One of our most successful cases this month was the discharge of private student loans for our client who attended a Caribbean medical school. The key was that the foreign medical school was not listed on the Federal Schools Codes List as being eligible for federal funding. That particular fact allowed us to obtain a full discharge of several hundred thousand dollars in private student loans. The loans were not “qualified educational loans” as that term is defined by the Internal Revenue Code and therefore were dischargeable under Section 523(a)(8) in an adversary proceeding.
This case, In re Lysiuk, Case No. 6:16-ap-00124-CCJ is available here. It was decided by Bankruptcy Judge Cynthia Jackson out of Orlando, Florida.
This case was not brought as a typical undue hardship. I felt it would be exceedingly difficult to prove under the existing Bruner Standard that our client met the burden to discharge his loans based upon hardship. While he was only making $10/hour when we filed the case, he was potentially capable of much more (despite being unable to pass the medical boards) and was young and healthy. So instead we chose to go the route of a more technical argument that was gaining ground in the United States but was still an issue of first impression in Florida.
Three other states, Ohio, New York and Wisconsin have ruled favorably in similar circumstances. For those lawyers out there or for people who like to read cases at night, here are the cites and links: In re Decena, 549 B.R. 11 (Bankr. E.D. N.Y. 2016), (rev’d on 11/29/16 due to improper service) debts owed on private loans to attend a “for-profit” university not accredited by the United States fall within the exception to discharge of § 523(a)(8). See also In re: Meyer, Case No. 15-13193 (Bankr. N.D. Ohio 2016) and In re: Swenson, Case No. 16-00022 (Bankr. W.D. Wis. 2016).
The particular school that our client attended was St. Matthews located in the Cayman Islands, but I came to learn there are approximately 50 medical schools in the Caribbean – and the vast majority of them are not eligible for federal funding. Instead they receive their tuition from those with families who can afford to pay cash, or from private loans. There is a distinction in private loans as well – if they happen to be guaranteed by a non-profit organization they also may be non-dischargeable similar to federal loans.
The accreditation of St. Matthews is not by the United States, but rather by the Accreditation Commission on Colleges of Medicine. While the Department of Education recognizes this accreditation, many individual states do not, including California. California accreditation is important because many states have a rule that it will provide accreditation if the school’s accreditation is recognized in California, and more states are slowly adopting this policy. The State of California does not recognize St. Matthews. But more important than accreditation, St. Matthews is not on the Federal School Codes List which identifies “[a]ll postsecondary schools that are currently eligible for Title IV aid.”
Our Complaint alleged:
- Section 523(a)(8)(B) excepts from discharge loans for attending an “eligible educational institution”, recognition of which is dictated by the Federal School Codes List.
- Since St. Matthews is not on the Federal School Codes List, Section 523(a)(8)(B) does not provide protection from discharge of student loans used to attend this school.
- Plaintiff can show a prima facie case that St. Matthews is not an “eligible educational institution,” and thus the private loans are dischargeable.
So while the former students of these schools are probably a small niche of all the people out there having trouble repaying their student loan debt, the amount of these private loans typically are well over six figures and virtually unpayable for someone who was not able to obtain a high paying medically related job. If you have this type of debt or can share with blog with someone you know that went to one of these schools, it’s worth looking into to see if your loans fit that definition of a “qualified educational loan”. If not, perhaps they can be fully discharged – which if done in a bankruptcy is a fully non-taxable event of forgiveness.
For more information, please see our website at Christie D. Arkovich, P.A. and/or contact us for a free consult. We may be able to associate with other bankruptcy counsel in other states on this type of a case, even though our regular practice area is in the State of Florida.