Teran v. Navient Solutions, LLCTeran v. Navient Solutions, LLC
I. INTRODUCTION AND PROCEDURAL HISTORY
Plaintiff Oscar D. Teran (“Teran“) was a law student at UC Hastings from 2005 until 2008. In his final year of law school, he took out a private bar study loan (“Bar Loan“) from Sallie Mae‘s LAWLOANS program to cover the cost of a BarBri bar prep course and living expenses while Teran studied for the Texas bar exam. The Bar Loan was eventually assigned to Defendant Navient Credit Finance Corporation and serviced by Defendant Navient Solutions, LLC (together, “Navient“).
In May 2010, Teran filed for chapter 7 bankruptcy in this court, and listed the Bar Loan among his unsecured debts. He received a bankruptcy discharge in August 2010. In August 2020, Teran initiated the above-captioned adversary proceeding on behalf of himself and a proposed class of similarly situated debtors against Navient (“Complaint“) (Dkt. 1), alleging that Navient had been improperly collecting on Teran‘s discharged Bar Loan and reporting the Bar Loan as not discharged to credit reporting agencies in violation of state consumer protection law.
Navient filed a Motion to Dismiss Count Three of Plaintiff‘s Complaint, or Alternatively, Compel Arbitration (“MTD“) (Dkt. 20), which Teran opposed (“Opposition to MTD“) (Dkt. 24). The MTD and the Opposition to MTD focused on whether the portion of the Complaint alleging wrongful credit reporting was outside the court‘s jurisdiction and thus should be dismissed or submitted to arbitration.
At a hearing on the MTD, the court ruled that as a threshold matter there first must be a determination as to whether Teran‘s Bar Loan is nondischargeable, because the question of dischargeability is critical to all parts of the proposed class action. The court deferred a ruling and directed the parties to meet and confer to set a schedule on cross-motions for summary judgment.
Pursuant to the schedule developed by the parties, Navient filed a Defendant‘s Motion for Summary Judgment (“MSJ“) (Dkt. 34) seeking a determination that the Bar Loan was excepted from Teran‘s bankruptcy discharge pursuant to
The court concludes that there is a material factual dispute as to whether the Bar Loan was made under a program that is excepted from discharge under
II. STANDARD FOR SUMMARY JUDGMENT
On a motion for summary judgment, the court must determine whether, viewing the evidence in the light most favorable to the nonmoving party, there are any genuine issues of material fact as to any claim, part of claim, defense, or part of defense. Simo v. Union of Needletrades, Indus. & Textile Employees, 322 F.3d 602, 609-10 (9th Cir. 2003);
III. ANALYSIS
A. The LAWLOANS Program
According to Navient, LAWLOANS was a program set up to be a “one-stop source of funding” through which both private loans and federally funded Stafford loans and Grad PLUS loans (together, “Stafford loans” for convenience) were made available to student borrowers through a single application. The program was established by a Multiparty Agreement between four private entities and one nonprofit entity in 1989, which was later amended at least four times between 1992 and 1995. (Box Decl., Dkt. 36). The Multiparty Agreement and subsequent Amendments presented by Navient show that, at least until 1995, there was an agreement between four for-profit entities (including Sallie Mae) and one nonprofit entity to advertise, originate, service, and guarantee both private and federal loans. Id. In particular, the Multiparty Agreement and Amendments show that the role of the sole participating nonprofit, first the Higher Education Assistance Foundation and later Northstar Guarantee Inc., was critical to the origination, guarantee, reinsurance, and consolidation of Stafford loans. Navient concedes that it cannot produce any Amendment of the Multiparty Agreement beyond the 1995 Amendment. Navient contends that the LAWLOANS program was still making federal Stafford loans in 2008, while Teran disputes this claim.
B. Stafford Loans
At the time Teran obtained the private Bar Loan from the LAWLOANS program in 2008, federal student loans including Stafford loans were made under the Federal Family Education Loan Program (“FFEL“). Under FFEL, private lenders would originate student loans subject to specific eligibility criteria and set interest rates. Those loans were then guaranteed by state or nonprofit agencies1. Those nonprofit guarantors were subsequently “reimbursed by the federal government for all or part of the insurance claims they pay to lenders.” See Federal Family Education Loan Programs: Federal Stafford Loans, Federal PLUS, and Federal Consolidation Loans-Introduction (1998)2.
The legal structure of Stafford loans under FFEL meant that it was impossible for a lender to have made a Stafford loan to a borrower without the participation of a nonprofit entity. When referencing Stafford
C. 11 U.S.C. § 523(a)(8)(A)(i)
Generally,
There is no dispute that the Bar Loan is generally an “educational loan,” a term for which there is no set definition. That the loan was meant at least in part for a bar study course is enough, and an “educational loan” need not meet the rigorous standards of a “qualified education loan” contemplated in
Navient concedes that the Bar Loan is a wholly private loan, with no hint of government or nonprofit funding. Instead, Navient argues that because LAWLOANS was a program through which private loans as well as Stafford loans were made available to students, Teran‘s Bar Loan is a loan “made under any program funded in whole or in part by a governmental unit or nonprofit institution.”
1. Funded by Nonprofit
Curiously, while Navient‘s general argument is that the umbrella nature of the LAWLOANS program means that it is a program funded by either a government or nonprofit institution, the supporting evidence and caselaw asserted by Navient focus solely on nonprofit, and not government, involvement. Navient‘s MSJ relies heavily on In re Pilcher, 149 B.R. 595 (B.A.P. 9th Cir. 1993). In Pilcher, the plaintiff, a law student took out a private loan under a program called the Law Access Program, an umbrella program which made both private loans and federally guaranteed loans. Id. at 596. The Law Access Program was the culmination of a Multiparty Agreement between five private and nonprofit entities to create “a streamlined method for the procurement, processing, and service of law school educational loans.” Id. at 599. The plaintiff asserted her loan was subject to bankruptcy discharge because neither of the nonprofits involved in the Law Access Program had anything to do with her private loan. Id. The Ninth Circuit BAP interpreted the plain language of the Program Section to mean that so long as a private loan was derived from a program that was even minimally funded by a nonprofit institution, that loan was nondischargeable. Id. at 600. Thus, even the small amount of participation by the nonprofit entities in the Law Access Program generally meant that the plaintiff‘s private loan was made by a program at least partially funded by a nonprofit entity and was thus nondischargeable.
Including Pilcher, every case cited by Navient determined that a private loan was nondischargeable because the loan was made under a program that had at least a minimal amount of voluntary nonprofit involvement.3
As noted above, the most recent documentation of the Multiparty Agreement governing the LAWLOANS program is from 1995, the fourth Amendment to the Multiparty Agreement in almost as many years, and nearly thirteen years prior to the time Teran accessed his loan through the LAWLOANS program. Navient does not assert this lack of documentation is because the 1995 Amendment was the final Amendment to the Multiparty Agreement.
At the hearing on the MSJ, Navient conceded that it “was unaware of any documents that postdate” the 1995 Amendment to the Multiparty Agreement, and that nonprofit involvement in the LAWLOANS program in 2008 could not be proved. Immediately after this concession, Navient argued for the first time that because federal loans were distributed under the LAWLOANS program in 2008 as demonstrated by its own Quick Reference Guide (Box Decl., Dkt. 36), the program was funded in part by the government and thus still fell under the purview of the Program Section.
2. Funded by Government
The only case provided by Navient in support of the theory that LAWLOANS is a program funded in whole or in part by the government is a recent decision from the Southern District of New York, Mader v. Experian Info. Sols., LLC., 2020 WL 427813 (S.D.N.Y. July 24, 2020). In Mader, the plaintiff was a former seminary student who took out a private loan from Sallie Mae (that was later assigned to Navient) through an unnamed program that also made Stafford loans. Id. at *1. The court determined that because Stafford loans were, by law, guaranteed by nonprofits or government units, the program through which the plaintiff took out his private loan was a program that was funded in part by a government unit or nonprofit institution pursuant to the requirement of the Program Section. Id. at *3.
Navient likens the LAWLOANS program to the program at issue in Mader. Just as the unnamed program in Mader made both private and Stafford loans, so too, did the LAWLOANS program.
The reasoning of Mader is not helpful or relevant in this case. In Mader, there was no dispute that the program that originated the plaintiff‘s private loan also made
Navient contends that the Quick Reference Guide Sallie Mae produced for the 2007-2008 academic year advertised LAWLOANS’ ability to grant Stafford loans. The court takes note of the reference guide, but also notes that this guide is only an advertisement produced by Sallie Mae. The Quick Reference Guide itself does not prove that LAWLOANS actually could or did make such loans in 2008. Further calling into question LAWLOANS’ ability to make Stafford loans in 2008 are Sallie Mae‘s own marketing materials to purchasers of student loan backed securities from the same year, which defines LAWLOANS as a program which provides law students with only supplemental private loans, not Stafford loans (Dkt. 45). It appears Navient‘s predecessor‘s own accounts of LAWLOANS in 2008 are contradictory.
On the evidence presented, unlike Pilcher or Mader, Navient has not proven as a matter of law that LAWLOANS was a program funded in whole or part by a nonprofit or government entity at the time Teran took out the Bar Loan. The MSJ as to the Program Section must be denied.
D. 11 U.S.C. § 523(a)(8)(B)
1. Qualified Education Loan
The IRC defines a qualified educational loan as “any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses . . . which are attributable to education furnished during a period during which the recipient was an eligible student.”
2. Qualified Higher Education Expense
The IRC defines qualified higher education expenses as “the cost of attendance . . . at an eligible educational institution, reduced by the sum of . . . [other scholarships, income, and loans].”
3. Eligible Educational Institution
The IRC defines an eligible educational institution as one which meets specific attendance, accreditation and course offering standards under
4. Eligible Student
The IRC defines an eligible student as one who is “enrolled or accepted for enrollment in a degree, certificate, or other program . . . leading to a recognized educational credential at an institution of
5. The Bar Loan is Not a Qualified Educational Loan
Navient argues that the Bar Loan is a qualified educational loan because its terms required that (1) Teran be a student at an eligible educational institution at the time he applied for the Bar Loan; (2) he had to graduate from that institution prior to the disbursement of funds; and (3) the funds disbursed were less than the cost of attendance at that institution minus his other loans and income. These requirements set by Navient do mimic the definitions of an eligible educational institution, eligible student, and qualified higher education expenses. However, the attempts of Navient to mimic the terms that are crucial to a qualified educational loan do not transform the Bar Loan into a qualified educational loan. Teran was not an eligible student when he received the Bar Study funds, and the funds were specifically meant to pay bar prep expenses, not to pay the cost of attendance at his law school.
The loan was meant for a bar prep program and for living expenses while preparing for the bar. BarBri does not meet the attendance, accreditation, or course offering standards of an eligible educational institution. The loan money is further attributable to education that Teran would undertake while he was not an eligible student.
The Bar Loan is not a qualified educational loan under the Qualified Loan Section as a matter of law, and summary judgment must be granted in favor of Teran.
IV. DISPOSITION AND FURTHER PROCEEDINGS
For the foregoing reasons, summary judgment should be GRANTED in favor of Teran as to the Qualified Loan Section and DENIED as to the Program Section. Before it enters any order on these matters, the court will conduct a status conference on February 25, 2022 at 11:00 a.m. to discuss further proceedings including whether Navient wishes to provide further factual support for nondischargeability under the Program Section.
**END OF MEMORANDUM DECISION**
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