Loyle v. United States Dep't of Educ. (In re Loyle)

IN RE: PARIS EDWARD THOMAS LOYLE KATHERINE CHRISTINE LOYLE Debtors.

PARIS EDWARD THOMAS LOYLE KATHERINE CHRISTINE LOYLE Plaintiffs, v. UNITED STATES DEPARTMENT OF EDUCATION, NAVIENT SOLUTIONS LLC, EDUCATIONAL CREDIT MANAGEMENT CORPORATION, FEDLOAN SERVICING, EDUCATIONAL COMPUTER SYSTEMS, INC., R3 EDUCATION INC, FIRSTMARK SERVICES, CITIZENS ONE, TAB BANK, AMERICAN EDUCATION SERVICES, CORONADO STUDENT LOAN TRUST, FCDB NPSL III TRUST2014-1, and LIBERTY BANK n/k/a THE MIDDLEFILED BANKING COMPANY. Defendants.

No. 19-10065

Adv. No. 20-5073

United States Bankruptcy Court, D. Kansas

February 24, 2022

Chapter 7

MEMORANDUM OPINION

Mitchell L. Herren United States Bankruptcy Judge

I. Introduction

Paris and Katherine Loyle are joint debtors in this adversary proceeding seeking to obtain a hardship discharge of $435 320 in student loan debt owing to the United States Department of Education (DoE) and Navient Solutions LLC (Navient). ^[1] Each month, combined interest in the amount of $1, 812 accrues on the debt. Like many student loans, the debtors' loans are in negative amortization. Despite being in repayment plans since 2012, the loans are accruing more interest each month than the amount of the monthly payment, resulting in an ever-rising loan balance.

Much of the trial focused on whether debtors were maximizing their income and minimizing their expenses, and if they had made a good faith effort to repay. Applying the applicable law regarding hardship discharges and considering the parties' stipulations of fact, their joint exhibits, and the evidence presented, the Court concludes that requiring the Loyles to repay the total remaining principal and interest on these loans would impose an undue hardship on them and their dependents. However, repaying some of the debt would not be an undue hardship. Therefore, the Court grants a discharge of a portion of the student loan debt.

II. Findings of Fact

A. Background

The Loyles filed this joint Chapter 7 case in 2019 as a no-asset case and obtained a discharge. They scheduled claims in excess of $840, 000, of which nearly $561, 000 was comprised of student loan debt. In 2020, the Loyles filed a motion to reopen their case to pursue an undue hardship discharge of their student loans. The motion was granted, and this adversary proceeding was filed pursuant to 11 U.S.C. § 523(a)(8).

At the time of trial, Dr. Loyle was age 49 and Ms. Loyle was age 43. Both are employed in good, stable jobs-Dr. Loyle as a chiropractor and Ms. Loyle as a teacher. They have five children, ages 18, 16, 14, 9 and 6. The oldest child was planning to start her first year of college at a local community college. The debtors and their children are healthy and suffer from no serious medical conditions.

B. Dr. Loyle

1. Education and Student Loans

Dr. Loyle attended undergraduate school (1989-1993) at Regis University in Denver, obtaining a degree in English. He then attended Parker College (1995-1997) where he earned his chiropractic degree. After practicing chiropractic in Colorado and Wichita for about nine years, Dr. Loyle decided to attend medical school.

From 2006-2011, he attended American University of Antigua, Kasturba Medical College, on the Caribbean Island of Antiqua, ^[2] transferred to St. Matthew's University (in the Cayman Islands) and ended in Wyoming following two years of clinical and hospital work requirements in the United States. He passed the first two parts of his medical boards, but thereafter, was unsuccessful in securing entrance in a medical residency program, despite applying for various residency programs for three years. As a result, Dr. Loyle could not obtain his medical license and practice medicine. Regarding his choice to attend medical school outside the United States, Dr. Loyle testified that he would have had to retake the MCAT (Medical College Admission Test) for admission into a U.S. medical school and believed it would take him an extended period of preparation to study for the MCAT because he had been out of school for nearly ten years. He did not have to retake the MCAT for admission to the medical schools in the Caribbean Islands. He acknowledged that he knew going in it would make his acceptance into a U.S. residency program more difficult, describing his medical degree from the Caribbean as "second class."

Most of Dr. Loyle's student loan debt at issue is not from his medical degree. Dr. Loyle took out a series of student loans for his undergraduate ($5, 625) and chiropractic ($90, 995) studies totaling $96, 620. In 2008, he obtained a $10, 250 loan for studies at Davenport University.^[3] Thus, the total amount he originally borrowed was $106, 870. At the time of the last consolidation of these loans in 2012 under the William D. Ford Federal Direct Loan Program (FDLP), his indebtedness to the DoE had grown to $173, 507.^[4]

In addition to the DoE consolidation loan, Dr. Loyle funded his medical degree in part by an EXCEL graduate loan that was disbursed in 2006 in two parts totaling $38, 399.^[5] Navient holds this loan. This is the only student loan related to Dr. Loyle's pursuit of a medical degree at issue in this proceeding.

2. Current Loan Amounts and Repayments As of May 2020, the balance owed on the Navient loan was $55, 706.99.^[6]This loan accrues interest at a variable rate, ranging from 1%-8%, and the 25-year term matures in January 2039 (meaning the loan term began in 2014). Dr. Loyle regularly made monthly payments on this loan "for quite awhile," but it appears his last payment was made in February 2019, shortly after filing bankruptcy. The Court's review of Exhibit 16 indicates that Dr. Loyle made monthly payments of $287.95 in 2014; those payments increased to $368.50 in 2015, declined to $251.57 during 2016, increased to $255.02 in 2017 and to $332.75 in the fall of 2018. He intermittently missed some payments during 2015-2016. The most recent monthly payment amount of $332 is now insufficient to pay off the loan by the maturity date due to the accrual and capitalization of interest. Since 2014, he has paid a total of $21, 427.43 on the Navient loan-$13, 249.81 interest and $7, 852.62 principal.^[7]This loan is not eligible for an income-based repayment plan.^[8] At the beginning interest rate of 5.75%, the Navient loan accrues monthly interest of about $267.

Dr. Loyle currently owes $226, 699 on the 2012 DoE consolidation loan.^[9]This loan accrues interest at 4.38%, or a monthly interest accrual of $827.^[10] He applied for income-driven repayment plans upon consolidating his loans in 2012.^[11]

The Income-Based Repayment (IBR) plan in which Dr. Loyle enrolled, limit monthly payments to no more than 15% of the amount by which his adjusted gross income (AGI) exceeds 150% of the poverty level income for his family size. The borrower must recertify his income each year and recalculate the monthly payment based upon his current income. The maximum term of an IBR plan is 25 years. The remaining loan balance after 25 years is eligible for forgiveness.

He first applied for and was approved for an IBR plan in October of 2012 at a monthly payment of $67.62. He made his scheduled payments. After one year, Dr. Loyle recertified his income for the IBR plan and his monthly payment increased to $276.37 for the next twelve months. He requested and received a one-month forbearance at the end of 2013 and made his first $276 payment on February 7, 2014, but contemporaneously requested and obtained a hardship deferment, resulting in postponement of the monthly payment from February-August, 2014. He resumed his IBR $276 monthly payment from August-October, 2014. In November, Dr. Loyle again requested and obtained a one-year deferment to the end of November 2015.

In August 2016 Dr. Loyle recertified his income and reenrolled in the IBR plan. He was approved for a monthly payment of $73.38 for twelve months beginning December 27, 2016. Dr. Loyle made these monthly payments from April-September of 2017, missed October, and made November and December. In October of 2017, Dr. Loyle recertified his income and his IBR plan was approved for a monthly payment of $0 from December 27, 2017 through November 27, 2018.

He recertified his income in December of 2018 and his IBR plan was approved for a $100.27 monthly payment for the next year. He made no payments under the IBR plan during that year.

The Loyles filed their bankruptcy on January 17, 2019, and the DoE placed holds on Dr. Loyle's account until he received his discharge on April 22, 2019. When servicing of the account resumed, Dr. Loyle requested and obtained forbearance from April 2019 through March 28, 2020. By the spring of 2020, the COVID-19 pandemic had arrived. Since then, Dr. Loyle's student loan payments have been suspended by the CARES Act (Coronavirus Aid, Relief, and Economic Security Act). The last extension of the CARES Act is set to expire May 1, 2022.^[12] In summary, in addition to the payments on his Navient loan, during the six-year period from December 7, 2012, through November 27, 2018, Dr. Loyle made 35 payments through an IBR plan totaling $2, 909 on his consolidated loan, none of which paid any loan principal. He has made no loan payments on the DoE consolidation loan since November 2018.

3. Employment

After Dr. Loyle could not gain admittance into a medical residency program, he searched for a medical research job (to use his medical degree) but had no success in obtaining one because he lacked experience. He eventually returned with his family to Wichita. He was unemployed for a period of time and had difficulty finding a full-time chiropractic job. He worked part-time as a substitute mail carrier for the post office about a year, worked for a pain center in 2018, and ultimately...