638 B.R. 620
Bankr. N.D. Cal.2022Background:
- Debtor Oscar D. Teran took a private "Bar Loan" through Sallie Mae’s LAWLOANS program in 2008 to pay for BarBri bar-prep and living expenses; the loan was later assigned to Navient.
- Teran filed Chapter 7 in May 2010, listed the Bar Loan as unsecured, and received a discharge in August 2010.
- In 2020 Teran sued Navient alleging post-discharge collection and adverse credit reporting; Navient moved for summary judgment seeking a declaration that the Bar Loan was nondischargeable under 11 U.S.C. § 523(a)(8).
- Navient argued nondischargeability under two subsections: (A)(i) (loans made under a program funded by a governmental unit or nonprofit) and (B) (qualified education loans under IRC § 221).
- The court found a genuine factual dispute as to whether LAWLOANS in 2008 was funded by a nonprofit or government (denying summary judgment on § 523(a)(8)(A)(i)).
- The court held as a matter of law the Bar Loan is not a "qualified education loan" under § 523(a)(8)(B) because the funds were for bar-prep (BarBri is not an eligible educational institution and Teran was not an eligible student when funds were used) and granted summary judgment to Teran on that issue.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bar Loan was made under a program "funded in whole or in part by a governmental unit or nonprofit institution" (11 U.S.C. § 523(a)(8)(A)(i)) | Teran: Loan was purely private; no nonprofit or government funding of LAWLOANS in 2008, so dischargeable | Navient: LAWLOANS was an umbrella program that also made federal Stafford loans, so it was funded in part by nonprofits/government and the loan is nondischargeable | Denied Navient MSJ — material factual dispute; Navient failed to prove nonprofit or government involvement in LAWLOANS in 2008 |
| Whether the Bar Loan is an "other educational loan that is a qualified education loan" (11 U.S.C. § 523(a)(8)(B) / IRC § 221) | Teran: Loan proceeds were for bar-prep and living expenses; BarBri is not an eligible educational institution and he was not an eligible student when funds were used, so loan is not a qualified education loan | Navient: Loan terms mimic IRC eligibility requirements; borrower was a student at an eligible institution when applying and conditions for disbursement were satisfied | Granted Teran SJ — Bar Loan is not a qualified education loan as a matter of law |
Key Cases Cited
- Simo v. Union of Needletrades, Indus. & Textile Employees, 322 F.3d 602 (9th Cir. 2003) (summary judgment standard cited)
- Gospel Missions of Am. v. City of Los Angeles, 328 F.3d 548 (9th Cir. 2003) (permitting entry of summary judgment for nonmovant in appropriate circumstances)
- In re Pilcher, 149 B.R. 595 (B.A.P. 9th Cir. 1993) (private loans made under an umbrella program with nonprofit participation held nondischargeable under § 523(a)(8)(A)(i))
- O'Brien v. First Marblehead Educ. Res., Inc. (In re O'Brien), 419 F.3d 104 (2d Cir. 2005) (recognizing nondischargeability where private loans were part of a program that included nonprofit-guaranteed loans)
- Univ. v. Merchant (In re Merchant), 958 F.2d 738 (6th Cir. 1992) (same: program-wide nonprofit involvement rendered private loans nondischargeable)