Cаzenovia College and the College of St. Rose appeal respectively from an order of the United States Bankruptcy Appellate Panel for the Second Circuit that affirmed the dismissal of Cazenovia College’s complaint against Kevin Renshaw, and from the judgment of the United States District Court for the Northern District of New York affirming the grant of summary judgment in favor of David W. Regner.
Kevin Renshaw and David W. Regner (debtors, students or defendants) both were college students, the former attending Cazenovia College, the latter the College of St. Rose. Each failed to pay collegе tuition when due, yet both were nevertheless allowed to attend classes thereafter. Both students subsequently declared bankruptcy. In each case, the college intervened in the bankruptcy proceedings to object to the debtors obtaining a discharge of the debts the colleges claimed the students owed them. The colleges contend that by permitting the students to attend classes they had extended to them educational loans exempt from discharge in bankruptcy. Cazenovia College also asserts that Renshaw’s class attendance was an “educаtional benefit,” also exempt from discharge.
Thus, these two appeals, argued together, concern the scope of 11 U.S.C. § 523(a)(8) (1994) that excepts from discharge in bankruptcy certain educational obligations. While similar disputes have often been resolved in bankruptcy courts, these are issues of first impression in this Circuit.
The meaning of the term “educational loan” used in the statute lies at the heart of these appeals. Although the word “loan” is not defined in § 523(a)(8), under the common law it means generally speaking a contract whereby one party transfers to another money or its equivalent that the latter agrees to repay later. While various contracts were entered into in these cases between the debtors and the colleges, none of those casual covenants meets the definition of loan. We hold therefore that such contracts do not constitute either educational loans or educational benefits within the meaning of § 523(a)(8).
In resolving these two appeals, we set out the background of each separately. But, inasmuch as we are affirming in each case and the issues raised in both cases are essentially the same, much of the discussion that follows encompasses both appeals.
BACKGROUND
I Cazenovia College v. Renshaw
Cazenovia College is a small, nonprofit, undergraduate college located in the bucolic village of Cazenovia, New York. On February 8, 1992 defendant Kevin Renshaw
Although Renshaw failed to pay Cazeno-via’s charges when due, the college nonetheless allowed him to register, live in college housing, eat his meals there and attend classes for the 1992 summer and fall sessions. For personal reasons, Ren-shaw did not return to college for the spring 1993 semester. He did not notify Cazenovia of his withdrawal.
On March 17, 1993 Renshaw still owed Cazenovia $5,027.16, a sum that included several monthly service charges. The college sued and obtained a default judgment against him on December 4, 1996 in the amount of $9,999.87, including $3,169.99 in accrued service charges from July 1993, plus an award of attorneys’ fees of $1,339.18. Two months later, on February 25, 1997, Renshaw filed for bankruptcy under Chapter 7 of the Bankruptcy Code. On May 8, 1997 Cazenovia initiated an adversary proceeding in the debtor’s bankruptcy proceeding, seeking a determination that his obligation to Cazenovia was non-dischargeable under 11 U.S.C. § 523(a)(8).
On March 9, 1998 the Bankruptcy Court for the Northern District of New York (Gerling, C.B.J.) entered judgment denying Cazenovia College’s motion for summary judgment and dismissing its complaint.
In re Renshaw,
No. 97-60985 (Bankr.N.D.N.Y. Mar. 9, 1998). The Bankruptcy Appellate Panel for the Second Circuit (Ninfo, Bucki, Gallet, B.JJ.) affirmed the bankruptcy court's judgment on February 5, 1999.
In re Renshaw,
II The College of Saint Rose v. Regner
The College of Saint Rose (St. Rose) is a small, nonprofit four-year college located in Albany, New York. David W. Regner began attending St. Rose in the fall of 1991. Regner regularly paid his tuition through financial aid, until he enrolled for the fall 1993 semester. St. Rose permitted him to attend that semester without fully prepaying its $4,721.00 tuition fee. When St. Rose realized that Regner had failed to process necessary financial aid paperwork, it sent him a letter dated April 20, 1994 asking him to contact the college’s Business Office about his “past due balance.” Regner acknowledged his obligation to the college and made some payments, but did not pay his tuition bill in full.
On November 10, 1994 Regner stipulated in state court that he owed St. Rose $4,445.32 in tuition costs, not including interest. The college ultimately obtained a default judgment against him for $5,133.06. On March 13, 1997 Regner filed for bankruptcy under Chapter 7, and on May 5, 1997 St. Rose began an adversary proceeding in the bankruptcy court seeking a declaratory judgment that Regner’s debt was nondischargeable. Both parties stipulated that the “arrangement was pursuant to a ‘program’ within the meaning of 11 U.S.C. § 523(a)(8).” In re Regner, No. 97-11645, slip op. at 2 (Bankr.N.D.N.Y. June 10, 1998).
DISCUSSION
I Purpose of 11 U.S.C. § 523(a)(8)
For nearly 100 year's it has been the primary purpose of the old Bankruptcy Act and now the new Bankruptcy Code to “relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh,”
Williams v. U.S. Fidelity & Guar. Co.,
The issue that we must resolve in these appeals is whether the two debtors’ obligations fall within the § 523(a)(8) exception to discharge for certain forms of educational debt. Section 523(a)(8) provides in relevant part that
(a) a discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend ....
11 U.S.C. § 523(a)(8) (1994).
The underlying facts in these cases are undisputed. In
Renshaw,
the bankruptcy court dismissed Cazenovia’s complaint and the bankruptcy appellate panel affirmed. We review the bankruptcy court’s legal conclusions
de novo. See In re Bennett Funding Group, Inc.,
A. Legislative History
While the details of § 523(a)(8) have evolved over time, the problem it addresses remains the same: because student
The Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (1978), created Title 11 and implemented major reforms to the bankruptcy system. These included revision of the list of exceptions to discharge and enactment of § 523(a)(8). Section 523(a)(8) addressed the same abuse as an earlier, repealed provision of the education Code. See Education Amendments of 1976, Pub.L. No. 94-482, § 127(a), Education Act of 1965 § 439A(a), 90 Stat. 2081, 2141 (1976) (codified at 20 U.S.C. § 1087-3) (repealed 1978); S.Rep. No. 95-989, at 79 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5865 (“[paragraph (8) follows generally current law”). The new section paralleled that of the repealed provision, which was intended to avoid the situation where a graduating student would file for discharge of student loans in bankruptcy and then enter the workplace free from the debt rightfully owed. See S.Rep. No. 94-882, at 32 (1976), reprinted in 1976 U.S.C.C.A.N. 4713, 4744 (discussing Education Amendments of 1976). As initially enacted, it read
§ 523. Exceptions to discharge
(a) a discharge under section 727, 1141, or 1328(b) of this title dоes not discharge an individual debtor from any debt—
(8) to a governmental unit, or a nonprofit institution of higher education, for an educational loan, unless—
(A) such loan first became due before five years before the date of the filing of the petition; or
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents....
Bankruptcy Reform Act of 1978 § 523(a)(8),
Congress has amended § 523(a)(8) a number of times. In 1979, to avoid disparities in the treatment of loans from different sources
(i.e.,
for-profit as opposed to non-profit lenders) with respect to their dischargeability in bankruptcy, it broadened the subsection to cover “any educational loan made, insured, or guaranteed by a governmental unit, or made under any program ... funded by a governmental unit or nonprofit institution of higher learning.” Bankruptcy Act — Student Loan Debts, Pub.L. No. 96-56, § 3(1), 93 Stat. 387 (1979); S.Rep. No. 96-230, at 1-2 (1979),
reprinted in
1979 U.S.C.C.A.N. 936, 936-37. In 1984, Congress expanded the exception to apply to loans made under a program funded by
any
nonprofit insti
II Extension of a “Loan”
A. Definition of Loan Not Met
With the policy concerns and relevant legislative history firmly in hand, we turn to the facts of these two cases to see if in either we can discern the kind of educational loan the statute envisions as an exception to discharge. Cazеnovia and St. Rose maintain that by allowing Renshaw and Regner, respectively, to attend classes without paying tuition, the colleges extended to them an educational loan excepted from discharge by § 523(a)(8). The students do not dispute that their class attendance was educational. Instead, they contend that whatever services or goods the college gave them did not constitute a “loan” within the meaning of the statute.
The analysis of any statute must begin, of course, with its plain language, at least where its language
is
plain.
See Patterson v. Shumate,
The transactions in these cases do not meet the Grand Union standard. Neither college entered into an agreement to extend credit to its student or to permit the student to attend classes in return for a payment of tuition at a future date. Rather, both Renshaw and Regner unilaterally decided not to pay tuition when it came due. The colleges, which then could have forbidden them to attend classes, chose not to do so. Nor did the colleges come to any agreement with Renshaw or Regner about future class attendance or an extension of credit.
B. Merits of the Individual Cases
1. Renshaw
Cazenovia relies on the “Reservation Agreement” that Renshaw signed before enrollment as evidence of a loan. The
The Agreement specifies penalties for failure to pay fees when due. Significantly, it does not obligate Cazenovia to permit a student with unpaid bills to attend classes or to obtain other services from the college. Even if allowing a student to attend classes without prior payment can be characterized as an extension of credit, Cazenovia never promised to extend such credit to Renshaw, and it certainly did not reach a prior or cоntemporaneous agreement with Renshaw on the amount of credit to be extended.
Cazenovia’s practice in executing the “Reservation Agreements” further undercuts its position. It routinely executes identical Agreements with each of its incoming students, without making any inquiry into their financial needs, creditworthiness, or intent to pay the college’s fees on time. In addition, after listing the fees for the academic year, the Agreement expressly states “[t]he above does not reflect financial aid, if any.” These circumstances indicate that the Agreement is not intended to сreate an educational loan. The bankruptcy appellate panel correctly characterized the Agreement as constituting Cazenovia’s offer to sell the student goods and services at the specified prices rather than as an offer to make a loan.
See In re Renshaw,
The appellate panel also observed that were it to construe the transaction in
Ren-shaw
as a loan, the 19.2 percent annual interest rate specified in the Agreement (in the form of “service charges”) would violate state law that sets an upper limit for loans at 16 percent annual interest.
See Renshaw,
2. Regner
St. Rose insists that it extended credit to Regner because Regner agreed, in response to the college’s demands, that he owed it money. However, the parties did not agree, prior to or contemporaneous with Regner’s college attendance that the college would provide him with educational services and that he would pay for these later. Instead, they only agreed after the fact that Regner owed tuition. St. Rose asserts that Regner owes tuition for the fall 1993 semester. Unfortunately for the college, it relies entirely on Regner’s letter of September 28, 1994, acknowledging his “past due account” and promising to pay the college in installments, and his stipulation of September 17, 1997 to the bankruptcy court acknowledging that he had
Thus, when Regner’s tuition fell due and was not paid like Renshaw’s, it simply became a past due account. It was not thereby transformed into a loan. The district court in
Regner
correctly concluded that the proof showed neither an exchange of funds nor an agreement between St. Rose and Regner for any extension of credit. The student did not execute a promissory note. The college simply acquiesced when Renshaw failed to prepay his tuition, deciding apparently on its own that Renshaw’s tuition would be paid by financial aid or that the student would be responsible to pay himself.
See Regner,
As a consequence, because the exception to discharge of a debt in bankruptcy set out in § 523(a)(8) must be narrowly construed, with the burden of proof on the creditor colleges to prove the claims not dischargeable, we hold that the colleges in the two appeals before us failed to prove that the transactions between thеm and the debtors constituted educational loans excepted from discharge in bankruptcy.
C.Support From, Other Case Law
Most courts that have addressed this issue, including the four below, have come to the same conclusion as we do here. Courts generally have held that nonpay-
ment of tuition can qualify as an educational loan under § 523(a)(8) only in two classes of cases. In the first, funds have changed hands. For example, in
In re Joyner,
Of course, some eases involve both a transfer of funds and an agreement, and courts have found loans in those cases as well.
See, e.g., United States Dep’t of Health & Human Servs. v. Smith,
Conversely, where these indicia of a pri- or agreement are absent, there is generally held to be no loan.
See, e.g., In re Nelson,
Ill Analysis of Contrary Case Law
Not all courts have followed the line of cases holding that the absence of a prior agreement indicates
no
loan. In
In re Pelzman,
The colleges rely primarily on the Sixth Circuit’s opinion in
Merchant,
Merchant
focused on two facts in reaching its decision: that the student had “signed forms evidencing the amount of hеr indebtedness before she registered for classes,”
id.
at 741, and that the “assistance for educational expenses” the university provided her was evidenced by promissory notes payable to the university,
id.
at 739. There was also evidence that the university orally agreed to permit Merchant to attend classes while her tuition remained unpaid, and negotiated repayment schedules with her.
See
Appendix at 26-27,
Merchant,
Some courts have distinguished
Merchant
on the basis of the promissory notes.
See Nelson,
IV Extension of an Educational Benefit
In addition to educational loans, § 523(a)(8) excepts from discharge “obligation[s] to repay funds received as an educational benefit, scholarship or stipend” and certain “educational benefit overpayment[s].” The colleges wisely do not rely on the “obligation to repay funds received” provision because it is undisputed that neither student received funds. However, Cazenovia argues that the “educational benefit overpayment” provision applies to its case.
Cazenovia proposes that we follow
In re Najafi,
Cazenovia urges that the word “benefit” may not be used to modify a noun in the first phrase of § 523(a)(8) and then as an independent noun in the last phrase of the same subsection. While ingenious, this argument is unpersuasive. When a word can have various grammatical functions, Congress is free to use any or all of them. In accordance with common English usage, when Congress wishes to indicate that a series of items is a set of alternatives, it consistently separates the items by commas and uses an “or” before the last one. That is precisely what it does elsewhere in § 523(a)(8) itself: “made, insured or guaranteed;” “educational benefit, scholаrship or stipend.” If Congress had meant “educational benefit, overpayment or loan,” the statute would not read “educational benefit overpayment or loan.”
Moreover, the term “educational benefit overpayment” was added as a unit in 1990.
See
Federal Debt Collection Procedures Act § 3621(1),
CONCLUSION
For the reasons stated, we hold that neither Renshaw nor Regner received an educatiоnal loan or an educational benefit overpayment within the meaning of 11 U.S.C. § 523(a)(8), and accordingly, their respective debts to Cazenovia College and the College of St. Rose are dischargeable in bankruptcy; The order of dismissal in Renshaw and the grant of summary judgment in Regner are both therefore affirmed.
Notes
. “In order to constitute a loan there must be a contract whereby, in substance one party transfers to the other a sum of money which that other agrees to repay absolutely, together with such additional sums as may be agreed upon for its use. If such be the intent of the parties, the transaction will be considered a loan without regard to its form.”