Student Loan Debt of $322,000 Discharged Despite $90,000 Annual Income

In the case of Scott v. US Department of Education, 417 B.R. 623 (Bankr. W.D.Wash. 2009), chapter 7 debtors filed an adversary proceeding seeking an order determining that debtors were entitled to “undue hardship” discharge of their more than $322,000 in student loan debt. After an evidentiary hearing, the court found that the repayment of the student loan debts would indeed cause debtors an “undue hardship” and thus debtors were entitled to discharge the student loan debts.


Debtors were married, less than 34 years of age, and were parents to two healthy young children. Both debtors worked and earned a combined annual income in excess of $90,000. Debtors testified that both had consistent work histories since completing their education. Debtors also testified that they do not have opportunities to increase their income in the future.

Debtors’ monthly expenses exceeded their monthly income by approximately $1,000 monthly. Debtors’ rent payment was a modest amount and the day care expenses for both children were expensive. Debtors’ only excessive debt related to an approximately $500 vehicle payment. Other than that, debtors had lived frugally and had made reasonable choices about their expenses.

Debtors’ loan repayment history favored debtors’ position. Debtors made as many as 72 payments on one of the loans and previously received multiple student loan extensions, deferments, and forbearances during their efforts to repay the student loan debts.

The Scott court adopted the three-part dischargeability test set forth in In re Brunner, 46 B.R. 752 (S.D.N.Y. 1985), to determine whether excepting the student loan debts from discharge would constitute an undue hardship on debtors. The Scott court found that debtors proved that they could not, based on their current income and expenses, maintain a “minimal” standard of living for themselves and their dependents if forced to repay the loans. Next, the court found that debtors demonstrated their inability to pay the student loans in the present and a likely inability to pay the student loans in the future. Finally, the court found that debtors had made good faith efforts to repay the student loans after considering the number of student loan payments made, the dollar amount of student loan payments made, and debtors’ efforts to receive multiple student loan extensions, deferments, and forbearances.


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