In my last post I reported on Decena v. Citizens Bank, in which a New York bankruptcy judge discharged Lorelei Decena's student-loan debt in bankruptcy because Decena had borrowed the money to attend an African medical school that was not on the Department of Education's Federal School Code List.
Normally, student-loan debt is not dischargeable in bankruptcy unless the borrower can show that repayment would create an "undue hardship," a very difficult standard to meet. But in Decena's case, the bankruptcy judge ruled that St. Christopher's College of Medicine, the African medical school Decena attended, was not an "eligible educational institution" because the school was not on the Department of Education's list of approved schools Thus, Decena could discharge the loans she took out to attend St. Christopher's (more than $160,000) without having to show undue hardship.
Richard Gaudreau, writing for Huffington Post, recently reported on another case in which a student-loan debtor freed herself from student-loan debt because the institution she attended was not listed in DOE's Federal School Code List.
In Davidson v. Sallie Mae, Jennifer Lynn Davidson borrowed approximately $20,000 from Sallie Mae to attend a "Co-Active Coach Training Program" operated by an outfit called CTI. As she explained in her Adversary Proceeding complaint, Davidson quickly became disenchanted with the program after her instructor swore at her during the first session and then announced that there would be a clothing-optional pool party at the end of the program day. She immediately notified CTI that she was withdrawing from the program.
Davidson sued Sallie Mae in an Oregon bankruptcy court to discharge her educational loans in bankruptcy, and she eventually persuaded Sallie Mae to sign a Stipulated Judgment agreeing to allow her to discharge the debt.
Why did Sallie Mae throw in the towel and allow Davidson to free herself from her student loans? Because--as Gaudreau explained in his Huffington Post article--CTI was not on the Department of Education's Federal School Code List.
What are we to make of Davidson's victory?
First, Sallie Mae is apparently loaning money to people to enroll in all kinds of so-called educational programs without regard to program quality, secure in the belief that people who take out loans for these programs will find it virtually impossible to discharge their debt in bankruptcy. In Davidson's case, however, Sallie Mae slipped up and loaned Davidson money to attend CTI's "Co-Active Coach Training Program" without checking to see whether CTI was on the Department of Education's Federal School Code List.
Second, students who borrow money to enroll in programs at marginal institutions like CTI and St. Christopher's College of Medicine should definitely consult DOE's School Code List to determine if the institution they attended is on it. If the school is not on that list, a borrower has a reasonable shot at shedding the student-loan debt in bankruptcy without having to show that it would be an "undue hardship" to repay the loan.
As Gaudreau pointed out, bankruptcy courts are not in total agreement as to what constitutes an educational loan that is covered by the Bankruptcy Code's undue hardship rule. But Lorelei Decena convinced a bankruptcy judge that St. Christopher's College of Medicine was not an "eligible educational institution" for purposes of the undue hardship standard; and Jennifer Lynn Davidson apparently persuaded Sallie Mae that loans taken out to attend CTI were likewise not subject to the undue hardship rule.
Congratulations to Lorelei Decena and Jennifer Lynn Davidson for their victories in the bankruptcy courts. As for Sallie Mae and Citizens Bank, which collectively lost $180,000, they got the bankruptcy-court outcomes they so richly deserved.
Davidson v. Sallie Mae, Case No. 12-33122-TMB-7, Adversary Proceeding Number 12-03171 (Bankr. D. Or. Aug. 15, 2012) (Stipulated Judgment to Discharge Educational Loan Debt and Dismiss Adversary Proceeding) (from an article appearing in Getoutofdebt.org). Accessible at https://getoutofdebt.org/wp-content/uploads/2013/07/183-1_new.pdf
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Richard Gaudreau. Some Private Loans Eligible for Automatic Discharge. Huffinton Post, June 21, 2016. Accessible at http://www.huffingtonpost.com/richard-gaudreau/when-is-a-student-loan-no_b_10530086.html
U.S. Department of Education. Federal School Code List 2016-1017.