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SCOTUS declines review of Texas woman’s student loan discharge denial

4 minute read

A police officer walks in front of the United States Supreme Court Building in Washington, D.C., U.S., May 13, 2021. REUTERS/Andrew Kelly

June 21, 2021 - McCoy v. United States, No. 20-886, cert. denied, 2021 WL 2519103 (U.S. June 21, 2021).

The high court on June 21 denied Thelma McCoy's petition for certiorari that sought review of a 5th U.S. Circuit Court of Appeals determination that she did not satisfy the test under Brunner v. New York Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), for discharging her student loan debt as an "undue hardship."

McCoy contended that the courts of appeal when faced with defining undue hardship are "deeply divided" between the rigid Brunner test used in most circuits, and the "holistic, equitable approach" of the totality-of-the-circumstances test applied by the 8th U.S. Circuit Court of Appeals and within other circuits.

The two approaches "diverge sharply in both application and outcome," and the Supreme Court's "intervention is necessary to bring uniformity to this important and recurring question," she said in her petition, filed in January.

Further, she argued that her case presented "an ideal vehicle" to resolve the circuit conflict, because if her case had been filed in a non-Brunner jurisdiction, that court would have exercised its discretion to consider "all facts relevant to undue hardship."

McCoy had entered college in her 40s, first obtaining a bachelor's degree, followed by a master's in 2006 and a Ph.D. in 2014, borrowing $175,000 to fund her education, according to court filings.

While pursuing her Ph.D., McCoy suffered significant injuries, and had difficulty finding work after graduation due to what she said are continuing disabilities.

McCoy filed for Chapter 7 relief in 2016 in the U.S. Bankruptcy Court for the Southern District of Texas, and initiated an adversary proceeding against the U.S. Department of Education seeking to discharge her student loan debt, which had ballooned to $350,000.

Under Section 523(a)(8) of the Bankruptcy Code, 11 U.S.C.A. § 523(a)(8), student loans are excluded from discharge unless a debtor can show repayment of the loans will "impose an undue hardship."

The statute does not define "undue hardship" but most circuits, including the 5th Circuit, use the Brunner test.

The test requires debtors to meet all three of its requirements: that they could not maintain a minimal standard of living if forced to repay the loans, "additional circumstances exist" indicating that this state of affairs is likely to persist long-term, and they have made good-faith attempts at repayment.

The Bankruptcy Court concluded McCoy, then 60, did not meet the test's second prong, and that her student loans were therefore nondischargeable.

Both the U.S. District Court for the Southern District of Texas and the 5th Circuit affirmed.

The 5th Circuit found the "additional circumstances" required to satisfy the second prong were not present because McCoy's critical health issues occurred before she took out "the bulk of the loans," and her health issues "did not prevent her from obtaining her doctorate and various forms of employment."

McCoy's petition drew backing from consumer law academics and consumer rights groups, which filed amicus briefs in support.

The government had responded in its May 7 brief that the "practical difference[s]" between the Brunner test and the totality-of-the-circumstances test are "limited," and did not presently warrant review.

"Although the 8th Circuit has described the totality approach as 'less-restrictive' than the Brunner framework … it has also observed that the burden it imposes on debtors is a 'rigorous' one, and it has recognized that the distinction between the standards 'may not be that significant,'" the U.S. said in its brief.

Claudia W. Frost, Haley E. Jankowski, Kelsi B. Corkran and Thomas M. Bondy of Orrick, Herrington & Sutcliffe represented McCoy, while Michael S. Raab and Michael Shih of the U.S. Department of Justice represented the government.

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