U.S. Higher Education Financing Has Significantly Changed, So Too Should Seventh Circuit Student Loan Discharge Law

Every year in the U.S., millions of students use public and private student loans to finance a portion of their post-secondary education. Inevitably, many student borrowers find themselves in the financial doldrums in the years subsequent to the initial loan disbursement. From this precarious position of defaulted debtor, many seek a fresh start by way of a personal debt discharge in Bankruptcy Court. Prior to 1978, student loan debt was discharged in routine bankruptcy proceedings.

In 1978, Congress inserted provision 11 U.S.C. 523(a)(8) into the Bankruptcy Code. Section 523(a)(8) is better known as the "undue hardship" provision. The undue hardship provision requires debtors to meet an undue hardship in a separate bankruptcy proceeding for a debtor's loans to be discharged. Today, the Seventh Circuit, along with 8 other circuits, uses the Brunner test to evaluate student debt in bankruptcy proceedings.

The reputation of the Brunner test rests on its often rigid application and its varied and sometimes absurd results. The remaining circuits have adopted some version of the more flexible Totality of Circumstances test. This Comment provides a snapshot of the current statutory, administrative, and judicial regime governing student loan debt. Under the current regime, millions of student debtors are funneled into federally administered income-based repayment programs.

This Comment urges courts to be skeptical of these repayment programs and to provide student debtors discharges where courts find the debtor deserving of such a discharge. This Comment's primary recommendation is that the Seventh Circuit should adopt the Totality of Circumstances test; however, this is not the only suggestion regarding judiciary paths forward in this area of law.