer solely to pay qualified higher education expenses— (A) which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, (B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and (C) which are attributable to education furnished during a period during which the recipient was an eligible student. I.R.C. § 221(d)(1). under § 221(d)(1) of the Internal Revenue Code.8811 U.S.C. § 523(a)(8)(B). “Qualified education loan[s]” are used to pay the approved costs of attending an accredited school under Title IV of the Higher Education Act of 1965.89See Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 91 (Bankr. E.D.N.Y. 2019); I.R.C. § 221(d)(2). In addition, Internal Revenue Code § 6050S requires lenders of “qualified education loans” to issue a 1098-E tax form to all borrowers.90See id. at 92. Under § 523(a)(8)(B), debtors with private loans that are “qualified education loan[s]” who used the funds to pay for the cost of attendance cannot discharge the debt, unless the debtors can prove undue hardship.9111 U.S.C. § 523(a)(8)(B). On the other hand, the debtor may discharge any funds that covered expenses exceeding the cost of attendance, even in absence of a showing of undue hardship.92If the cost of attendance is $50,000 and the student obtains a $60,000 private loan, then the student can only discharge $10,000 of the private loan in bankruptcy. See id.

Section 523(a)(8)(B) was added to the Bankruptcy Code in 2005 through the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).93See Mike Papandrea, Should We Really Discharge the Student Loan Debt Discharge Exception? Why Reversing the 2005 BAPCPA Amendment Is Not Relief to the Debtor, 12 Rutgers J.L. & Pub. Pol’y 555, 556 (2015). Prior to BAPCPA, federal student loans and government-guaranteed loans were excepted from discharge,94See Murphy, supra note 75, at 462 (“Congress enacted the first restriction on the discharge of student loan debt in the Educational Amendment of 1976. This amendment to the federal bankruptcy code dictated that federally insured student loans could not be discharged prior to five years after the loan was first due.” (emphasis added) (footnotes omitted)); Siegel v. U.S.A. Grp. Guarantee Servs. (In re Siegel), 282 B.R. 629, 632–33 (Bankr. N.D. Ohio 2002) (finding that loans made by a private entity but guaranteed by a governmental unit fell within the scope of 11 U.S.C. § 523(a)(8)). and private student loans were automatically dischargeable.95Alexei Alexandrov & Dalié Jiménez, Lessons from Bankruptcy Reform in the Private Student Loan Market, 11 Harv. L. & Pol’y Rev. 175, 178 (2017). Over time, as college costs increased, more students applied for private student loans, and the perception that these students were seeking discharge of the loans in bankruptcy after graduation with no intention to repay gained traction.96See Justin A. DeAngelis, Student Loans Beyond Title IV: The Emergence of Private Student Loan Lending and a Profit-Driven System, 48 Suffolk U. L. Rev. 637, 643–47 (2015); Emily S. Kimmelman, Comment, Student Loans: Path to Success or Road to the Abyss? An Argument to Reform the Student Loan Discharge Exception, 89 Temp. L. Rev. 155, 172 (2016). In response, lobbyists pushed Congress to amend § 523(a)(8) to create more protection for private lenders in the Bankruptcy Code, as it did for federal lenders.97“Sallie Mae alone spent $9 million on lobbying between 1999 and 2005.” DeAngelis, supra note 96, at 647. Scholars who supported BAPCPA argued the new law would lower the cost of private loans and, thus, allow more students to attend college.98Alexandrov & Jiménez, supra note 95, at 178 (“Judge Posner theorized that ‘by increasing the rights of creditors in bankruptcy . . . [bankruptcy reform] should reduce interest rates and thus make borrowers better off.’” (alterations in original)). Now, almost fifteen years after BAPCPA took effect, we know it did not in fact lower the costs of private loans.99See id. (“It is thus easy to argue that BAPCPA was not very helpful to students: they lost the ability to discharge their private student loans, but received no discount in return.” (emphasis added)).

D. Section 523(a)(8)(A)(ii): Educational Benefits, Stipends, and Scholarships

The third method to prevent student loans from discharge is by arguing the loans fall within the scope of § 523(a)(8)(A)(ii). Under this section, any funds that a debtor “received as an educational benefit, scholarship, or stipend” from governmental or nonprofit institutions are excepted from discharge.10011 U.S.C. § 523(a)(8)(A)(ii). This section has been broadly applied to benefit payments individuals received and used for noneducational purposes.101Iuliano, supra note 71, at 284–86. However, more courts are narrowing § 523(a)(8)(A)(ii)’s application to conditional education grants tied to employment or other obligations, such the G.I. Bill program which gives funds to servicemen to pursue higher education.102See Kara J. Bruce, Recent Developments in Educational-Benefit Discharge Litigation, Bankr. L. Letter, Oct. 2018, at 1; see also Iuliano, supra note 71, at 284. Any funds that are not used must be paid back to prevent participants from exploiting the program.103See Iuliano, supra note 71, at 284. If the money was used for unauthorized purposes, the individual must repay the funds and the unpaid balances cannot be discharged.104See id.

“Educational benefit” is not explicitly defined in the Bankruptcy Code. As a result, many courts and creditors have broadly interpreted “educational benefit” to cover any debt that was used for “educational purposes.”105Id. at 280; see McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1088 (10th Cir. 2020) (“Navient maintains next that these student loans are nondischargeable because, under 11 U.S.C. § 523(a)(8)(A)(ii), they constitute ‘an obligation to repay funds received as an educational benefit.’”); Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 601 (2d Cir. 2021) (“Navient argues that its loan agreement constitutes an ‘obligation to repay funds’ and that Homaidan obtained those funds for the purpose of advancing his education, thereby deriving from them an ‘educational benefit.’”). A Massachusetts court held that a debtor who took out a personal loan and then asked for an increase in credit for more money to use for her children’s books and supplies, transformed the personal loan into “funds received as an educational benefit.”106Liberty Bay Credit Union v. Belforte (In re Belforte), Bankr. Case No. 10-22742, Adv. No. 11-1008, 2012 WL 4620987, at *8–9 (Bankr. D. Mass. Oct. 1, 2012); see also Iuliano, supra note 71, at 284–85. Courts applying the broad reading have ruled that funds borrowed for tutoring services, bar review courses, and vocational schools are “educational benefits” and, therefore, cannot be discharged.107Iuliano, supra note 71, at 285–86. Under the broad reading, so long as the purpose of a loan was to finance some facet of education, the loan qualifies as an “educational benefit,” and is nondischargeable.108See Nypaver v. Nypaver (In re Nypaver), 581 B.R. 431, 435 (Bankr. W.D. Pa. 2018).

Recently, there has been a push in legal academia for a reinterpretation of § 523(a)(8)(A)(ii) favoring a narrower reading of the provision to create more protection for student debtors.109See Bruce, supra note 102, at 1, 4–7; Iuliano, supra note 71. The narrow reading finds an “educational benefit” and an “educational loan” distinct from one another, and that a loan does not equal a benefit under § 523(a)(8)(A)(ii).110See Iuliano, supra note 71, at 292–98. The narrower reading limits the provision to apply only to educational grants conditioned on some employment or service obligation.111See Bruce, supra note 102, at 1. It will also allow students with private student loans that do not qualify as “qualified educational loans” under § 523(a)(8)(B) a discharge without having to prove undue hardship.112See id.

This push for the narrower reading did not go unnoticed by courts. In 2017, the Bankruptcy Appellate Panel for the Ninth Circuit distinguished student loans from “educational benefits” within the meaning of § 523(a)(8)(A)(ii).113Kashikar v. Turnstile Cap. Mgmt., LLC (In re Kashikar), 567 B.R. 160, 166–67 (B.A.P. 9th Cir. 2017). Two years later, the Fifth Circuit held that § 523(a)(8)(A)(ii)’s “educational benefit” cannot be construed to include private student loans, and that an “educational benefit” is more akin to the other terms of the subsection—scholarship and stipend—which signify granting over borrowing.114Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 218–24 (5th Cir. 2019). Then in 2020 and 2021, the Tenth and Second Circuits joined the other circuits in adopting the narrower reading of Bankruptcy Code § 523(a)(8)(A)(ii).115See McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1095–98 (10th Cir. 2020); Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 599 (2d Cir. 2021).

1. McDaniel v. Navient

In 2009, Bryon and Laura McDaniel filed a Chapter 13116Chapter 13 of the Bankruptcy Code affords individuals receiving regular income an opportunity to obtain some relief from their debts while retaining their property. To proceed under Chapter 13, a debtor must propose a plan to use future income to repay a portion (or in the rare case all) of his debts over the next three to five years. If the bankruptcy court confirms the plan and the debtor successfully carries it out, he receives a discharge of his debts according to the plan. McDaniel, 973 F.3d at 1086 n.2 (quoting Bullard v. Blue Hills Bank, 575 U.S. 496 (2015)). bankruptcy petition.117Id. at 1086. At the time, they had eleven accounts with Sallie Mae and other debts, owing about $200,000.118Id. In their petition, they described their accounts with Sallie Mae as “educational,” covering six private student loans that Laura McDaniel used to pay her college expenses.119Id. After amending their Chapter 13 petition, they provided that their “[s]tudent loans are to be treated as an unsecured Class Four claim or as follows: deferred until end of plan.”120Id. at 1087 (alteration in original). In 2010, the bankruptcy court confirmed the McDaniels’ amended Chapter 13 plan.121Id.

By early 2015, the McDaniels certified that they had carried out all their payments and obligations.122Id. At that time, they had paid nearly $27,000 in principal to Navient Solutions.123Id. In March 2015, the court granted the McDaniels a discharge of their debts, but did not grant a discharge for their student loans.124Id. at 1087–88. From 2015 to 2017, the McDaniels paid Navient an additional $37,460 on their student loans.125Id. at 1088.

In June 2017, the McDaniels moved to reopen their case.126Id. They filed a complaint against Navient seeking a declaratory judgment that their private student loans were dischargeable under the Bankruptcy Code.127Id. They sought damages based on Navient’s collection activities on the loans in violation of Bankruptcy Code § 524(a).128Id.

The McDaniels argued that their loans “were not ‘qualified education loans’” under Bankruptcy Code § 523(a)(8)(B) because the loans “were not made solely for the ‘cost of attendance’” at Laura McDaniel’s college.129Id. Navient moved to dismiss the complaint, arguing that under res judicata the McDaniels’ loans were excepted from discharge based on their previously confirmed plan from 2010.130Id. Navient added that the loans were considered nondischargeable under Bankruptcy Code § 523(a)(8)(A)(ii).131Id. Navient’s motion to dismiss was denied.132Id. at 1089. The case before the Tenth Circuit was an interlocutory review.133See id.

The Tenth Circuit began by highlighting the purpose of the Bankruptcy Code: “to aid the unfortunate debtor by giving him a fresh start in life, free from debts.”134Id. at 1092–93 (quoting Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1758 (2018)). In order to fulfill this purpose, the court must limit discharge exceptions to only the ones plainly expressed in the statute, implying that § 523(a)(8)(A)(ii), with its reference to “educational benefit,” should be narrowly read.135See id. at 1093.

Section 523(a)(8)(A)(ii) explicitly excepts funds that qualify as a benefit, scholarship, or stipend from discharge.13611 U.S.C. § 523(a)(8)(A)(ii) (excepting from discharge “an obligation to repay funds received as an educational benefit, scholarship, or stipend”). Despite no mention of the word “loan,” some courts broadly interpreted the language “an obligation to repay funds received as an educational benefit” to encompass loans.137See McDaniel, 973 F.3d at 1094 n.10. The Tenth Circuit disagreed and found that it is clear “educational benefit” and “educational loan” are separate.138Id. at 1095.

Congress contrasted loans and benefits in the prior provision—that is, § 523(a)(8)(A)(i)—by using a disjunctive “or.”13911 U.S.C. § 523(a)(8)(A)(i) (excepting from discharge “an educational benefit overpayment or loan made” (emphasis added)). By inserting an “or” between the terms, Congress indicated the terms are referring to different things with separate meanings.140McDaniel, 973 F.3d at 1095. Moreover, while Congress plainly included “loan” in the prior subsection, Congress did not do so in the subsection at issue in McDaniel.141Id. at 1094–95. Thus, it was wrong to assume § 523(a)(8)(A)(ii)’s “educational benefit” reached so far as to include “loans.”142“[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion[.]” Id. at 1095 (alterations in original) (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). Had Congress wanted “benefit” to encompass “loans,” it would have explicitly used language to indicate that intention.143Id.

Congress first added the subsection to the discharge exceptions in 1990.144Id. at 1096. During that time, the Supreme Court indicated the ordinary use of “benefit” was an advantageous good, gift, or aid during a time of need, or a cash payment from a pension or insurance plan.145The Tenth Circuit defined “benefit” as “‘something that guards, aids, or promotes well-being: advantage, good’; ‘useful aid’; ‘payment, gift [such as] financial help in time of sickness, old age, or unemployment’; or ‘a cash payment or service provided for under an annuity, pension plan, or insurance policy.’” Id. (alteration in original) (quoting Fischer v. United States, 529 U.S. 667, 677 (2000)). Today, native English speakers would refer to “benefits,” such as health, unemployment, or retirement benefits, as indicative of a gift that does not need to be repaid.146Id. If a student indicated he or she is seeking benefits to attend college, it is assumed the student is interested in the benefits provided by the G.I. Bill, not private student loans.147Id. In addition, no one would describe mortgage loans as “housing benefits” nor automobile loans as “transportation benefits.”148Id. at 1097.

The distinction between “benefit” and “loan” is further confirmed by the canon of noscitur a sociis—the immediate context rule.149Id. The canon of noscitur a sociis directs readers to give words grouped in a list a “related meaning.”150“This canon, which instructs that ‘a word is known by the company it keeps,’ helps us ‘avoid ascribing to one word a meaning so broad that it is inconsistent with its accompanying words, thus giving “unintended breadth to the Acts of Congress.”’” Id. (quoting Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995)). In § 523(a)(8)(A)(ii), the list is “benefit, scholarship, or stipend.”15111 U.S.C. § 523(a)(8)(A)(ii) (excepting from discharge “an obligation to repay funds received as an educational benefit, scholarship, or stipend” (emphasis added)). A stipend is a fixed payment, such as a salary.152McDaniel, 973 F.3d at 1097. A scholarship is a financial grant to a student.153Id. Finally, a benefit is a payment or gift in time of need.154Id. at 1097–98. The string of words commonly signifies a granting, not borrowing, that does not need to be repaid, and is categorically distinct from an “educational loan.”155Id. at 1098 (quoting Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 219 (5th Cir. 2019)).

2. Homaidan v. Sallie Mae

Hilal K. Homaidan received two private educational loans, totaling $12,567, from Sallie Mae, later succeeded by Navient, to fund his education at Emerson College.156Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 599 (2d Cir. 2021). Homaidan filed for Chapter 7 bankruptcy after graduation and received a discharge of his debts.157Id. The court’s discharge order was ambiguous regarding his student loans to Navient.158Id. (“Rather, it observed that some ‘common types of debts’ including ‘[d]ebts for most student loans,’ are not dischargeable in a Chapter 7 proceeding.” (alteration in original)). Navient continued to pursue repayment after Homaidan’s discharge, and Homaidan complied, paying the loan off in full.159Id. (“These demands for repayment caused Homaidan to assume that the loans had not been discharged; so he paid Navient in full . . . .”). In 2017, Homaidan reopened the bankruptcy case to commence an adversary proceeding against Navient seeking a determination that the loans were in fact discharged and to receive damages for Navient’s violation of the discharge order.160Id. Homaidan filed the adversary proceeding as a “putative class action,” arguing that Navient “employed a scheme of issuing dischargeable loans to unsophisticated student borrowers and then demanding repayment even after those loans are discharged in bankruptcy.” Id.

Navient argued § 523(a)(8)(A)(ii) prevented the loans from being discharged because the loans were “educational benefits,” which allowed the debtor to complete his education at Emerson College.161Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 97–98 (Bankr. E.D.N.Y. 2019) (“They urge that the Tuition Answer Loans ‘enable[d] him to attend and graduate from Emerson College’ . . . and therefore, these loans ‘conferred “educational benefits” on him.’” (first alteration in original)). Homaidan argued that although the loans helped him pay for his education, the loans “were not made through Emerson’s financial aid office, nor . . . were they made solely to cover Emerson’s cost of attendance.”162Homaidan, 3 F.4th at 599. Instead, the loans were directly deposited into Homaidan’s bank account, and the funds exceeded Emerson’s tuition.163Id.

Navient’s motion to dismiss was denied, and the case went before the Second Circuit as an interlocutory appeal to determine “whether the loans at issue constitute[d] ‘an obligation to repay funds received as an educational benefit’ and were therefore excepted from discharge under § 523(a)(8)(A)(ii).”164Id. at 599–600.

Like the Tenth Circuit did in McDaniel, the Second Circuit began its decision with an explanation of the purpose of the federal bankruptcy system: “to ‘aid the unfortunate debtor by giving him a fresh start in life.’”165Id. at 600 (quoting Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752, 1758 (2018)). In order to fulfill this purpose, courts should interpret the Code narrowly and confine discharge exceptions to those expressly written in the Code.166Id. (quoting Bethpage Fed. Credit Union v. Furio (In re Furio), 77 F.3d 622, 624 (2d Cir. 1996)). Thus, the Second Circuit affirmed the lower court’s discharge of Homaidan’s student loans and adopted a narrow reading of § 523(a)(8)(A)(ii)’s “educational benefit.”167Id. at 599.

Navient’s broad reading of § 523(a)(8)(A)(ii) that private loans are covered by the subsection “if the debtor obtained the funds to pay for educational expenses” violated several rules of statutory interpretation.168Id. at 601. First, reading “educational benefit” to include private student loans goes against the statute’s ordinary meaning and is an “unconventional way to discuss a loan.”169Id. (quoting Homaidan v. SLM Corp. (In re Homaidan), 596 B.R. 86, 102 (Bankr. E.D.N.Y. 2019)). If Congress had wanted to except student loans from discharge in § 523(a)(8)(A)(ii), it would not have used such “stilted terms.”170Id. Instead, Congress would have used the word “loan” expressly, like it had done in the other subsections.171“[W]hen Congress ‘includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.’” Id. at 602 (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). Compare 11 U.S.C. § 523(a)(8)(A)(ii) (word “loan” not present), with 11 U.S.C. § 523(a)(8)(A)(i) (excepting from discharge “an educational benefit overpayment or loan” (emphasis added)), and 11 U.S.C. § 523(a)(8)(B) (excepting from discharge “any other educational loan that is a qualified education loan” (emphasis added)).

Second, Navient’s broad reading of “educational benefit” violates the canon of surplusage that instructs courts to interpret statutes “so that no part [is] inoperative or superfluous.”172Homaidan, 3 F.4th at 602 (quoting Hibbs v. Winn, 542 U.S. 88, 101 (2004)). The broad reading renders any loan used to further a debtor’s education nondischargeable. If this were true, § 523(a)(8)(A)(i) and § 523(a)(8)(B) would become superfluous.173Id. at 602–03. The narrow interpretation, on the other hand, allows each subsection to perform its own role: § 523(a)(8)(A)(i) for government and nonprofit loans, § 523(a)(8)(A)(ii) for scholarships, stipends, and conditional grants, and § 523(a)(8)(B) for private student loans.174See id. at 603–04.

Third, Navient’s interpretation clashes with noscitur a sociis, which instructs readers to interpret a term based on its neighboring words.175Id. at 604 (first citing Freeman v. Quicken Loans, Inc., 566 U.S. 624, 634–35 (2012); and then citing United States v. Dauray, 215 F.3d 257, 262 (2d Cir. 2000)). In § 523(a)(8)(A)(ii), “educational benefit” is followed by “scholarship” and “stipend,” which are commonly described as “conditional grant payments” that lenders do not generally require repayment for.176Id.; 11 U.S.C. § 523(a)(8)(A)(ii) (excepting “an educational benefit, scholarship, or stipend” from discharge). To satisfy noscitur a sociis, “educational benefit[s]” must also be interpreted as “conditional grant payments,” rather than general payments used to advance a debtor’s education.177Homaidan, 3 F.4th at 605. Under these rules of statutory interpretation, Homaidan’s student loans do not fall under § 523(a)(8)(A)(ii) because the funds were not disbursed as conditional grant payments.178See id. at 599 (“Although the loans helped underwrite Homaidan’s college education, they were not made through Emerson’s financial aid office, nor—Homaidan alleges—were they made solely to cover Emerson’s cost of attendance. They went straight to Homaidan’s bank account, and the loan proceeds exceeded the cost of Emerson’s tuition.”).

Navient’s structural arguments to read “loan” into § 523(a)(8)(A)(ii)—although the word is expressly absent from the subsection—were also dismissed by the Second Circuit. Navient argued that “sandwiching” the subsection between two other sections that include the word “loan” meant § 523(a)(8)(A)(ii)’s “educational benefit” encompasses loans.179See id. at 602. On the contrary, Congress showed intentional and purposeful drafting when it chose to “include[] [loan] in one section . . . but omit[] it in another section of the same Act.”180Id. (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). Navient then argued that § 523(a)(8)(B)’s “any other educational loan” implied § 523(a)(8)(A)(i) and § 523(a)(8)(A)(ii) likewise covered student loans.181Id. But Navient failed to recognize that only § 523(a)(8)(A)(i) expressly excepts student loans from discharge; thus, the natural reading of “other” in § 523(a)(8)(B) only references § 523(a)(8)(A)(i).182Id. Navient’s final structural argument pointed to Congress’s use of “obligation to repay” to reference loans in other statutes, which is used in § 523(a)(8)(A)(ii).183Id. Congress’s use of the phrase in other statutes is irrelevant in determining what Congress meant in the subsection at issue.184See id. The Second Circuit believed Congress made its intention to leave student loans out of § 523(a)(8)(A)(ii) clear when it omitted any references to loans in § 523(a)(8)(A)(ii), but mentioned loans several times in § 523(a)(8)(A)(i) and § 523(a)(8)(B).185Id. (citing Russello, 464 U.S. at 23).

II. Analysis

A. The Narrow Reading of Educational Benefit Is Correct

1. Judicial Trend Favoring Discharge

The growing push for § 523(a)(8) reforms has created a judicial trend shifting away from the traditional reading and toward a relaxed treatment of student loan discharges.186See Bruce, supra note 102. Bankruptcy judges are expressing frustration that borrowers are coming into court for relief but are leaving with the same six-figure debts they came in with.187See Katy Stech Ferek, Judges Wouldn’t Consider Forgiving Crippling Student Loans—Until Now, Wall St. J. (June 14, 2018, 7:00 AM), https://www.wsj.com/‌articles/‌judges-wouldnt-consider-forgiving-crippling-student-loans-until-now-1528974001 [https://perma.cc/‌QR55-MJKE]. Chief Judge Morris of the Southern District of New York opined in Rosenberg v. New York State Higher Education Services Corp. (In re Rosenberg) that there has been a misreading of § 523(a)(8).188See Rosenberg v. N.Y. State Higher Educ. Servs. Corp. (In re Rosenberg), 610 B.R. 454, 458–59 (Bankr. S.D.N.Y. 2020). In order to fulfill the purpose of the Bankruptcy Code, satisfying the undue hardship standard should be more straightforward.189The purpose of the Bankruptcy Code is to provide debtors with a fresh start. Many judges reference the fresh-start principle to justify widening the scope of student loan discharge. See Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1309 (10th Cir. 2004) (“[T]o better advance the Bankruptcy Code’s ‘fresh start’ policy . . . the test must be applied such that debtors who truly cannot afford to repay their loans may have their loans discharged.”); Crocker v. Navient Sols., L.L.C (In re Crocker), 941 F.3d 206, 217 (5th Cir. 2019) (“All exceptions to discharge are to be interpreted narrowly in favor of the debtor to preserve the ‘fresh start’ the Bankruptcy Code provides for debtors.” (citing Hickman v. Texas (In re Hickman), 260 F.3d 400, 404–05 (5th Cir. 2001))). Students like Kevin Rosenberg—who have been out of school and struggling to repay their student loans for several years—have met the burden after years of repayment and should be granted a discharge. See Rosenberg, 610 B.R. at 459–62. Chief Judge Morris further criticized courts that are perpetuating the myth that it is impossible to discharge student loans through bankruptcy.190See Michael M. Krauss & James Park, Student Loan Discharged in Bankruptcy—Just a Blip, or Something Bigger?, Nat’l L. Rev. (Jan. 28, 2020), https://www.natlawreview.com/‌article/‌student-loan-discharged-bankruptcy-just-blip-or-something-bigger [https://perma.cc/‌5FDG-AXXT].

2. How Courts Are Deciding on “Educational Benefit”

Before the legislature takes action—either by passing § 523(a)(8) reforms or clarifying undue hardship—judges have taken matters into their own hands by limiting the application of § 523(a)(8).191See Sarah Chaney, Bankruptcy Becomes an Option for Some Borrowers Burdened by Student Loans, Wall St. J. (Dec. 27, 2016, 7:15 PM), https://www.wsj.com/‌articles/‌bankruptcy-becomes-an-option-for-some-borrowers-burdened-by-student-loans-1482834600 [https://perma.cc/‌6E94-33WT]. United Resource Systems, Inc. v. Meinhart (In re Meinhart) was one of the earlier cases, predating the enactment of BAPCPA, within the Tenth Circuit to limit for-profit lenders from raising “educational benefit” arguments to except loans used for an educational purpose from discharge.192United Res. Sys., Inc. v. Meinhart (In re Meinhart), 211 B.R. 750, 753 (Bankr. D. Colo. 1997). Meinhart involved a private loan made by a for-profit truck-driving school to one of its students, and the school argued that the student’s loan was nondischargeable under § 523(a)(8)’s educational benefit.193Id. at 752. However, the court rejected the school’s characterization of the loan, holding that it should be characterized as a private loan from a for-profit entity, and granted the debtor a discharge.194See id. at 751; see also Scott v. Midwestern Training Ctr., Inc. (In re Scott), 287 B.R. 470, 471 (Bankr. E.D. Mo. 2002) (finding that a debtor’s educational loan funded by a for-profit business and used to pay for truck-driving courses was dischargeable because it did not fall under § 523(a)(8) exemptions). In a similar decision, McClure v. Action Career Training (In re McClure), the court held that expanding § 523(a)(8) to include loans made by for-profit businesses would create law that makes previously dischargeable debts nondischargeable.195McClure v. Action Career Training (In re McClure), 210 B.R. 985, 988 (Bankr. N.D. Tex. 1997). This is as if a credit card company argued that a transaction in a bookstore by a student is nondischargeable because the student used the money to further their education. Furthermore, for-profit businesses do not exist solely to provide educational benefits, and only offer loans to attract customers.196Id.

In Nypaver v. Nypaver (In re Nypaver), a father obtained a Federal Parent PLUS loan to provide financial assistance to his daughter while she attended college.197Nypaver v. Nypaver (In re Nypaver), 581 B.R. 431, 432 (Bankr. W.D. Pa. 2018); see also London-Marable v. Sterling, Case Nos. CIV 06-CV-2659-PHX-RCB, BK-5-4339-RTB, Adv. No. 06-00274-RTB, 2008 WL 2705374, at *4–7 (D. Ariz. July 9, 2008) (finding that a debtor’s educational assistance from his mother, who funded the loan by taking out a PLUS loan, was dischargeable because it did not qualify as an educational benefit). When his daughter filed for bankruptcy, he argued the debt was nondischargeable because it qualified as an educational benefit under § 523(a)(8)(A)(ii).198Nypaver, 581 B.R. at 434–35. The court disagreed.199See id. at 440. Although the PLUS loan was the original source of funding, his daughter was not seeking to discharge the PLUS loan—she was seeking a discharge of a debt that arose from a private contract between father and daughter, separate and apart from the PLUS loan.200See id. at 432. While she could have used the money for educational purposes, the loan did not qualify as a student loan or educational benefit for the purposes of § 523(a)(8).201See id. at 434–40.

In Campbell v. Citibank, N.A. (In re Campbell), the judge limited the application of educational benefit and rejected arguments by creditors that the exemptions should encompass loans generally related to education.202Campbell v. Citibank, N.A. (In re Campbell), 547 B.R. 49, 54–55 (Bankr. E.D.N.Y. 2016). If § 523(a)(8)(A)(ii) were meant to be this broad, it would render the other subsections essentially useless. There would be no need to enact multiple subsections that specifically exempt different types of educational loans from discharge. This reading of the statute violates the canon against surplusage, which requires courts to give effect to every provision to avoid rendering any part of the statute duplicative or superfluous.203See Corley v. United States, 556 U.S. 303, 314 (2009).

Furthermore, § 523(a)(8)(A)(ii) was added to the Code to codify the decision in United States Department of Health & Human Services v. Smith.204See Iuliano, supra note 71, at 304; U.S. Dep’t of Health & Hum. Servs. v. Smith, 807 F.2d 122 (8th Cir. 1986). The Smith court found a conditional grant to a medical student to be nondischargeable after the student failed to uphold the promise to practice medicine in an underserved area.205Id. at 123, 125–27. Codifying the Smith decision meant the legislature intended this subsection to apply to only conditional funds, similar to that in Smith, and not to ordinary loans used in a general educational manner.206See Iuliano, supra note 71, at 304.

The Fifth Circuit ruling in Crocker v. Navient Solutions, L.L.C. (In re Crocker) was the first to adopt the narrow interpretation of § 523(a)(8)(A)(ii) in favor of the debtor and find that private educational loans are not statutorily excepted from discharge.207Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206 (5th Cir. 2019). Note the difference between Crocker and previous cases discussed. Crocker addresses a private student loan, whereas prior cases involved ordinary private loans that the debtors used for educational purposes. In those cases, the creditors were attempting to prevent an ordinary private loan from discharge by framing it as an “educational benefit” because the loans were used for educational purposes. It is also important to note that the McDaniel court heavily relied on Crocker. See McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1095–1103 (10th Cir. 2020). In the class action suit, the debtors obtained loans from for-profit corporations and not from any government loan programs, which were all transferred to Navient.208See Crocker, 941 F.3d at 208–09. Their loans were described as educational private loans.209Id. at 209. Navient argued that the private student loans fell under the exemptions of § 523(a)(8)(A)(ii), rendering them nondischargeable.210Id. at 218–19. The Fifth Circuit disagreed with Navient.211Id. at 223–24. The absence of the word “loan(s)” from § 523(a)(8)(A)(ii) showed that Congress was not targeting loans and explicitly intended to exclude them when it purposefully included the word in other subsections.212Id. at 218–19. Navient argued the severance of § 523(a)(8)(A) into § 523(a)(8)(A)(i) and § 523(a)(8)(A)(ii) meant Congress intended § 523(a)(8)(A)(i) to cover public loans and § 523(a)(8)(A)(ii) to cover private education loans, in order to widen the Code’s scope of education financing.213Id. at 223. This argument fails because the severance was only a structural change, and no substantive changes to the language of § 523(a)(8)(A)(i) or § 523(a)(8)(A)(ii) were made.214Id. (“All we see is a change to the structure of the overall statute but no real change to the language that controls the case before us.”); see also Kashikar v. Turnstile Cap. Mgmt., LLC (In re Kashikar), 567 B.R. 160, 167 (B.A.P. 9th Cir. 2017) (finding that separation of the subsections through BAPCPA meant that § 523(a)(8)(A)(ii) was distinct from § 523(a)(8)(A)(i) and § 523(a)(8)(B)’s exceptions of educational loans). Furthermore, only § 523(a)(8)(B) brought private loans into § 523(a)(8), and it did not apply to the loans in question.215See Crocker, 941 F.3d at 223. Section 523(a)(8)(A)(ii) only applies to payments not obtained as loans, which contain terms that create the obligation to repay upon a debtor’s failure to fulfill the conditions of payment.216Id.

B. What McDaniel v. Navient Means for Debtors with Student Loans

Under the broad reading of § 523(a)(8)(A)(ii), “obligation to repay funds received” meant “loan[s],” and “educational benefit” meant any transaction that was related and used to advance one’s education.217Iuliano, supra note 71, at 284. Roy v. Sallie Mae held that debts owed to Sylvan Learning Center for tutoring services for the debtor’s child were nondischargeable because, pursuant to § 523(a)(8)(A)(ii), the debts were “an obligation to repay funds received as an educational benefit.” ²¹⁸Roy v. Sallie Mae (In re Roy), Bankr. Case No. 08-33318, Adv. No. 09-1406, 2010 WL 1523996 (Bankr. D.N.J. Apr. 15, 2010) (emphasis added)^.

However, under McDaniel and Homaidan, the Sylvan debts are dischargeable. The Sylvan debts are unsecured private educational loans and thus do not qualify as a student loan guaranteed by the federal government under § 523(a)(8)(A)(i).219See 11 U.S.C. § 523(a)(8)(A)(i). Furthermore, Sylvan Learning Center is not an accredited school under the Higher Education Act of 1965,220See I.R.C. § 25A(f)(2) (“[An] eligible educational institution . . . is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. § 1088) . . . .”); 20 U.S.C. § 1088(b). Courses at Sylvan Learning Center do not meet the minimum hours of instruction required—six hundred hours for graduate programs and three hundred hours for undergraduate programs. See Sylvan School Services, Sylvan Learning, https://www.sylvanlearning.com/‌resources/‌sylvan-school-services [https://perma.cc/‌3GG9-P4Y7]. Sylvan also does not offer graduate or undergraduate programs, which can be found at accredited higher-education institutions. Id. so any part of the loan used at the learning center is not a “qualified education loan” under § 523(a)(8)(B).221See 11 U.S.C. § 523(a)(8)(B); see also discussion supra Section I.C. Following the narrow interpretation of § 523(a)(8)(A)(ii) adopted in McDaniel and Homaidan, the Sylvan debts do not qualify as “educational benefit[s].”222See McDaniel v. Navient Sols., LLC (In re McDaniel), 973 F.3d 1083, 1097–98 (10th Cir. 2020); Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 599 (2d Cir. 2021). As the Tenth and Second Circuits made clear, conditional grants are “educational benefit[s],” and normally, the terms of a private educational loan do not condition payments on a debtor’s future services.223See supra Sections I.D.1–I.D.2. Educational loans are nondischargeable only if they fall under one of the subsections of § 523(a)(8), but the Sylvan debts do not. Loans subject to the narrower reading of § 523(a)(8)(A)(ii) are military programs,224See generally Army ROTC Scholarships, GoArmy, https://www.goarmy.com/‌careers-and-jobs/‌find-your-path/‌army-officers/‌rotc/‌scholarships.html [https://perma.cc/‌W5RY-9ASS] (providing scholarships for high school students who commit to “[e]ight years in the Army, Army Reserve, or Army National Guard”). health programs,225See generally Apply to the Nurse Corps Scholarship Program, HRSA Health Workforce, https://bhw.hrsa.gov/‌funding/‌apply-scholarship/‌nurse-corps [https://perma.cc/‌BQ3G-VBS7] (“If accepted, we pay your tuition, fees, and other educational costs. In return, you work at a Critical Shortage Facility (CSF) when you graduate.”). teacher programs,226See generally Teacher Programs, Wash. Student Achievement Council, https://wsac.wa.gov/‌teachers [https://perma.cc/‌62WJ-7CJS] (providing financial aid for teachers to work in “shortage areas” with a requirement to “[r]epay any funding received . . . if the participant fails to fulfill the teaching service obligation”). and similar programs.227See Sensient Techs. Corp. v. Baiocchi (In re Baiocchi), 389 B.R. 828, 829 (Bankr. E.D. Wis. 2008) (program providing debtor with fifty percent of tuition for attending law school that included a “requirement that any funds paid to her during the two years prior to her voluntary departure from the company must be repaid”).

By changing the reading of § 523(a)(8), nondischargeable student loans will be limited, giving more opportunity to students who choose to litigate the dischargeability of their loans. McDaniel and Homaidan chip away at the myth that student loans are inherently nondischargeable in bankruptcy.228See Chris Arnold, Myth Busted: Turns Out Bankruptcy Can Wipe Out Student Loan Debt After All, NPR (Jan. 22, 2020, 7:13 AM), https://www.npr.org/‌2020/‌01/‌22/‌797330613/‌myth-busted-turns-out-bankruptcy-can-wipe-out-student-loan-debt-after-all [https://perma.cc/‌9X69-J9GH]; Alexander Gladstone, Appeals Court Weakens Bankruptcy Protections for Private Student Loans, Wall St. J. (Sept. 1, 2020, 4:57 PM), https://www.wsj.com/‌articles/‌appeals-court-weakens-bankruptcy-protections-for-private-student-loans-11598993841 [https://perma.cc/‌UV53-RGPK]. Pursuing a student loan discharge will no longer be left to chance if the student debtor does not need to show undue hardship, which was widely applied inconsistently among the courts.229See Jason Iuliano, The Student Loan Bankruptcy Gap, 70 Duke L.J. 497, 503 (2020) (“If a student loan does not fall within at least one of [the Section 523(a)(8) exemptions], the inquiry ends, and the debt is discharged through the normal bankruptcy process.” (footnote omitted)); supra Section I.A.1. Under the new reading of § 523(a)(8), private loans paid to a nonqualified higher-education institution230See supra note 220.—for example, a vocational school, beauty school, culinary school, or bar prep class—do not fall under the discharge exceptions listed in § 523(a)(8), and thus do not need a showing of undue hardship to qualify for a discharge. Students can pursue bankruptcy—keeping in mind the consequences of filing for bankruptcy—if they are having a hard time repaying their student loans.

C.  Looking Forward: Addressing the Impact of McDaniel v. Navient on Student Loans

Before BAPCPA, § 523(a)(8) did not prevent private student loans from being discharged.231See supra Section I.C. The 2005 reforms to add private loans were influenced by the growth of commercial lending and the push for protection for private lenders.232See Crocker v. Navient Sols., L.L.C. (In re Crocker), 941 F.3d 206, 222–23 (5th Cir. 2019). During the following school year, private student lending jumped to $17.3 billion.233Diana Jean Schemo, Private Loans Deepen a Crisis in Student Debt, N.Y. Times (June 10, 2007), https://www.nytimes.com/‌2007‌/06/‌10/‌us/‌10loans.html [https://perma.cc/‌2FAL-W4PJ]. “[At] the end of 2019, there was $128 billion in private student loans . . . .” Delece Smith-Barrow, More Students Are Taking out Private Loans as College Costs Rise, Hechinger Rep. (May 8, 2020), https://hechingerreport.org/‌more-students-are-taking-out-private-loans-as-college-costs-rise [https://perma.cc/‌X8GZ-A8NY]. The privilege of being nondischargeable skewed lenders’ incentives to approve loans responsibly and consider a borrower’s ability to repay.234See Kayla Webley, Is Forgiving Student Loan Debt a Good Idea?, Time (Apr. 20, 2012), https://business.time.com/‌2012/‌04/‌20/‌is-forgiving-student-loan-debt-a-good-idea [https://perma.cc/‌8DPF-F9UM]. Many students taking out loans are young, fresh out of high school, and not informed of the risks they are about to incur.235See Student Loans: Trading Your Life for a Degree, 15 Ill. Bus. L.J. 72, 72–73 (2012); Camilla E. Watson, Federal Financing of Higher Education at a Crossroads: The Evolution of the Student Loan Debt Crisis and the Reauthorization of the Higher Education Act of 1965, 2019 Mich. St. L. Rev. 883, 946. Nondischargeability status made it easier for private lenders to exacerbate poor lending practices and contribute to the growth of the student loan bubble.236See Webley, supra note 234. The McDaniel decision may influence student lenders to grant loans proportionate to the student’s ability to repay and limit whom they grant loans to.237See Preston Mueller, Comment, The Non-Dischargeability of Private Student Loans: A Looming Financial Crisis?, 32 Emory Bankr. Devs. J. 229, 256 (2015). As a result, this incentive could create a self-sustaining private lending system and healthier lending practices, both of which will have long-lasting effects on the national economy.238See id. at 256–57 (arguing that by removing discharge protection of private student loans and lowering private lending limits, schools may lower tuition, and prevent the burst of the student loan bubble).

There is a concern that if private lenders limit their lending pool, it could harm students who mainly, or at least sometimes, rely solely on private loans to pay for school. Federal loans, scholarships, and grants come with borrowing or granting caps to limit the amount that each student receives.239Currently, a student is capped at $31,000 for undergraduate studies, but on average a public four-year college costs approximately $40,000, which is more than the federal loan limit. Anna, Why Do Some Students Borrow Traditional Private Student Loans?, Meratas (Aug. 7, 2020), https://www.meratas.com/‌blog/‌why-students-borrow-private-student-loans [https://perma.cc/‌CW4T-984F]. Furthermore, not all students are eligible for federal loans; these loans are not available to students who are not citizens or permanent residents.240Elyssa Kirkham, Your Guide to FAFSA and Eligibility Requirements for Financial Aid, Student Loan Hero (Jan. 28, 2021), https://studentloanhero.com/‌featured/‌do-i-qualify-for-financial-aid-eligibility-requirements [https://perma.cc/‌XWV9-3S93]. In these situations, students turn to private lenders to cover the remaining tuition and attendance costs.241See Anna, supra note 239. In light of the McDaniel and Homaidan decisions, however, it is likely that private lenders will increase interest rates and change borrowing terms to create more favorable protections for themselves.242See Papandrea, supra note 93, at 575–76. Where are students, who have maxed out or do not qualify for federal loans, to go?

Conclusion

The purpose of the Bankruptcy Code is to provide struggling debtors with a fresh start.243See supra text accompanying note 4. Debtors who are struggling the most are those with student loans, but the area of law that is supposed to provide them solace is not available to them. After McDaniel and Homaidan, student debtors in the Tenth and Second Circuits are seeing more options in dealing with their student loan debt.244See supra Section I.D. For the rest of the country, the discontent with the strict interpretation of the Bankruptcy Code and the urge for the Code to once again favor debtors is growing. Before Congress takes any real steps toward reform, students can only hope that other circuits will follow the Tenth and Second Circuits in reinterpreting the Code to favor discharge.