10th Circuit Court agrees to student loan debt relief

A groundbreaking ruling in the 10th Circuit court has provided another victory to student loan debt relief. The 10th Circuit court, located in Colorado, made a decision on August 31st in McDaniel v. Navient Solutions, LLC, which aligns with a previous ruling from the 5th Circuit Court (located in New Orleans).

In the case of McDaniel v. Navient Solutions, LLC, the plaintiffs Byron and Laura McDaniel filed for Chapter 13 bankruptcy which included over $200,000 of student loans, according to the appeal filed.  About $107,000 of the debt did not qualify for “educational loans” and instead of “tuition answer loans” used to pay for living expenses while the plaintiffs’ attended college.  Navient argued that the loans were a third category of non dischargeable debt: “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”  The bankruptcy court ruled against this defense, since under the Bankruptcy Code it is clearly defined what an “educational benefit” loan qualifies under.  In the appeals court, the Tenth Circuit upheld the decision.

The decision, as described by Thompson Hine LLP, said “In large part, the Tenth Circuit followed a 2019 decision from the Fifth Circuit, which held that an ‘obligation to repay funds received as an educational benefit’ does not include student loans. The court concluded that ‘Congress presumably did not intend’ the third subsection ‘to also cover’ loans. The statutory terms ‘obligation to repay funds received as an educational benefit’ and ‘educational loan’ are not the same.”  This allows for an argument against private student loan lenders for dischargeable loans if the debt is not a qualified educational loan or funded by the government and/or nonprofit institutions.  There is a similar statute in the Second Circuit Court, located in New York, which has allowed for students and/or co-signers on loans to receive discharge from their debt from agencies like Navient, HESSA, and others.

Private student lenders try to make the argument that the loan is still nondischargeable if it is used for an “educational benefit”. The decision in the Tenth Circuit, and last year in the Fifth Circuit, helped narrow down the definition of what “educational benefit” entails, so it is not a blanket term for all student loan debts.  The Fifth Circuit Court last year decided “the statutory terms ‘obligation to repay funds received as an educational benefit’ and ‘educational loan’ are not the same”.  Therefore, in a time of dire need for student loan relief, the bankruptcy court becomes more empowered to take action against this crisis.

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