Ohio Northern University Law Review


In an effort to stem perceived abuses of the bankruptcy system, Congress adopted a rule in 1976 that created a time-based conditional limitation on the discharge of federally guaranteed student loans in bankruptcy. The only means of overcoming the limitation was the showing of an “undue hardship,” which was undefined by the legislature. This gave rise to two judicially created, means-based tests that were used to determine if the debtor was attempting to abuse the bankruptcy system. By the time the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was enacted, the time-based restriction was gone, leaving only the undue hardship exception to student debtors seeking relief against an expanded pool of protected creditors. Meanwhile, the judiciary has largely continued to apply the same two means-based tests from 1978. However, using a detailed analysis of statutory history, statutory construction, and case law, this paper reveals deep flaws in the fundamental reasoning that underpins the current judicial rationale. Through an uncritical acceptance of specious moral arguments, coupled with the concomitant failure to objectively assess the history and plain language of BAPCPA, both the judiciary and some of the staunchest critics of the conditional discharge have failed to recognize the erroneous application of the bankruptcy regulations as envisioned by BAPCPA. However, the research also demonstrates that, with modest changes, the courts could provide a more humane, ethical, and equitable treatment of student loan debtors that not only comports with current law, but is actually mandated by it.