Academic journal article Iowa Law Review

Time for a Fresh Look at the "Undue Hardship" Bankruptcy Standard for Student Debtors

Academic journal article Iowa Law Review

Time for a Fresh Look at the "Undue Hardship" Bankruptcy Standard for Student Debtors

Article excerpt


Congress passed 11 U.S.C. § 523(a)(8) in 1978 to make the discharge of educational loan debt more difficult for student debtors.1 The language of the statute required that loan payments impose an "undue hardship" on a debtor or a debtor's dependents before a court could grant a discharge.2 Congress did not define "undue hardship" in § 523(a)(8), however, and courts created numerous tests to apply this standard.3 Some courts have required that a debtor exhibit a "certainty of hopelessness" of ever repaying the loan before the court will offer a discharge.4

This Note examines the repercussions of a court applying either the Brunner test or the totality test to the "undue hardship" requirement and the effects of the "certainty of hopelessness" standard. Part II discusses the history of § 523(a)(8), the various standards courts use to apply the statute's "undue hardship" test, and the reasons why it is crucial that Congress and the courts re-examine the statute without delay. Part III addresses the benefits of applying the totality test instead of the Brunner test and the dangerous nature of the "certainty of hopelessness" requirement. Part IV then proposes both congressional and judicial solutions to clarify the ambiguity of § 523(a)(8)'s "undue hardship" test and offers a model statute to remedy current issues.

II. EVOLUTION OF 11 U.S.C. § 523(A)(8)

In 1978, Congress enacted § 523(a)(8) with the intention of making the discharge of educational loans difficult for student debtors.5 Originally, Congress allowed two opportunities for a student debtor to discharge student debt through bankruptcy: after five years of repayment or upon a showing that the debt posed an "undue hardship" on the debtor.6 However, Congress left "undue hardship" undefined in the context of § 523(a)(8), leaving courts to devise their own interpretations. Two primary tests emerged in different circuits-the Brunner test and the totality test-each of which relies upon separate factors to determine whether an "undue hardship" exists.7 Some courts, applying either of the two tests, imposed an additional, harsher requirement that student debtors exhibit a "certainty of hopelessness" of repaying their debt before a court could find an "undue hardship" and discharge the loan.8 Subsequently, in 1998, Congress removed the provision allowing discharge after a certain number of years, leaving the showing of "undue hardship" as a student debtor's only possibility of relief.9 The judicially created Brunner test, totality test, and "certainty of hopelessness" requirement, however, have remained unchanged despite the evolving nature of the statute. These three standards, crafted by courts for use in a twentieth-century world under a twentieth- century statute, require immediate attention in the wake of the 2008 economic recession that significantly altered the United States' economic and social circumstances.

Subpart A discusses the legislative history of § 523(a)(8), and Subpart B outlines the emergence of the Brunner test, the totality test, and the certainty of hopelessness standard. Subpart C then places the "undue hardship" inquiry in the larger economic context of the post-2008 student debtor.


In 1973, reports of "deadbeat" dropouts and graduates trying to shirk their federal loan payments prompted the Federal Department of Health, Education, and Welfare to approach the Congressional Committee on Bankruptcy Laws.10 To protect the federal loan system, the Department encouraged the Congressional Committee to pass legislation making it more difficult for debtors to discharge federal educational loans through bankruptcy.11 In response, Congress amended the Federal Higher Education Act in 1976 to prohibit a debtor from discharging a federal educational loan during the first five years of repayment unless the debtor could establish that the loan imposed an "undue hardship" on the debtor or the debtor's dependents. …

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