Jordan v. ACS Education Services Inc. et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
Brooks A. Jordan,
Debtor.
Brooks A. Jordan,
Plaintiff,
v.
ACS Education Services,
Defendant.
) 	Case No.: 10-33942
)
) 	Chapter 7
)
) 	Adv. Pro. No. 10-3195
)
) 	Hon. Mary Ann Whipple
)
)
)
)
)
)
)
)
MEMORANDUM OF DECISION AND ORDER
ON MOTION FOR DEFAULT JUDGMENT
This adversary proceeding is before the court upon Plaintiff’s complaint to determine the
dischargeability of debt under 11 U.S.C. § 523(a)(8) (“Complaint”) [Doc. #1]. Plaintiff is the debtor in
voluntary Chapter 7 Case No. 10-33942 pending in this court. The district court has jurisdiction over this
adversary proceeding pursuant to 28 U.S.C. §1334(b) as a civil proceeding arising in a case under Title 11.
The court incorporates by reference in this paragraph and adopts as the findings
and orders of this court the document set forth below. This document has been
entered electronically in the record of the United States Bankruptcy Court for the
Northern District of Ohio.
Dated: January 07 2011
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This proceeding has been referred to this court by the district court under its general order of reference. 28
U.S.C. § 157(a); General Order 84-1 of the United States District Court for the Northern District of Ohio.
Proceedings to determine the dischargeability of debts are core proceedings that the court may hear and
decide. 28 U.S.C. § 157(b)(1) and (b)(2)(I).
On July 7, 2010, the Clerk issued a summons and notice of pre-trial conference (“Summons”)[Doc.
# 2]. The return on service [Doc. # 3] shows that the Summons and Complaint were duly and properly
served on Defendant, sent to the address set forth in Plaintiff’s petition by certified United States Mail. The
Summons required an answer or other response to the Complaint to be filed by August 6, 2010.
On August 24, 2010, the court held the initial pre-trial scheduling conference on the Complaint as
set in the Summons. Plaintiff’s attorney appeared by telephone. There was no appearance by or on behalf
of Defendant and no answer or other response to the Complaint had been filed. 	The Clerk entered
Defendant’s default, [Doc. # 6], and Plaintiff filed a Motion for 	Default Judgment (“Motion”) 	on
September 6, 2010 [Doc. # 9]. The court scheduled a hearing on the Motion and notice of this hearing was
also properly served on Defendant at the address set forth in Plaintiff’s petition. [Doc. ##10, 11].
On October 19, 2010, t he court held the hearing on the Motion. An Attorney for Plaintiff appeared in
person. 	There was no appearance by or on behalf of Defendant. 	Plaintiff offered testimony and other
evidence in support of the Motion. A review of the record shows that no answer or other response to the
Complaint or Motion has been filed.
FINDINGS OF FACT
The court finds that notice, including the service of the Summons and Complaint and of the hearing
on the Motion, has properly been given to Defendant. Service of the Summons and Complaint was duly
and properly effected under Rule 7004(h) of the Federal Rules of Bankruptcy Procedure. In further support
that actual notice of these proceedings have been received by Defendant, the court notes that no notices or
mailings to Defendant from the court have been returned to the Clerk. Thus, the court finds that Defendant
has failed to appear, plead, or otherwise defend this action as required by the applicable rules of procedure.
The well-pleaded factual allegations of the Complaint are taken as true as a result of the default. In
addition, the court takes judicial notice of the contents of the docket in Debtor’s underlying bankruptcy case,
including Debtor’s bankruptcy schedules. Fed. R. Bankr. P. 9017; Fed. R. Evid. 201(b)(2); In re Calder,
907 F.2d 953, 955 n.2 (10th Cir. 1990); St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d
1169, 1171-72 (6th Cir. 1979) (stating that judicial notice is particularly applicable to the court's own
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records of litigation closely related to the case before it). The court has also considered Plaintiff’s testimony
and documentary evidence offered at the hearing, which further support allegations in the Complaint.
Plaintiff is twenty-seven years old and is single with no dependents. She incurred student loans
while pursuing a 	bachelors degree in education at Heidelberg College, which she obtained in 2006.
Plaintiff testified that her loans were obtained from a private lender and are not guaranteed under any federal
program. After graduating, Plaintiff consolidated her student loan debt owed to Defendant. As of June 30,
2010, the outstanding principal balance of that thirty-five-year consolidation loan was $93,776.58, with
interest that is accruing at an annual rate of 9.04%. [Pl. Ex. A].
Initially, Plaintiff’s monthly payment owed to Defendant was $747. She made those payments until
a few months before filing her bankruptcy petition. After graduating from college and during the time that
she was making her monthly student loan payments, she was living with her parents. She worked for one
year in a daycare after graduating and then obtained a position as a first grade teacher in the Swanton, Ohio,
school district, where she has taught for two years. She now lives independently. She received a three-
month deferment in making her payments and thereafter was notified that her monthly payment has
increased to $776 per month. Plaintiff has repeatedly contacted Defendant in an attempt to address her
difficulty in meeting her payment obligation. Although she was offered an additional three-month deferral
period, interest will continue to accrue and her monthly payment will increase. Plaintiff has been unable
to refinance this obligation.
Plaintiff’s bankruptcy Schedule I shows that her gross monthly income is $2,861.00, and her net
income after payroll deductions is $1,961.55. [Case No. 10-33942, Doc. 1, Schedule I]. 	This amount
reflects Plaintiff’s teaching salary that is paid over a period of twelve months. 	Plaintiff alleges in the
Complaint, and testified at the hearing, that she anticipates only cost of living increases throughout her
teaching career to the extent that the public school system can afford such increases. She further alleges
in the Complaint that she is maximizing her income. To that end, Plaintiff testified that she has sought
additional work to supplement her teaching income. Plaintiff testified that she applied for and recently
obtained an information technology position with Swanton schools, for which she will be paid a lump sum
net amount of approximately $1,000. Other sources of income include net amounts of approximately $2,000
for coaching volleyball and $600 for working at a kindergarten camp during the summer. 	In addition,
Plaintiff is attempting to earn extra money by tutoring students. Plaintiff’s additional net income totals
approximately $3,600, for an average of approximately $300 per month. Thus, her total income after payroll
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deductions is now approximately $2,261.
Plaintiff’s Schedule J shows total monthly expenses, including her original student monthly loan
payment owed to Defendant, in the amount of $2,609.76. [Id., Schedule J]. The recent $29 increase in her
student loan payment results in total monthly expenses in the amount of $2,638. Plaintiff’s other monthly
expenses reflect a very basic lifestyle. Her total income less total monthly expenses is a negative $377.00.
Plaintiff filed her Chapter 7 petition on June 7, 2010. She testified that her primary purpose in filing
was to deal with the student loan debt owed to Defendant. This testimony is corroborated by Plaintiff’s
Schedule F, which shows that all but $552 of her $112,115 in unsecured debt is student loan debt. Plaintiff
has no non-exempt assets that could be used to pay her student loans. On May 15, 2009, she commenced
this adversary proceeding seeking a discharge of her student loan debt as an undue hardship. At the hearing
on Plaintiff’s motion for default judgment, she made clear that she is not seeking a discharge of the entire
debt but, rather, is seeking such relief as will allow her to pay an amount that she can afford while
maintaining a basic standard of living.
LAW AND ANALYSIS
I. General Principles
Section 523(a)(8) provides for the dischargeability of a student loan obligation if “excepting such
debt from discharge . . . will impose an undue hardship on the debtor and the debtor’s dependents. . . .”
The underlying purpose of this provision is “to prevent indebted college or graduate students from filing
for bankruptcy immediately upon graduation, thereby absolving themselves of the obligation to repay their
student loans.” Tenn. Student Assistance Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 436-37 (6th Cir.
1998).
Although the Bankruptcy Code does not define “undue hardship,” the Sixth Circuit has adopted the
test set forth in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395, 396 (2d Cir.
1987), for determining the existence of “undue hardship.” See Oyler v. Educ. Credit Mgmt. Corp. (In re
Oyler), 397 F.3d 382, 385 (6th Cir. 2005).
Under the Brunner test, the debtor must prove each of the following three elements:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal”
standard of living for herself and her dependents if forced to repay the loans; (2) that
additional circumstances exist indicating that this state of affairs is likely to persist for a
significant portion of the repayment period of the student loans; and (3) that the debtor has
made good faith efforts to repay the loans.
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Id. at 385 (quoting Brunner, 831 F.2d at 396). 	In applying the three prongs of Brunner, courts may
consider, among other things, the following factors:
(1) the debt amount; (2) the interest rate; (3) the debtor’s claimed expenses and current
standard of living to evaluate whether the debtor has attempted to minimize expenses; (4)
the debtor’s income, earning ability, health, education, dependents, age, wealth, and
professional degrees; and (5) whether the debtor has attempted to maximize income by
seeking or obtaining employment commensurate with her education and abilities.”1
Id.
A debtor seeking an undue hardship discharge bears the burden of proof by a preponderance of the
evidence. Chime v. Suntech Student Loan (In re Chime), 296 B.R. 439, 443 (Bankr. N.D. Ohio 2003). But
in cases in which a debtor fails to establish an undue hardship justifying the exception of her entire debt,
under Hornsby, Cheesman v. Tenn. Student Assistance Corp. (In re Cheesman), 25 F.3d 356 (6th Cir. 1994),
and Miller v. Penn. Higher Educ. Assistance Agency (In re Miller), 377 F.3d 616 (6th Cir. 2004), the court
must take one further step. In Cheesman, the Sixth Circuit authorized trial courts to evaluate undue hardship
under § 523(a)(8) in light of and in conjunction with 11 U.S.C. § 105(a). Cheesman, 25 F.3d at 360-61.
In Hornsby, the Sixth Court appears to require trial courts to undertake such an analysis. Hornsby, 144 F.3d
at 440 (reversing decision granting a total discharge of student loan debt and remanding for consideration
of a partial remedy under § 105(a)). In Miller, the Sixth Circuit made clear that a partial remedy granted
pursuant to the equitable powers of § 105(a) does not eliminate the requirement of undue hardship. Miller,
377 F.3d at 622. 	Section 105(a) authorizes a court to grant a partial discharge only where the undue
hardship requirement of § 523(a)(8) is met as to the part discharged. Id.
For the reasons discussed below, the court finds that the well-pleaded factual allegations of the
Complaint constitute a valid cause of action against Defendant under § 523(a)(8). 	Having considered
Plaintiff’s testimony and other evidence offered at the hearing, the court finds an undue hardship as to only
a portion of Plaintiff’s student loan debt and further finds it appropriate to exercise the court’s authority
under § 105(a) to grant a partial discharge of that portion.
II. First Prong of the Brunner Test
The first prong of the Brunner test contemplates that a debtor is first entitled to provide for basic
1 Before the Oyler decision, the Sixth Circuit treated these factors as distinct and independent from the Brunner analysis.
See, e.g., Hornsby, 144 F.3d at 437. But in Oyler, the court recognized that the Brunner analysis “subsumes” the criteria it had
previously analyzed independently and formally adopted the “simpler rubric of the Brunner test.” Oyler, 397 F.3d at 385.
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needs for food, clothing, shelter, medical care and transportation for herself and her dependents, if any,
before repaying student loan debts. 	In applying this test, the court must evaluate a debtor’s household
income and expenses, focusing particularly on what expenses are necessary to realistically maintain a basic
standard of living and then determining whether there is income left over with which to pay student loan
debts.
As discussed above, Plaintiff’s average monthly income after payroll deductions is $2,261.
Although Plaintiff’s monthly expenses reflect a very basic standard of living, with the $776 monthly
payment owed to Defendant included in those expenses, she experiences an average monthly shortfall of
$377. Without the $776 monthly payment being made to Defendant, Plaintiff’s average monthly income
exceeds her expenses by $399. Applying this entire amount to her student loan debt would appear to leave
no cushion for emergencies and unexpected expenses. Thus, budgeting $49 per month for such expenses,
the court finds that $350 per month is available to Plaintiff to pay on her student loan debt owed to
Defendant.
Another aspect of the first prong of the Brunner test is the impact of forced collection of the student
loan debt on a debtor and her dependents. This prong of the test, explicitly adopted by the Sixth Circuit in
Miller, was in fact phrased by the Second Circuit in Brunner in terms of whether the debtor could maintain
a minimal standard of living if “forced” to repay the loans in issue. Brunner, 831 F.2d at 396. The court
interprets this language as requiring an analysis of the effect on the debtor’s standard of living if the holder
or guarantor of the student loan takes legal action resulting in Plaintiff’s involuntary payment of her loans.
Because she has no nonexempt assets that could be liquidated on execution pursuant to any future judgment
obtained by Defendant, her property will not be seized. 	She does, however, have earnings that can be
garnished. Under the Consumer Credit Protection Act and Ohio law, garnishment is limited to 25% of her
disposable earnings,2 which are defined as earnings of an individual after deduction of amounts required
2 	The statutory garnishment limitations are expressed in the alternative. Under Ohio law and the federal Consumer
Credit Protection Act, the maximum amount of a judgment debtor’s disposable earnings subject to garnishment is the lesser of
(1) 25% of disposable earnings or (2) the amount by which disposable earnings exceed a periodic multiplier times 30 times the
minimum wage (4 1/3 [monthly calculation multiplier] x 30 x $5.85 [current minimum wage]). 	Ohio Rev. Code §
2329.66(A)(13)(a); 15 U.S.C. § 1673; 29 C.F.R. § 870.10. As explained further below, Plaintiff’s monthly disposable earnings
for garnishment purposes are $2,261. This amount exceeds the minimum wage multiplier amount ($760.50) by $1,500.50.
However, only 25% of Plaintiff’s disposable earnings, or $565.25 (25% x $2,261), would be subject to post-judgment garnishment
since this is the lesser of the two calculations.
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by law to be withheld. 3 15 U.S.C. §§ 1672 and 1673; Ohio Rev. Code § 2329.66(A)(13) and (C)(1).4
Plaintiff’s net monthly income after payroll deductions averages approximately $2,261. At this level of
income, garnishment would reduce Plaintiff’s pay by at least $565. The court finds that such a reduction
would not only render Plaintiff unable to maintain a basic standard of living but would be insufficient to
cover even the monthly interest accruing on the debt in the amount of approximately $706.
Plaintiff’s financial condition thus presents a situation in which she has $350 of excess monthly
income that could be applied towards payment of her student loan debt while still allowing her to maintain
a basic standard of living. 	This is true whether there is a forced repayment of the entire debt or some
smaller portion of that debt since 25% of Plaintiff’s disposable earnings under state law, or $565, could be
garnished, regardless of the amount owed, until full payment has been obtained. Consequently, if “forced”
to repay the entire debt or even some smaller portion of the debt, Plaintiff will be unable to maintain a basic
standard of living during the repayment period.
Under these facts, strictly applying the first prong of the Brunner test would require a finding that
Plaintiff cannot maintain, based on current income and expenses, a minimal standard of living if “forced”
to repay any appreciable amount of her student loan debt. Before the Sixth Circuit’s decision in Oyler, the
court analyzed cases involving the dischargeability of student loan debt under a totality of the circumstances
test rather than by strictly applying the three-pronged Brunner test. The effect of forced repayment then was
only one factor to be considered. Because Plaintiff has excess income over her expenses, notwithstanding
the effect of forced repayment of a portion of the debt owed, the court would have found that payment of
a portion of the debt would still allow her to maintain a basic standard of living and, assuming the second
and third prongs of the Brunner test are met, that an equitable adjustment of her debt would be appropriate.
The court does not believe the Sixth Circuit intended its decision in Oyler to change that result.
Rather, the court believes that Oyler must be read in conjunction with the Sixth Circuit’s decisions
3 The Higher Education Act’s (“HEA”) provision for administrative garnishment of disposable pay by the Secretary of
Education and limitation on such garnishment to 10% of “disposable pay” is not applicable in this case. See 20 U.S.C. § 1095a(a)
(providing that the Secretary “may garnish the disposable pay of an individual to collect the amount owed by the individual, if
he or she is not currently making required repayment under a repayment agreement with the Secretary. . . ”). This provision
applies where loans are held by the Secretary of Education or guaranteed under a federal program. Plaintiff’s loans were obtained
from a private lender and are not guaranteed under any federal program.
4 The Ohio Revised Code defines “disposable earnings” as net earnings after the garnishee has made deductions required
by law but excludes deductions ordered for support pursuant to Ohio Rev. Code §§ 3119.80, 3119.81, 3121.02, 3121.03, or
3123.06, none of which are applicable in this case. See Ohio Revised Code § 2329.66(C)(1).
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in Miller and Hornsby. In Miller, the court clarified its decision in Hornsby and discussed at length when
a partial discharge of student loan debt may be appropriate, that is, when a debtor’s circumstances constitute
undue hardship as to part of the debt owed. Miller, 377 F.3d at 620-24. Addressing the partial discharge
discussion in Hornsby, the court explained as follows:
The limiting condition placed on this discussion – "[w]here a debtor's circumstances do not
constitute undue hardship as to part of the debt but repayment of the entire debt would be
an undue hardship"-- supports the notion that bankruptcy courts discharge the portion of
student loan debt for which payment would impose an undue hardship on the debtor. For
example, assume that a debtor owes $100,000 in student loans, and repayment of the full
amount would impose undue hardship on the debtor but repayment of $40,000 would not.
Hornsby indicates that a bankruptcy court would discharge $60,000 of the debt, the amount
for which repayment would impose an undue hardship.
Miller, 377 at 621. Nothing in Oyler indicates that the court was abandoning its instruction and analysis
in Miller. The Oyler decision adopted the “simpler rubric of the Brunner test” since the court found that
the Brunner formulation easily accommodates and subsumes criteria it had previously separately identified
to evaluate undue hardship. Oyler, 397 F.3d at 385; Fields v. Sallie Mae Servicing Corp. (In re Fields), 326
B.R. 676, 682 (B.A.P. 6th Cir. 2005) (indicating that the so-called “other factors” considered by the Sixth
Circuit are now part of the Brunner test), rev’d on other grounds 286 Fed. App’x 246 (6th Cir. Apr. 5, 2007).
Under circumstances in which the debtor has earnings that may be applied to her student loan debt
without rendering her unable to maintain a basic standard of living, the forced repayment portion of the first
prong of the Brunner analysis must be read in conjunction with the general analysis set forth in Hornsby
and clarified in Miller. To simply defer to the hardship that a forced repayment of even a portion of the debt
would impose and ignore the debtor’s ability to maintain a basic standard of living if she voluntarily repays
a portion of the debt would render meaningless the Sixth Circuit’s direction in Miller and Hornsby that
equitable relief under § 105 is justified when a debtor is clearly able to make some payments but is just as
clearly unable to repay the entire obligation as an undue hardship.5
Before Oyler, courts in the Sixth Circuit at times found equitable adjustment of student loan debt
to be appropriate when debtors had a present inability to pay their entire student loan debt but did not satisfy
5 Other examples of circumstances where deferring to the effect of forced repayment would produce results that do not
accurately reflect the debtor’s ability to repay her student loan debt include situations involving a debtor whose earnings are
exempt from collection and who has no non-exempt assets to attach or a debtor whose excess income over expenses may cover
the amount of any garnishment of her wages in a forced repayment situation but where her loans are for such large amounts that
such forced repayment will not result in payment of the loan principal during her working life.
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the second or third prong of the Brunner test, that is, they failed to show that their financial adversity was
likely to persist for a significant portion of the repayment period or that they had made good faith efforts
to repay the loans. See, e.g., Flores v. United States Dept. of Education (In re Flores), 282 B.R. 847 (Bankr.
N.D. Ohio 2002); Garybush v. United States Dept. of Education (In re Garybush), 265 B.R. 587 (Bankr.
S.D. Ohio 2001). Under Oyler, however, all three prongs of the Brunner test must now be satisfied for the
court to find undue hardship. As undue hardship must exist with respect to any part of a student loan debt
that is discharged, equitable adjustment of the debt can only come into play under the court’s analysis of
the first prong of the Brunner test.
In this case, Plaintiff has satisfied the first prong of the Brunner test with respect to repayment of
her entire student loan debt. She cannot, as discussed above, maintain a basic standard of living if she is
forced to repay the entire debt. Furthermore, interest is accruing on Plaintiff’s student loan debt at a rate
of 9.04%, or approximately $8,477 per year. At this rate, and making payments of $350 per month for
thirty-five years, which the court estimates to be her remaining working life, Plaintiff will be unable to repay
her entire debt.
In accordance with Hornsby and Miller, in determining whether the first prong of the Brunner test
has been met with respect to repayment of a portion of the debt, the court finds that the proper inquiry is
whether, after providing for her basic needs, Plaintiff is able to allocate any financial resources in repayment
of some portion of her debt. See Grove v. Educational Credit Management Corp. (In re Grove), 323 B.R.
216, 223 (Bankr. N.D. Ohio 2005) (stating “[t]he essence of the minimal standard of living requirement ‘is
that a debtor, after providing for his or her basic needs, may not allocate any of his or her financial resources
to the detriment of . . . student loan creditor[s]”). Plaintiff has not satisfied this prong of the Brunner test
insofar as she is able to apply $350 per month in payment of her student loan debt during her remaining
working life.
III. Second Prong of Brunner Test
Under the second prong of the Brunner test, a debtor’s financial adversity is required to be more than
a temporary state of affairs. Hatfield v. William D. Ford Federal Direct Consolidation Program (In re
Hatfield), 257 B.R. 575, 582 (Bankr. D. Mont. 2000); see also Hornsby, 144 F.3d at 437 (“Courts
universally require more than temporary financial adversity. . . ”). 	A debtor must show additional
circumstances indicating that her distressed state of financial affairs is likely to persist for a significant
portion of the repayment period. Oyler, 397 F.3d at 386. “Such circumstances must be indicative of a
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‘certainty of hopelessness, not merely a present inability to fulfill financial commitment.’” Id. (citing In re
Roberson, 999 F.2d 1132, 1136 (7th Cir. 1993)); Carnduff v. U.S. Dept. of Educ. (In re Carnduff), 367 B.R.
120, 129 (B.A.P. 9th Cir. 2007) (equating a “certainty of hopelessness” with a showing of “exceptional
circumstances, strongly suggestive of continuing inability to repay over an extended period of time).
Although a debilitating medical condition is such a circumstance frequently present in successful “undue
hardship” cases, it is not a prerequisite to satisfying the second prong of the Brunner test. Chime v. Suntech
Student Loan (In re Chime), 296 B.R. 439, 445 (Bankr. N.D. Ohio 2003). Other factors that may constitute
additional circumstances include, among other things, a maximized income potential in the debtor’s chosen
educational field and the lack of any more lucrative job skills. See Oyler, 397 F.3d at 385 (stating that most
courts conceptualize the inquiry regarding a debtor’s attempt to maximize income as “the controlling aspect
of Brunner’s second prong”); Nys v. Educ. Credit Mgmt. Corp., 308 B.R. 436, 442 (B.A.P. 9th Cir. 2004).
As long as the debtor can demonstrate some circumstance that makes it unlikely that she will be able
to pay her student loans for a significant portion of the repayment period, the second prong of the Brunner
test has been satisfied. 	Chime, 296 B.R. at 445; Alderete v. Educational Credit Mgmt. Corp. (In re
Alderete), 412 F.3d 1200, 1205 (10 th Cir. 2005). 	Implicit in this requirement is that the debtor’s financial
state be the result of events which are clearly out of the debtor’s control. Kirchhofer v. Direct Loans (In re
Kirchhofer), 278 B.R. 162, 167 (Bankr. N.D. Ohio 2002). Thus, the debtor must establish that she has taken
all steps possible to improve her financial situation. Id. This requirement thus gives effect to the clear
congressional intent – exhibited by the use of the word “undue” in § 523(a)(8) – that a student loan
obligation be more difficult to discharge than that of other nonexcepted debts. Rifino v. United States (In
re Rifino), 245 F.3d 1083, 1088-89 (9th Cir. 2001).
In this case, Plaintiff is working full time in her chosen field of study. There is no evidence that she
possesses more lucrative job skills. 	In the Complaint, Plaintiff alleges, and thus established through
Defendant’s default, that she expects only cost of living increases throughout her teaching career and that
she has maximized her income. Indeed, she has taken steps to improve her financial situation by seeking
and obtaining additional jobs within the school system to supplement her teacher’s salary. 	Although
Plaintiff does anticipate receiving cost-of-living raises to the extent that the school system can afford such
increases, as one court explained, “[c]ost-of-living raises are by definition tied to increased living expenses
and designed to maintain the status quo. Therefore, they will not generate future income [that] will enable
the Debtor to repay [her] Student Loans.” Lebovits v. Chase Manhattan Bank (In re Lebovits), 223 B.R.
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265, 274 (Bankr. E.D.N.Y. 1998); accord Yapuncich v. Montana Guaranteed Student Loan Program (In
re Yapuncich), 266 B.R. 882, 892-93 (Bankr. D. MT. 2001). These facts, given the lack of any evidence
to the contrary, indicate that Plaintiff’s financial circumstances are not likely to improve in the foreseeable
future. This, together with the substantial amount due on her student loan debt and the rate at which interest
is accruing, are additional circumstances that indicate more than simply a present inability to fulfill her
repayment obligations. See Oyler, 397 F.3d at 385 (specifically identifying the size of the debt and the rate
at which interest is accruing as factors for courts to consider in analyzing undue hardship). The court finds
that Plaintiff has met her burden of showing that her financial situation is more than a temporary state of
affairs.
IV. Third Prong of Brunner Test
Under the third prong, a debtor must demonstrate that she has made a good faith effort to repay the
loans. The good faith requirement does not mandate that payments must have been made when the debtor’s
circumstances made such payment impossible. See Alston v. U.S. Dept. of Educ. (In re Alston), 297 B.R.
410, 414 (Bankr. E.D. Pa. 2003); Grove v. Educ. Credit Mgmt. Corp. (In re Grove), 323 B.R. 216, 226
(Bankr. N.D. Ohio 2005). Rather, the inquiry “should focus on questions surrounding the legitimacy of the
basis for seeking a discharge.” Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1206
(10th Cir. 2005). As one court explained, the good faith standard is really a question of overall good faith
in regard to the student loan, and the good faith analysis is driven by the totality of the circumstances.
Afflitto v. United States (In re Afflitto), 273 B.R. 162, 171 (Bankr. W.D. Tenn. 2001).
Plaintiff made her monthly student loan payments for two years while still living in her parent’s
home. Thereafter, while living independently, she has maintained contact with Defendant with respect to
her loans and obtained a three-month deferral in making her payments. However, interest continued to
accrue during that time and, at the end of the three months, her monthly payment was increased by $29.
Plaintiff has been in repeated contact with Defendant in an attempt to work out a payment plan that she
could afford. Her efforts, however, have been unsuccessful. As her loans are private loans that are not held
by the Secretary of Education or guaranteed under any federal program, she is not eligible to participate in
programs such as the income contingent repayment or income based repayment programs. See Foust v. The
Education Resources Institute (In re Foust), 342 B.R. 384 (Table), 2006 WL 751383, *3, 2006 Bankr.
LEXIS 410, *18 (B.A.P. 6th Cir. March 24, 2006) (stating that loans that were neither government
subsidized nor insured by the United States Department of Education were not eligible for the income
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contingent repayment program). 	Thus, she filed for bankruptcy relief in order to address an otherwise
ballooning debt and to be able to pay what she can afford, not to avoid payment altogether.
Plaintiff’s inability to repay the entire amount of her student loan debt is not the result of any factor
reasonably within her control. She has taken steps to maximize her income by seeking additional positions
within the Swanton school system. And her budget shows no excesses that could otherwise be applied to
pay her student loan debt.
This also is not a case, about which Congress has expressed particular concern, where a debtor
attempts to absolve herself of the obligation to repay her student loans shortly after completing her
schooling while the prospect of the increased financial benefits of the education are just over the horizon.
While Plaintiff’s loans were incurred just over four years ago, she has been employed in her field of study
for two years. The allegations in the Complaint and the evidence in this case do not indicate a likelihood
of increased financial benefits just over the horizon. Rather, as discussed above, the record establishes that
only cost-of-living increases are anticipated. Accordingly, the court finds that Plaintiff has demonstrated
good faith.
V. Equitable Adjustment of Plaintiff’s Student Loan Debt under § 105(a)
In light of the foregoing discussion, the court finds that Plaintiff has met her burden of demonstrating
an undue hardship under § 523(a)(8) with respect to only a portion of her student loan debt. Relying on the
principles set forth in Miller and Hornsby, the court finds that equitable adjustment of Plaintiff’s student
loan debt is, therefore, appropriate. In fashioning an appropriate equitable remedy, the court is guided by
the broad directive of the Sixth Circuit in Hornsby and Miller to afford Plaintiff a financial fresh start while
holding her accountable for the portion of the cost of her education that she can repay and still maintain a
basic standard of living. In that regard, the court has already determined that a monthly payment of $350
would not render Plaintiff unable to maintain a basic standard of living. And in light of Plaintiff’s age and
employment status, the court finds it reasonable to expect her to continue to pay on her student loan debt
for thirty-five years. Plaintiff’s student loan debt is accruing interest at a rate of 9.04%. At that rate of
interest, four hundred twenty payments at $350.21 per month will retire a total debt of $44,500. However,
Plaintiff owes Defendant a total of $93,776. 	The court finds it appropriate, therefore, to discharge all
amounts owed by Plaintiff that exceed $44,500.
Nothing herein shall be construed to prevent the parties from negotiating other agreed upon
repayment terms for the nondischargeable portion of the debt or to prevent Defendant from exercising upon
any future default any collection remedies as to the nondischargeable balance due that it may possess under
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applicable law.
CONCLUSION
Plaintiff has failed to prove that it would be an undue hardship to repay any portion of her student
loan debt but has shown that it would be an undue hardship to repay the total amount due. Therefore, in the
exercise of the court’s equitable discretion under 11 U.S.C. § 105(a), and pursuant to Fed. R. Civ. P. 55,
made applicable by Fed. R. Bankr. P. 7055, Plaintiff’s Motion for Default Judgment [Doc. # 9] will be
GRANTED as follows: all amounts owed to Defendant in excess of $44,500 shall be discharged. The
remaining nondischargeable debt shall be repaid at 9.04% interest over thirty-five years, with a minimum
payment of $350.21 per month. The court will enter a separate final judgment in accordance with this
Memorandum of Decision.
IT IS SO ORDERED.
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