Student Loan Bankruptcy Discharge

Navient Claims All Private Student Loans Are Not Dischargeable in Bankruptcy. Court Disagrees.

Written by Steve Rhode

A reader sent in the following statement regarding a case filed in Texas, “Just including a recent decision from the 5th circuit court of appeals that says Navient private student loans are discharged when bankruptcy is discharged, and that any contempt violation that occurred has to be in the court it happened.”

I’ve actually written about this case before.

At issue here is the status of private student loans that are included in bankruptcy. The United States Court of Appeals for the Fifth Circuit did conclude that not all private student loans are protected from discharge in bankruptcy.

The published opinion says, “Navient’s assertion that the 2005 amendment made all private student loans nondischargeable is not only unsupported by the text, it is unsupported by some of Navient’s authorities. Among them is Corletta v. Tex. Higher Educ. Coordinating Bd. (In re Pappas), 517 B.R. 708, 716–17 (Bankr. W.D. Tex. 2014).”

This case was centered around SLM Corporation, Sallie Mae, private student loans that Navient took over in some sort of assumption or servicing agreement.

This court position seems to affirm my 2013 post on the ability for some private student loans to be eligible for discharge in bankruptcy. It just takes some time to change public opinion to match the facts.

If you would like to read the entire appeals court document, it is below. But the key part of the case seems to be the following section:

“In conclusion, the only possibly applicable part of the relevant statute is Subsection 523(a)(8)(A)(ii). In interpreting that provision, we rely on the noscitur a sociis doctrine, the need to avoid surplusage, Congressional ratification in 2005 of prior interpretations, and the command that discharge exceptions are interpreted narrowly in favor of debtors. We conclude that “educational benefit” is limited to conditional payments with similarities to scholarships and stipends. The loans at issue here, though obtained in order to pay expenses of education, do not qualify as “an obligation to repay funds received as an educational benefit, scholarship, or stipend” because their repayment was unconditional. They therefore are dischargeable.”




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

8 Comments

  • Victoria first you need to know if it is a private student loan, and if so what kind and what kind of school you attended or if this is a federal student loan being serviced by Navient. Also did you file an adversary proceeding on this or other loans to where a final decision was made? If not, I would suggest to speak to an attorney and a Motion to Reopen your bankruptcy can be filed and then an Adversary Proceeding can be filled. I am not an attorney, but I am a paralegal and have researched every aspect in discharging student loans. Also, remember the type of loans you have also determines your standard of proof that you have to prove to win.

  • So, let’s say someone filed for bankruptcy 12 years ago, and the judge did not allow the Navient Private loans to be discharged? Any recourse?

    • You can still go back and file an Adversary Proceeding but you will need to look for an attorney with this type of experience when it comes to private student loans.

    • Hi Richard, not sure if your an attorney but there are several cases that have been decided with similar rulings and some are unpublished. The 10th Circuit Court of Appeals is in the process of making a decision on Navient private student loans that should be issued within the next few months.

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