In our last post, we were discussing the test courts use determine “undue hardship,” which is the standard a debtor needs to meet in order to obtain a discharge of a student loan. The Brunner test was developed in the 1980s, and many now consider it out-dated and inappropriate for determining whether a debtor can discharge their student loans.

 

In the 1980s, Congress and the courts were concerned, wrongly, it turns out, that some individuals were going to graduate, law and medical schools, running up large school loans and then immediately filing for bankruptcy after their graduation. The evidence was largely anecdotal and innuendo, but because of it, student loans joined child support as one of the few categories of debt that cannot be discharged in a bankruptcy.

 The case from Wisconsin shows the absurdity the Brunner test’s requirements for undue hardship. The case involves a 57-year-old man, who has had alcohol and mental health issues, has failed to pass the Bar Exam twice, has a partial-MBA and a law degree, and had some criminal charges involving domestic violence tied to his alcohol issues, is unemployed and lives with his 86-year-old mother. And he has $260,000 in student loan debt.

Perhaps the judges need to consider the job market for a 57-year-old man with his background. Any individual that age would face challenges in finding a job, and given his alcohol abuse issues and a criminal record, finding any work beyond minimum wage seems highly optimistic.

A “totality of the circumstances” test would be an improvement, as judges could weigh more elements of a person’s situation authorize discharge in cases like this, which seem likely to lead to permanent impoverishment.

 

Source: Bloomberg.com, “The Supreme Court May Weigh In on a Student Debt Battle” Natalie Kitroeff, October 19, 2015

The bankruptcy court, the district court and the Seventh Circuit Court of Appeals have all found that his situation does not constitute undue hardship under Brunner. A simple loan amortization shows that to repay that debt on a 15-year schedule at a 6% interest rate, or when he would be age 72, he would need to pay almost $2,200 per month, or $26,000 in payments every year.