The US Court of Appeals for the Second Circuit recently ruled in favor of a private student loan borrower and found that his loans were discharged without his meeting the undue hardship requirement usually applied to student loans.1 The court found that the borrower's loans were not an "obligation to repay funds received as an educational benefit" and were therefore subject to discharge. In reaching that conclusion, the court held that private education loans that were not "qualified" within the meaning of the bankruptcy code were generally subject to discharge, without regard to the undue hardship standard. The opinion noted that applying the "educational benefit" prong to a loan would make every student loan an educational benefit and improperly broaden the statute's scope, which separately excepts from discharge "qualified private educational loans." Navient Corp., the successor to Sallie Mae, the loan's initial servicer, did not argue that the borrower's loans were qualified private educational loans, likely because the loans were issued directly to the student and used for living expenses rather than tuition. This decision puts the Second Circuit in agreement with the Fifth and Tenth Circuits, which have recently reached similar conclusions.
The Homaidan Case
Hilal K. Homaidan received two direct-to-consumer "tuition answer loans" from Sallie Mae totaling more than $12,000. The funds went directly...
