JANICE MILLER KARLIN, Chief Bankruptcy Judge.
This adversary proceeding is before the Court on the motion for summary judgment of Defendant U.S. Department of Education (DoEd), seeking judgment on Plaintiff/Debtor Paula Maxine Edwards' claim under 11 U.S.C. § 523(a)(8).
The facts are not in dispute here. In fact, although the DoEd set forth 49 undisputed material facts in its memorandum, Debtor opted not to dispute a single one. Debtor is a single mother of two children, supporting her family on a limited school teacher's salary. Despite this, however, she admits that she has disposable income—enough to take a $500 to $700 annual family vacation and to expend $950 a month for food and housekeeping supplies including eating out twice a week, and admits that she can afford to pay up to $100 a month on her student loan debt to the DoEd. Because of these admissions, and the fact that the DoEd established that Debtor is eligible for an income based repayment program requiring her to pay only about $20 a month, Debtor has not shown that she has made good faith attempts to repay her student loans. Without this showing, Debtor cannot meet her burden to establish the undue hardship required by § 523(a)(8), and the Department of Education's motion for summary judgment on her claim must be granted.
Debtor filed her Chapter 7 bankruptcy petition in October 2015, and received her discharge in March 2016. She has no secured debt at all, but scheduled a staggering amount of unsecured debt—nearly $188,000. Of this total, she claims about $151,000 in student loans.
Debtor's lot in life is not an unfamiliar story. She is a 36 year old single mother of two daughters who are fifteen and six years old. She receives some child support from the father of her older child,
Debtor is a school teacher. She has worked for as a para-professional and then an elementary school teacher for about fifteen years (teaching for the last five). Despite her length of service, Debtor earns only about $30,000 per year. In fact, the maximum earning potential for Debtor in this school district is only $41,000, and that salary is available only after 21 years of service. Debtor has no other earned income, but typically receives a federal tax refund due in part to an earned income credit. Although she contends that refund is between $3500 and $4500 per year, she actually received $5,173 the year before filing. Debtor has no mental or physical disability and does not claim her children have any special needs.
Debtor started her education at a local community college but graduated from Newman University with a Bachelor of Science for Elementary Education. She took out student loans to fund this education between 2002 and 2008. Presumably like many borrowers, Debtor understood that the student loans were not a gift, but she did not appreciate how large the total debt would grow. Debtor does not even understand how much she owes in total or to which creditors she owes her student loan debt. But undisputed records show that Debtor owes the DoEd nearly $72,000 ($60,631.51 in principal and $11,282.25 in interest).
The federal student loan program—the William D. Ford Federal Direct Loan Program—offers multiple repayment plans for borrowers. Debtor's loans with the DoEd have been consolidated into Direct Consolidation Loans, and one of the options available to her to repay those loans is the Revised Pay as You Earn plan (called "REPAYE"). The REPAYE plan was instituted in December 2015 and is the most flexible repayment plan available under the Direct Loan Program. Payments under REPAYE are generally ten percent of discretionary income, and after twenty years of repayment at this rate, the remaining balance on undergraduate loans is forgiven under the plan. Under current regulations, the IRS may consider the forgiven portion of the loan as taxable income.
Based on the amount owed by Debtor, her adjusted gross income, and two dependents, Debtor's monthly payment under the REPAYE program would be $20.59. As a requirement of the REPAYE plan, Debtor would have to provide an annual income driven repayment plan recertification form, which requires that Debtor provide her borrower information, loan status, and verification of adjusted gross income and family size. Under the REPAYE plan, therefore, Debtor's repayment amount would be adjusted annually, based on her then income and family size. It should take no longer than thirty minutes for a borrower to complete the information online and submit it to the DoEd. If the Direct Loan Program does not receive renewal income information from the borrower, however, the borrower will generally default to the standard repayment program for their loans.
In addressing the $20.59 monthly payment that would be required by Debtor under the REPAYE plan, the DoEd lists the following as examples of Debtor's discretionary expenses from which she could make her monthly payment: a cable television and internet bill of $110 per month, gifts to charity of $150 per year, gifts to students of approximately $200 per year, purchases of beer and wine, with more spent during football season, eating out twice a week, attending an exercise class that costs $10 per week, entertainment for her children, such as concerts, that cost about $150 per year, and an annual family vacation that costs about $500 to $700 per year. Debtor admitted at her deposition that she could afford to pay up to $100 a month to the DoEd on an income contingent repayment plan.
An adversary proceeding to determine the dischargeability of particular debts is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this Court may exercise subject matter jurisdiction.
Federal Rule of Civil Procedure 56 requires a court to grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."
The party moving for summary judgment bears the initial burden of demonstrating—by reference to pleadings, depositions, answers to interrogatories, admissions, or affidavits—the absence of genuine issues of material fact.
To accomplish this, sufficient evidence pertinent to the material issue "must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein."
Debtor filed an opposition brief to the DoEd's motion for summary judgment, but did not attempt to controvert any of the facts contained therein. As a result, the Court deems admitted all material facts contained in the motion for summary judgment, all of which are supported by the record. The analysis below focuses on the sole issue of whether the uncontroverted facts entitle the DoEd to judgment as a matter of law.
Although a Chapter 7 discharge is generally designed to be a relatively quick method of discharging debts and providing debtors a fresh start, there are certain debts that are not dischargeable. Under 11 U.S.C. § 523(a)(8), a Chapter 7 discharge does not discharge debts for educational loans
The Tenth Circuit, however, has adopted the three-part Brunner test for analyzing whether a debtor has shown that his or her student loan debt should be discharged because it would cause undue hardship.
This Court has had prior occasion to apply the Brunner test. In Buckland v. Educational Credit Management Corp. (In re Buckland),
The Court also noted that a debtor's willingness to participate in income based repayment programs was "an important factor to consider in determining whether a debtor has made a good faith effort to repay a student loan debt."
Ultimately, the Court found in Buckland that the student loan debt was not dischargeable under § 523(a)(8).
In this case, the DoEd expressly admits that it "does not contend that [Debtor] has the assets or income to repay [her] entire student loan debt with interest."
The uncontroverted facts show that, while Debtor's income is certainly low for a family of three, she admits that she could afford to pay up to $100 a month for her student loans on an income contingent repayment plan. Again, this is uncontroverted and Debtor's own admission. And even if she had not so admitted, additional uncontroverted facts show that Debtor admitted under oath that she has several discretionary expenses in her budget. And while this Court always hesitates to judge how a debtor budgets his or her limited income (i.e., one debtor may prefer to save money by limiting the food budget, while another may choose to instead take the bus to work to save on gas),
For example, her Schedule I shows she spends $950 a month for food and housekeeping supplies, when the U.S. Trustee Program's means testing figures from the IRS indicate a typical family of 3 would spend $725.
The uncontroverted facts also show that Debtor is eligible for the REPAYE plan under which she would pay only $20.59 a month for her debt to the DoEd. Even without her admission that she can pay up to $100 a month, the uncontroverted facts certainly show that there is enough discretionary income in her budget to make this minimal payment. And although the Tenth Circuit has repeatedly stated that "participation in a repayment program is not required to satisfy the good-faith prong of the Brunner test,"
Debtor points to the potential future tax consequences of entering the REPAYE program, and argues this should also be weighed in the good faith analysis. The DoEd acknowledges that under current regulations, the IRS may consider any forgiven portion of Debtor's student loans as taxable income. As many courts—including this one—have noted, however, a potential future tax event "is not dispositive of whether [an income based repayment program] represents a viable avenue for repayment of student loan debt."
Debtor makes one final argument in response to the DoEd's motion for summary judgment, arguing that because the regulations surrounding income based repayment programs have changed over time, and may change in the future, the Court should not rely on the current REPAYE program as a valid basis for Debtor's repayment of her student loans. But again, the Court cannot speculate as to what may come in the future, and can only assess what is in front of it right now. The uncontroverted facts right now are that Debtor is eligible for income based repayment, that at her current income and household size, Debtor's repayment would only be $20.59 per month, that Debtor has made almost no effort to repay her Department of Education loans, and that Debtor has disposable income with which she can make the low monthly payment. All federal programs may change—the Bankruptcy Code may change—but the current state of the law requires that Debtor carry the burden of proof to show that repayment of her student loans will cause an undue hardship. Based on the uncontroverted facts, Debtor has not carried this burden, and the DoEd's motion for summary judgment should be granted.
The motion for summary judgment
There is no dispute that the DoEd loans that are the subject of Debtor's Complaint fall within this definition.
The Court also notes that the facts here are drastically different than Quarles. There, this Court concluded that the debtor's rejection of an income based repayment program was not enough to show a lack of good faith. In Quarles, the debtor would have been required to pay $126.70 per month under the income based plan, but the facts established that the debtor and her spouse did not "have sufficient income to pay even this amount." Id. at *8. In addition, the debtor in that case suffered from severe mental illness, and two expert witnesses testified she would be "significantly harmed" by the added stress of an extended repayment and the "significant tax liability" of a forgiven debt occurring right as the debtor turned 65 years old. Id. at *9.