OPINION
This appeal is from a final judgment discharging debtor Stephanie Hawkins’ (“Hawkins” or “Debtor”) debt to Ohio University (“Appellant” or “University”) in her Chapter 7 1 bankruptcy case based upon the bankruptcy court’s finding that the debt did not constitute an educational loan or benefit under § 523(a)(8). We AFFIRM.
I
FACTS
The State of Ohio subsidizes the education of medical students at the University, including out-of-state students, in order to improve the health care provided to Ohio residents by making more doctors available to them. 2
This contract of admission is hereunto made between the President and Board of Trustees of Ohio University through the College of Osteopathic Medicine and the undersigned, a nonresident of Ohio for tuition purposes, or the purpose of granting admission to the College of Osteopathic Medicine, hereinafter referred to as the applicant.
1. The applicant agrees that in consideration of admission to the College of Osteopathic Medicine and for the medical education to be provided by the College of Osteopathic Medicine he/she will become licensed and practice medicine in the State of Ohio for a period of at least five (5) years from the date of completion ... of graduate medical educаtion ....
3. The applicant agrees that in the event of his/her breach of this contract of admission for failure to fulfill the terms and conditions contained in paragraph 1 above and upon failure to fully correct this breach within a reasonable time ... the applicant shall pay to the College of Osteopathic Medicine for its use and benefit as liquidated damages, the total sum of the then existing subsidized costs, at the time of breach for the College of Osteopathic Medicine to provide medical education to one medical student to be determined by accepted accounting methods by the College of Osteopathic Medicine.
Contract of Admission to the Ohio University College of Osteopathic Medicine, dated October 30,1986.
Hawkins signed the Cоntract with the University agreeing to the five-year commitment and was admitted to the program for the 1987 fall term. She successfully completed the program and, on June 7, 1991, became a Doctor of Osteopathic Medicine. However, Hawkins promptly returned to California without fulfilling her five-year obligation to practice medicine in Ohio.
In 1998, the University sued Hawkins in Ohio state court for breach of contract to recover the subsidized cost of educating one medical student at the time of the breach, which it calculated to be $94,160 plus interest. This calculation is based upon the estimated instructional subsidy for a full-time student enrolled at the University in 1996, the year by which Debtor was to have completed her five-year practice commitment to the State of Ohio.
The University obtainеd a default judgment against Hawkins on January 25, 1999 and obtained a sister state judgment in California on February 7, 2000. Hawkins filed a Chapter 7 bankruptcy on February 5, 2002 seeking to discharge the $159,-708.30 4 unsecured debt owed to the University. The debt to the University constitutes approximately 97% of her potentially dischargeable debt.
For her part, Hawkins did not assert dischargeability of the debt on “undue hardship” grounds and did not seek the discharge of her federally funded Health Education Assistance Loans (“HEAL”). 5 Her sole defense to the debt of the University was that an obligation derived from a general educational subsidy does not constitute а student loan or educational benefit within the meaning of § 523(a)(8) and is, therefore, dischargeable. The bankruptcy court agreed with Debtor and granted summary judgment in her favor.
II
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2)(I). This Panel has jurisdiction under 28 U.S.C. § 158(c).
III
ISSUE
Whether the bankruptcy court erred in finding that Debtor’s obligation to the University does not constitute an educational loan or otherwise fall under § 523(a)(8) exceptions to discharge.
IV
STANDARD OF REVIEW
The Panel reviews summary judgment orders
de novo. Paine v. Griffin (In re Paine),
V
DISCUSSION
Under § 523(a)(8), a discharge under § 727 does not discharge an individual debtor from a debt for
an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in wholе 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, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents
§ 523(a)(8).
The bankruptcy court determined the obligation created by the Contract was
In addition, the сourt held that the subsidy did not qualify as an educational benefit because no funds were received by Debtor. Finally, the court interpreted the liquidated damages clause as a penalty rather than as compensation to the University for Debtor’s non-compliance with the terms of the Contract.
Appellant claims that the bankruptcy court erred in failing to find: 1) that for purposes of § 523(a)(8), the terms “loan” and “educational benefit” are broad enough to include the education subsidy provided to non-resident medical students of the University in exchange for the service obligation, even though the subsidy was not in the form of a scholarship, stipend or other form of financial aid; and, 2) that the liquidation clause of the Contract is designed to compensate the University for the cost of subsidizing thе education of one “replacement” medical student and does not constitute a penalty.
We agree with the bankruptcy court that the obligation created by the Contract is not the kind of educational obligation that falls within the discharge exception set forth in § 523(a)(8), though not for the reasons stated in the bankruptcy court’s memorandum decision.
Generally speaking, debts that are potentially nondischargeable under § 523(a)(8) fall into two categories: 1) debts for educational benefit overpayments or loans made, insured or guaranteed by a governmental unit or nonprofit institution; or 2) debts for obligations to repay funds received as an educational benefit, scholarship or stipend. § 523(a)(8);
Mehlman v. New York City Bd. of Educ. (In re Mehlman),
A. Educational Loan
The term “loan” is not defined under the Bankruptcy Code and, thereforе, it must be interpreted according to its settled meaning under common law.
Cazenovia Coll. v. Renshaw (In re Renshaw),
Most courts have construed the term broadly enough to include extensions of credit for tuition and not to require the actual delivery of a sum of money.
See, e.g., DePasquale v. Boston Univ. Sch. of Dentistry (In re DePasquale),
While an educational loan need not include an actual transfer of money or some form of cash equivalent to Debtor, in order to fall within the definition of a nondischargeable debt undеr § 523(a)(8), the loan instrument must sufficiently
articulate definite repayment terms and the repayment obligation
must reflect the value of the benefit actually received, rather than some other ill defined measure of damages or penalty.
See also, Navarro v. Univ. of Redlands (In re Navarro),
The
Rosen
and
Freeh
cases illustrate the point well. Both cases involved state-regulated educational programs providing for the repayment of a scholarship loan either in cash or by the fulfillment of specified service obligations. In each case, the bankruptcy court found that the debtors had received non-dischargeable educational loans under § 523(a)(8).
Rosen,
The bankruptcy court found that Debt- or’s obligation was not an educational loan under § 523(a)(8) because there was no evidence that Debtor received “funds, credit or financial accommodations” in exchange for signing the Contract. Memorandum Decision, dated September 16, 2003. The court apparently discounted evidence presented by the University which attempted to quantify the subsidy as evidence of the financial accommodation provided to medical students on a yearly basis and, instead, found that the sole purpose of the Contact was for admission into the college. 6 This finding is unsupported by the evidence. Importantly, Debtor herself admits receiving a tuition subsidy and does not refute the University’s analysis or calculations in this regard. Though the outcome is the same, we disagree with the bankruptcy court’s reasoning.
It is not the absence of evidence suggesting that Debtor received a financial accommodation from the University which causes the transaction to fall outside the scope of an educational loan under § 523(a)(8). Rather, it is the Contract’s failure to quantify the educational benefit being conferred upon Debtor and to set forth adequate loan repayment terms reflecting that the amount being repaid is the value of the benefit received by Debt- or, and not a penalty or damages calculation measured by something other than the benefit debtor received.
Certainly, a general subsidy could, under the right circumstances, qualify as a loan within § 523(a)(8). 7 For example, had the Contract provided for a quantifiable educational subsidy in exchange for Debt- or’s contemporaneous agreement to repay the value of the subsidized educational services she received from the University, either in cash or by practicing in the state of Ohio, the transaction might very well have qualified as an еducational loan or benefit under § 523(a)(8). However, the arrangement here was structured quite differently. Under the Contract, Debtor was obligated to
pay to the College of Osteopathic Medicine for its use and benefit as liquidated damages, the total sum of the then existing subsidized costs, at the time of breach for the College of Osteopathic Medicine to provide medical education to one medical student to be determined by accepted accounting methods by the College of Osteopathic Medicine.
Contract of Admission to the Ohio University College of Osteopathic Medicine, dated October 30,1986.
In sum, the agreement between the University and Debtor fails as an educational loan under § 523(a)(8) because it does not quantify the educational subsidy actually received by Debtor and does not create an obligation to repay thе value of the benefit received.
B. Educational Benefit
Under § 523(a)(8), a discharge under § 727 does not discharge an individual debtor from a debt for “... an obligation to
repay funds received
as an educational benefit.” § 523(a)(8) (emphasis added). The University concedes that Debtor received no funds directly from the University or the state of Ohio. We agree with the bankruptcy court’s holding that the subsidy received by Debtor does not qualify as an “educatiоnal benefit” under § 523(a)(8) because the plain language of this prong of the statute requires that a debtor receive actual funds in order to obtain a nondis-chargeable educational benefit.
See Cazenovia Coll. v. Renshaw (In re Renshaw),
VI
CONCLUSION
Based on the foregoing, we AFFIRM.
Notes
. Unless otherwise indicated, all chapter, seсtion and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. This subsidy program is codified in Ohio Revised Code § 3337.14 which requires,
. The parties have stipulаted that there are no undisputed facts.
. The University's judgment against Debtor includes interest running at 10% per annum, beginning January 15, 1998.
. Although the parties stipulated that all facts are undisputed, the parties disagree on the amount of Debtor's HEAL loans. While Debt- or contends that her HEAL loan balance is $98,721.22, the University refutes this claim. The only evidence in the record, a letter from Sallie Mae Servicing Corporatiоn, states that Debtor's HEAL loan balance is $6,758.49, and that she has other consolidated student loans amounting to $91,454.21. According to Debt- or, the consolidated loans are all HEAL loans she incurred to finance medical school.
. Debtor argues in her opening brief that the purpose of the Contract was "... for tuition purposes, or the purpose of granting admission to the College of Osteoрathic Medicine,” and, since she did not receive any "tuition,” it follows that the contract was created for her admission only. (Emphasis in original).
The University contends, however, that Hawkins received substantial consideration in exchange for her service commitment, in the form of both admission and a tuition subsidy. There is some evidence in the record supporting the University’s contention. Most notably, Hawkins does not dispute receiving a tuition subsidy. So, even if one purpose of the agreement was for admission, the evidence suggests that the agreement also provided her with the benefit of the subsidy.
. We disagree with Debtor’s assertion that because the subsidy was a "general” subsidy paid to the University for the benefit of all medical students, rather than a financial accommodation paid directly to her, it is not an educational obligation under § 523(a)(8). Though not present in this case, there are likely circumstances under which a financial accommodation conferred upon a student by way of a "subsidy” (general or otherwise) could constitute a non-dischargeable educational obligation under § 523(a)(8).
. At the oral argument before this panel, counsel for the University conceded that under the terms of the Contract, the cost of subsidizing another medical student at the time of breach could be significantly higher than the actual cost of subsidizing Debtor’s education.