982 F.3d 445
6th Cir.2020Background:
- Kathryn Conti attended the University of Michigan (1999–2003) and obtained five private Citibank loans totaling $76,049 to finance her education.
- The loan applications and promissory notes: identified the borrower as a student at a 4‑year college, limited amounts to the "cost of education less any financial aid," included a school certification section, and stated proceeds were to be used for "specific educational expenses."
- Citibank disbursed the loans to Michigan; each loan amount did not exceed Michigan’s cost of attendance minus Conti’s Pell grant(s) (the only aid she recalled receiving).
- Conti made payments for several years; the loans were later assigned to Arrowood. She filed Chapter 7 (May 2017) and an adversary proceeding seeking discharge of the loans under 11 U.S.C. § 523(a)(8).
- The bankruptcy court granted summary judgment for Arrowood; the district court affirmed; Conti appealed to the Sixth Circuit.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper test to determine a "qualified education loan" (purpose vs. ultimate use) | Conti contested that the loans qualify, arguing the facts do not show they were incurred solely for education (and raised evidentiary defects). | Arrowood urged the court to apply a purpose test and look to the loan documents showing educational purpose. | Court applied a purpose test: ask whether loans were incurred solely to pay qualified higher education expenses. |
| Whether the Citibank loan documents show loans were incurred solely to pay cost of attendance | Conti argued disputes over recipient, cost of attendance, school certification, and other facts preclude summary judgment. | Arrowood pointed to applications/notes, direct disbursement to the school, and loan amounts within cost minus aid. | Court held undisputed documents and record facts establish loans were incurred solely to pay qualified higher education expenses; loans are qualified education loans under § 523(a)(8)(B). |
| Whether absence of IRS forms (W‑9S/1098‑E) or lack of school certification defeats status | Conti argued tax‑form certification/regulatory scheme supports disqualification without those forms. | Arrowood argued IRS forms/regulations are irrelevant to bankruptcy exception and no certification is required to make a loan "qualified." | Court rejected importing tax certification/regulations into bankruptcy; absence of those forms does not prevent classification as a qualified education loan. |
| Whether Shaffer requires loans to "very specifically" earmark permitted expenses | Conti relied on Shaffer to urge stricter specificity/earmarking of permissible expenses. | Arrowood argued Shaffer involved different regulatory context (SNAP) and no similar earmarking rule applies here. | Court declined to apply Shaffer's strict earmarking requirement; university "cost of attendance" and loan language sufficed. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (creditor bears burden to prove a debt is excepted from discharge)
- Meyers v. IRS (In re Meyers), 196 F.3d 622 (6th Cir.) (burden of proof on creditor that debt is nondischargeable)
- Poss v. Morris (In re Morris), 260 F.3d 654 (6th Cir.) (standard: appellate court reviews bankruptcy court decision directly; summary judgment reviewed de novo)
- Busson-Sokolik v. Milwaukee Sch. of Eng'g (In re Sokolik), 635 F.3d 261 (7th Cir.) (adopts a purpose test for educational loans)
- Murphy v. Smith, 138 S. Ct. 784 (Sup. Ct.) (statutory infinitival phrases indicate purpose-focused inquiry)
- Andrews Univ. v. Merchant (In re Merchant), 958 F.2d 738 (6th Cir.) (policy against allowing debtors to misuse funds to evade nondischargeability)
- Shaffer v. Block, 705 F.2d 805 (6th Cir.) (interpreted "specifically earmarked" in a SNAP/regulatory context; court declined to import that rule here)