Dischargeability of Liability for Co-Obligors of Student Loans

It is well known throughout the legal community that student loans are generally not dischargeable in a bankruptcy . Perhaps less well known is that the liability of a non-student, co-obligor of a student loan (such as the student’s parent) is also generally not dischargeable under the Bankruptcy Code.

There are no Eleventh Circuit Court cases directly on point, however, the majority of bankruptcy court and district court opinions, as well as the only published circuit court opinion hold that 11 U.S.C. 523(a)(8) does not discharge a co-obligor from the liability of student loans. In In re Pelikowski, 990 F.2d 737 (3^rd Cir. 1993), the Third Circuit Court held that an obligation incurred by a debtor for her children’s education was an “educational loan,” within meaning of statutory exception to discharge, and that the statutory exception applies both to debts of student borrowers and to obligations incurred by their nonstudent co-obligors. Id. at 741. The Third Circuit Court went on to find that section 523(a)(8) of the Bankruptcy Code does not refer to a “student debtor” but applies to limit discharge of any “individual debtor” from “any debt” for a covered educational loan. Id. See also, In re Varma, 149 B.R. 817, 818 (N.D.Tex.1992) (“The relevant inquiry into the applicability of [section 523(a)(8)] is the purpose of the loan, not the beneficiary of the education.”); In re Dull, 144 B.R. 370, 372 (Bankr. N.D. Ohio 1992) (“the fact [that] a debtor received no educational benefit from the loans does not exclude him from [section 523(a)(8)’s] provisions”); and In re Hammarstrom, 95 B.R. 160, 162 (Bankr.N.D.Cal.1989) (“The language of section 523(a)(8) does not limit its application to educational loans in which the student is the borrower.”) .

Contrary to the vast majority of opinions throughout the country, a minority of courts have held that an “educational loan” includes only the debt incurred by the student for his or her own education. See, e.g., In re Washington, 41 B.R. 211, 214 (Bankr.E.D.Va.1984) (student loan is only an educational loan as to that party that received the benefits of the loan); In re Kirkish, 144 B.R. 367 (Bankr. W.D. Mich. 1992) (the exception to discharge for student loans did not apply to nonstudent parent who was co-maker on child’s educational loan; exception was intended to apply only to students, not to co-makers).

Although there is no binding precedential authority in our circuit, clearly the majority view is that liability for non-student, co-obligors of student loans is non dischargeable. Accordingly, whether you are the student or a co-obligor parent of the student, unless there is an argument that can get you over the difficult undue hardship standard, the student loans will likely not be discharged in bankruptcy.

11 U.S.C. § 523(a)(8) restricts the dischargeability of educational benefits or loans which were insured or guaranteed by a governmental unit or under any program funded by a governmental unit or non profit institution. Further, as a result of BAPCPA, the discharge of any education loan that is qualified for a tax deduction is similarly restricted. A court can discharge an otherwise non-dischargeable student loan if excepting the debt from discharge will impose an undue hardship on the debtor or the debtor’s dependents.