Mendenhall v. Navient Corporation: A $76,000 student-loan debt grows fivefold
In 2007, Steven Mendenhall obtained a bachelor’s degree in film and video production from Brooks Institute of Photography, a for-profit college in California, which later closed. To finance his studies, Mendenhall took out about $75,000 in federal student loans and $76,000 in private loans from Sallie Mae.
Mendenhall’s private student loans gradually spun out of control. By 2013–six years after graduating, Mr. Mendenhall’s private student-loan debt had grown from $76,000 to $260,357.69–more than three times what he borrowed. By 2018, his private loan debt had grown to $407,912.84–more than five times what he borrowed.
How did that happen? To begin with, Sallie Mae’s interest rate was quite high–13.625 percent. Interest on Mr. Mendenhall’s unpaid debt accumulated and capitalized, causing his loan balance to spiral upward. Also, Sallie Mae charged Mendenhall additional fees–nearly $40,000 in fees as of 2013. That’s more than half the amount Mr. Mendenhall borrowed.
Added together then–Mr. Mendenhall’s private student-loan debt and his federal debt totaled almost half a million dollars.
Mr. Mendenhall diligently sought employment and finally landed a pretty good job working at Brigham Young University’s branch campus in Rexburg, Idaho. He attempted to manage his towering debt by filing for bankruptcy three times. Realizing he could not discharge his student loans absent a showing of undue hardship, Mendenhall filed for bankruptcy twice to discharge his other debts, hoping to free up more money to pay on his student loans. Still, he was unable to pay down his private student-loan debt.
Mendenhall filed his third bankruptcy petition in 2018, hoping to discharge his student loans. He settled with the U.S. Department of Education but still owed over $400,000 to Sallie Mae’s successor in interest, Navient.
Judge Joseph Meier grants Mr. Mendenhall a partial discharge of his massive student debt
Idaho Bankruptcy Judge Joseph Meier reviewed Mr. Mendhall’s financial situation and concluded that Mendenhall and his wife had lived frugally. The judge specifically approved of Mendenhall’s expenditures for life insurance and his contributions to a retirement fund and a small savings account.
In fact, Judge Meier found only two unreasonable expenses–Mendenhall’s $400 a month charitable contribution to the family church and his $300 monthly payments on his attorney fees.
After reviewing the totality of Mr. Mendenhall’s income and expenses, Judge Meier concluded that Mendenhall only had $150 a month in available income to pay on his student-loan bill—$407,000, which was accruing interest at the rate of 13.625 percent.
Judge Meier then analyzed Mendenhall’s situation under the three-pronged Brunner test to determine whether Mendenhall and his dependents would suffer an “undue hardship” if he were required to repay his private student-loan debt.
In the Judge’s view, Mendenhall met all three prongs of the Brunner test. First, he was unable to repay his student loans and maintain a minimal standard of living. Second, his current financial situation was unlikely to change substantially. And third, Mendenhall had handled his loans in good faith.
After completing his extensive analysis, Judge Meier then gave Stephen Mendenhall a partial discharge of his private student loans. The judge discharged all of this debt except $45,000–a little more than 10 percent of the total amount he owed. This debt could be paid without accruing interest, Judge Meier instructed, in payments of $150 a month over 25 years.
Sometimes a partial student-loan discharge is an appropriate remedy
Judge Meier made the right decision, one that other bankruptcy judges should follow. Granting a partial student-loan discharge gives a judge the flexibility to fashion a reasonable and just remedy for an honest but unfortunate debtor burdened by massive student-loan debt. Such a remedy is particularly appropriate for Mr. Mendhenhall, a husband and father with four children, burdened by student debt that had careened out of control due to a high interest rate and unconscionable fees.
Mendenhall v. Navient Corporation, JMM Adversary Case No. 19-8010-JMM, 2020 WL 6557964 (Bankr. D. Idaho Oct. 15, 2020).