ROBERT H. JACOBVITZ, United States Bankruptcy Judge.
THIS MATTER is before the Court following a trial on the merits of this adversary proceeding to determine the dischargeability of student loan debt under 11 U.S.C. § 523(a)(8).
Since she was a young woman, Ms. Regan has worked hard to better herself. At age sixteen, she ran away from home to escape mistreatment by her adoptive parents. She earned her GED because she never attended high school. She then went to a small community college and earned an associate degree. After that, she was accepted into the University of Massachusetts at Amherst where she took her courses very seriously and was on the Dean's List.
To fund her education, Ms. Regan obtained several student loans from 1982 through 1994. See Exhibit C.
In 2003 Ms. Regan underwent emergency surgery at a hospital in Gallup, New Mexico. As a result of the financial difficulties caused by the surgery, she stopped paying on her student loans at that time. She was forced to borrow from her retirement savings to pay for her living expenses. She left Gallup and moved to Albuquerque. In Albuquerque, she applied for teaching jobs, but was only able to secure part-time positions until 2006, when she obtained a full-time teaching job. Ms. Regan obtained years of deferments and forbearances on her student loans. Any time she was offered a deferment or forbearance, she took the offer. She participated in income-contingent repayment plans ("ICRP") but was unable to keep up with the required payments.
In July of 2008, Ms. Regan consolidated her student loans and executed a promissory note for a Direct Consolidation loan from the USDOE. See Exhibit B. The original principal balance of the consolidated note was $29,200.24 and the note provided for interest at a rate of 8.25% per annum. Id. The consolidated loan was made under the William D. Ford Federal Direct Loan Program. Id. A total of $2,297.32 has been credited as payments on Ms. Regan's student loan debt. Id. The evidence does not establish whether the credits were given before or after the consolidated
Ms. Regan is currently 62 years old. She has no dependents. Schedule I filed with her bankruptcy petition reflects monthly wages from her teaching job of $3,299.63. See Exhibit A. After taxes ($767.97), mandatory retirement contributions ($365.24), and insurance ($294.58), her monthly take-home pay as reported on Schedule I is $1,871.84. Id. Her monthly expenses as reported on Schedule J exceed her monthly income by $155.16. Id. As of the time Ms. Regan filed her bankruptcy petition, the median income for a family of one in New Mexico was $40,722. See Official Form 122A-1 — Exhibit A. Based on the income reported on Ms. Regan's Schedule I, her annual income is $1,126.44 less than the median income for a family of one in New Mexico.
Ms. Regan testified that she lives paycheck to paycheck and feels incapable of paying back what she considers an insurmountable student loan debt. Due to interest accrual and the capitalization of unpaid interest as permitted under 34 C.F.R. § 685.202(b), the current balance of her consolidated student loan debt ($51,044.33) is more than twice the total amount of the initial student loan disbursements ($21,890.00) that enabled Ms. Regan to earn her degree.
Ms. Regan's 2017 federal income tax return shows annual income of $44,444.00, which is about $5,000 more than the annual gross income as reported on Schedule I. See Exhibits A and E.
Ms. Regan's bankruptcy schedules do not reflect her additional income from summer employment, nor do they account for tax refunds. Last year, she received a tax refund of $700 from the State of New Mexico. She also received a federal tax income refund of $1,327.00 attributable to the 2017 tax year.
Since filing her bankruptcy petition, Ms. Regan has not applied for another ICRP. She has steady full-time employment as a teacher. She has generally been able to keep up with her bills, but once she had to take out a payday loan to cover her living expenses. She has an older car, no credit cards, and no family nearby. She acknowledged that she currently makes a little extra due to her summer teaching job, but she wants to use the additional income to take care of other necessities in her life. She would like to retire and feels that repayment of the student loan debt would be a huge burden for her in the future.
The USDOE has a Public Service Loan Forgiveness Program ("PSLFP"). See 34 C.F.R. § 685.219. If a student loan borrower qualifies for the PSLFP and makes
A borrower under the PSLFP may also apply for an ICRP, or an income-based repayment plan ("IBRP"), which will determine the amount of the required "qualifying" payments under the PSLFP. See 34 C.F.R. § 685.208(k) (describing the income-contingent repayment plans) and 34 C.F.R. § 685.208(m) (describing the income-based repayment plan). Under an ICRP or an IBRP, a borrower can qualify for a reduced payment amount depending on the borrower's reported income. For the IBRP, the payment amount is 10% of the borrower's discretionary income, determined based on the borrower's adjusted gross income less 150% of the poverty guideline income for the same household size. For 2018, 150% of the poverty guideline income for a family of one is $18,210.00.
If Ms. Regan leaves her current job and is no longer eligible for the PSLFP, she may qualify for a standard ICRP or IBRP, provided her student loan is not in default. If Ms. Regan enrolls in a standard ICRP or IBRP, she will be required to make 240 or 300 qualifying payments on the unpaid balance of the student loan before the balance of the student loan debt is forgiven.
Based on Ms. Regan's adjusted gross income as reported on her 2017 Federal Income Tax return, Ms. Regan's payment under an IBRP would be $219 per month.
To participate in the PSLFP and the IBRP, a borrower's loans must not be in default. Ms. Regan's consolidated loan is now in default, but because her loan has not yet resulted in a referral to the Department of Justice and a judgment, the loan can be pulled out of default and sent to a non-defaulted servicer.
Dischargeability of student loan debt
Polleys, 356 F.3d at 1307 (quoting Brunner, 831 F.2d at 396). The debtor bears the burden of proving each prong of the Brunner test by a preponderance of the evidence. See Johnson v. Sallie Mae, Inc. (In re Johnson), 577 B.R. 895, 902 (Bankr. D. Kan. 2017) ("The debtor must prove all three Brunner elements by a preponderance of the evidence to be entitled to a discharge.") (citing Polleys, 356 F.3d at 1307). Failure to meet any one of the three prongs of the Brunner test will preclude the debtor from discharging the student loan debt under § 523(a)(8). Id.
The first prong of the Brunner test considers "whether the debtor can maintain a minimal standard of living while repaying the debt." Polleys, 356 F.3d at 1309. To make this determination, the Court considers "all relevant factors, including the health of the debtor and any of [her] dependents and the debtor's education and skill level." Id. A minimal standard of living means "living within the strictures of a frugal budget." Educ. Credit Mgmt. Corp. v. Murray, 2017 WL 4222980, at *2 (D. Kan. Sept. 22, 2017) (additional quotation marks and citations omitted). The frugal budget must be sufficient to meet the needs of the debtor and her dependents for care, including food, shelter, clothing, and medical treatment. Watson v. Sallie Mae (In re Watson), 2012 WL 5360949, at *2 (Bankr. D. Kan. Oct. 30, 2012) (citation omitted). To meet the required standard, a debtor must show "more than temporary financial adversity" but need not demonstrate "utter hopelessness." Buckland, 424 B.R. at 889 (citing Innes v. State of Kansas (In re Innes), 284 B.R. 496, 504 (D. Kan. 2002)).
Ms. Regan did not satisfy the first prong of the Brunner test. Although her bankruptcy Schedules reflect a frugal budget that results in negative net monthly income,
Under the IBRP, Ms. Regan's estimated monthly payments on her student loans would be $219 per month, which equates to $2,628 per year. This aggregate amount is
Although Ms. Regan is nearing retirement age, she has recovered from her health incident in 2003 and appears able bodied. She has no dependents to care for other than herself. Ms. Regan has steady employment in the field in which she obtained her degree. While she does maintain a frugal budget, the evidence of her true current financial condition establishes that Ms. Regan can maintain a minimal standard of living even if she is forced to repay her student loans under an IBRP and PSLFP available to her.
Ms. Regan, who is 62, understandably is fearful about whether her student loan debt will present an insurmountable problem if she retires before her loan balance is forgiven. However, no evidence was presented regarding the effect of retirement on Ms. Regan's ability to cope with her student loan debt. There is no evidence before the court regarding the expected amount of her social security income or pension income. Under both the ICRP and IBRP, income is based on adjusted gross income reported to the Internal Revenue Service. See 34 C.F.R. § 685.209 and 34 C.F.R. § 685.221. Under Internal Revenue Code § 86, it appears that all or half of Ms. Regan's social security income will be excluded from adjusted gross income and therefore not counted to determine the amount of an income driven repayment plan after her retirement. See 26 U.S.C. § 86. An income-driven repayment plan will be available to Ms. Regan only if her student loan debt is not in default. See 34 C.F.R. § 685.209 (Income-contingent repayment plans) and 334 C.F.R. § 685.221 (Income-based repayment plan). Ms. Regan should consider working with her loan servicer to prevent her loan from going into a default status so she will remain eligible for an ICRP or IBRP. Otherwise, to participate in an ICRP or IBRP she will need to rehabilitate her loan before a judgment is entered. See 34 C.F.R. § 685.211(f) (rehabilitation of defaulted loans). If Ms. Regan takes social security benefits while her student loan is in a default status, she risks an offset of a portion of her social security benefits to collect the delinquency. See Lockhart v. United States, 546 U.S. 142, 126 S.Ct. 699, 163 L.Ed.2d 557 (2005) (holding that the United States may offset Social Security benefits to collect federal student loan debt that has been outstanding for over ten years); 31 C.F.R. § 285.4 (Offset of Federal benefit payments to collect past-due legally enforceable nontax debt). In addition, if her student loans are
The Court is sympathetic to the fact that Ms. Regan's student loan debt has substantially increased over the life of the loan, and that, given her age and income, it appears that she will never be able to repay the full balance of the loan. However, "Congress has intentionally chosen to impose demanding requirements for the dischargeability of student loans." In re Weldon, 2008 WL 4527654, at *5 (Bankr. W.D. Wash. Oct. 1, 2008), aff'd, 2009 WL 1034928 (W.D. Wash. Apr. 16, 2009). And the Court does not have the discretion to grant a partial discharge of Ms. Regan's student loans when she has not demonstrated that an undue hardship exists. See Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1207 (10th Cir. 2005) ("[A] bankruptcy court cannot exercise its § 105 powers to grant a partial discharge of student loans unless § 523(a)(8) has been satisfied."). Because Ms. Regan has failed to satisfy the first prong of the Brunner test, she has not demonstrated that excepting her student loan debt from discharge would impose an undue hardship. The Court will, therefore, enter judgment against Ms. Regan and in favor of the USDOE determining that the student loan debt at issue in this adversary proceeding is non-dischargeable.
College Date of Loan Amount of Disbursement Greenfield Community College 07/13/82 $2,291.00 Greenfield Community College 02/10/86 $1,793.00 Greenfield Community College 12/11/86 $2,500.00 Univ. Mass. — Amherst 09/01/88 $4,720.00 Univ. Mass. — Amherst 09/26/88 $1,600.00 Univ. Mass. — Amherst 08/01/89 $2,000.00 Univ. Mass. — Amherst 09/10/90 $2,986.00 Univ. Mass. — Amherst 09/20/91 $4,000.00TOTAL: $21,890.00
Ms. Regan's student loan history also reflects a disbursement of $17,948 in August of 1994. See Exhibit C. It is not clear from the evidence whether this figure represents 1) an additional loan disbursement; 2) the outstanding balance of all of Ms. Regan's student loans just prior to consolidation of her student loans but before capitalization of the interest added to the principal balance of her consolidated student loan; or 3) the capitalization amount. Exhibit B reflects that a total of $2,297.32 was credited as payments on Ms. Regan's student loans and that a total of $16,793.20 in unpaid interest was capitalized and added to the principal balance. See Exhibit B. The evidence does not pinpoint date the unpaid interest was capitalized.
Income Source Amount Summer teaching job $4,500 State and Federal Tax Refunds $2,027 JC Penny Call Center ??TOTAL: $6,527
Taxes will be taken out of her employment income, and she will need to make up for the $155.16 deficit reported on Schedule J. But even with these adjustments, there is enough of a cushion in this additional income for Ms. Regan to add a $219 monthly student loan payment to her budget and continue to maintain a minimal standard of living.