Goodvin v. Department of Education

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Dale L. Somers

Sttes Chief Bankruptcy Judge:

DESIGNATED FOR ONLINE PUBLICATION

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

IN RE:

Jeffrey Theron Goodvin, Case No. 19-10623

Chapter 7

Debtor.

Jeffrey Theron Goodvin,

Plaintiff,

Vv.

Adv. No. 19-5105

United States Department of

Education, Nelnet Inc., American

Education Services a/k/a

Pennsylvania Higher Education

Assistance Agency, and

Educational Credit Management

Corporation,

Defendants.

Memorandum Opinion Granting, in Part, Complaint to Discharge

Student Loan Debt

This student loan case fits the definition of insanity.1 After

consolidating his then-outstanding student loans in 1992 and later taking out

six more student loans for further education between 2009-2013 in the

combined principal amount of approximately $39,000, and making payments

in excess of $28,000 on those loans, 56-year old Debtor-Plaintiff Jeffrey

Goodvin finds himself in year 2020, seven years removed from his last

educational stop, owing over $77,000. His payments of $19,527 on the

$12,077 consolidation loan did not even pay the monthly accrual of interest,

leaving Goodvin owing nearly $50,000. Little will change if Goodvin

consolidates all these loans and enrolls in the income-driven REPAYE plan

for twenty years—at which time Goodvin will have been retired for about ten

years and be seventy-six years old. The REPAYE plan is the most “favorable”

income-driven repayment plan available to Goodvin and the plan advocated

by defendants for him to repay and discharge (by forgiveness) his student

loan debt. Under the Brunner test,2 requiring Goodvin to continue paying on

his 1992 consolidation loan imposes an undue hardship on him and denies

1 “Insanity: doing the same thing over and over again and expecting different

results.” Unknown. This quote is often misattributed to Albert Einstein. See

https://quoteinvestigator.com/category/albert-einstein/page/2/, last viewed July 23,

2020, citing The Ultimate Quotable Einstein, Edited by Alice Calaprice, Section:

Misattributed to Einstein, Quote Page 474 (Princeton University Press 2010).

2 Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987).

him a fresh start. A partial discharge of Goodvin’s student loan debt is

granted under § 523(a)(8).3

I. Findings of Fact4

Goodvin filed this Chapter 7 bankruptcy on April 17, 2019. He is age

56, single, and has no dependents. He is healthy and suffers from no medical

conditions that preclude or impact his ability to work. Goodvin will be eligible

to retire at full retirement age in about ten years. At the time of filing,

Goodvin had been employed one year as a plumber/pipefitter apprentice with

Waldinger Corporation, and was enrolled in the five-year local union

apprentice program. He was laid off in late January 2020, but was re-hired in

June by Waldinger and remained employed on the date of trial. When he was

laid off, Goodvin continued with the apprentice coursework, but switched to

3 Trial was held in this matter on July 15, 2020. Goodvin appeared in person and by

his attorney January Bailey. Attorney N. Larry Bork appeared on behalf of

defendant Educational Credit Management Corporation (ECMC). Assistant U.S.

Attorney Brian D. Sheern appeared on behalf of defendant U.S. Department of

Education (DOE).

4 The Court’s recitation of the facts is based upon Goodvin’s trial testimony, the trial

exhibits (including Goodvin’s deposition testimony given on March 31, 2020 (Trial

Ex. 11), and interrogatory answers attached as deposition exhibit), and extensive

stipulations of fact by the parties regarding the student loans incurred, payments

made by Goodvin, and Income-Driven Repayment (IDR) plan options for which

Goodvin’s loans would qualify. See Adv. Doc. 57 (Stipulations of fact regarding the

ECMC loans) and Adv. Doc. 58-1 [also DOE Trial Ex. A] (Stipulations of fact

regarding the DOE loans based on the declaration of Cristin Bulman, a Loan

Analyst for the DOE in the Office of Federal Student Aid).

the HVAC apprentice program to enhance his employment prospects and

move up the union list of apprentices.

According to his schedules, Goodvin owns a modest home valued at

about $50,000 and a 2014 Chevrolet Cruz valued at $7,900. Both are secured

to Meritrust Credit Union; it holds an outstanding $42,000 mortgage on the

home and has a $9,500 claim for the car loan. He pays $188 per month (for 56

months) for the car and $507 per month (for 163 months) for the home. The

home and car are his only secured debts. Goodvin reaffirmed both of these

debts. Goodvin scheduled general unsecured debt of about $93,000, of which

some $73,000 is student loan debt, and the remaining balance is nearly all

credit card debt. At the time of trial, the student loan debt exceeded $77,000

due to the accrual of interest.

A. Goodvin’s Education and Work History5

Goodvin first attended Wichita State University (WSU) for four years

(1982-1986), but earned no degree. None of the student loans at issue pertain

to his time at WSU. He worked the following year, before returning to school

full-time at the Brooks Institute of Photography (Brooks) in Santa Barbara,

California from the spring of 1987 to the spring of 1990. He obtained a

Bachelor of Arts degree in Fine Arts, majoring in photography, film making

5 See Ex. 11, Answer to Interrogatory No. 13 at Goodvin 15-18.

and videography. After obtaining his degree, Goodvin worked for various film

production companies and freelanced in the film industry in California and

Chicago. When the film freelance work slowed in the mid-1990s, he

freelanced as a camera technician for Panavision until the late-1990s. From

there, Goodvin moved back to Wichita and worked for various television

stations in news production and as a camera news photographer. He left

Wichita in 2004, accepting an offer in Santa Barbara with a news station as a

news photographer where he worked for the next three years.

When he became unemployed in 2007, Goodvin determined that he

needed to improve his skills in digital media technology to attain better

employment. In the fall of 2007, he enrolled at Santa Barbara City College

(SBCC). He attended SBCC until the spring of 2013, majoring in Media Arts.6

He received a certificate in Multimedia Studies in the spring of 2013, but was

one 3-hour course shy of earning an associate’s degree. While in school,

Goodvin worked in the media department for the City of Santa Barbara.

Upon leaving SBCC in 2013, he took a full-time job as a news producer with

the same station he had worked for in 2004. When his contract ended in the

spring of 2016, he left Santa Barbara and moved to Tulsa, Oklahoma,

working briefly for a local news station as a producer.

6 Goodvin briefly withdrew from classes in the spring of 2010, but re-enrolled a

couple of months later.

Goodvin returned to Wichita in the fall of 2016 where he worked at a

news station until he was laid off in February of 2018. While on

unemployment Goodvin attended a job fair where he learned of the Plumbers

and Pipefitters Local Union 441 and was offered an opportunity to join its

apprentice program. By this time, Goodvin decided it was time for a career

change with better pay and more stable employment; he started the

apprenticeship in May of 2018 and began working for Waldinger. In sum,

Goodvin’s employment history from 1990 to the present has been marked by

several relocations, intermittent job loss, layoffs, and periods of

unemployment, through no apparent fault of his own.

B. Goodvin’s Student Loans and Repayments7

All of Goodvin’s student loans are for undergraduate studies at Brooks

and SBCC and were made under the Federal Family Education Loan

Program (FFELP) or the Ford Direct Loan Program (FDLP or Direct), both

programs being authorized under Title IV of the Higher Education Act (HEA)

of 1965, as amended.

1. ECMC Loans8

7 See Ex. 12, DOE Ex. A, ECMC Ex. A, and Doc. 57.

8 See Doc. 57. Goodvin initially named the DOE, Nelnet, and American Education

Services (AES) as party defendants. ECMC moved to be added as a party defendant

because it guaranteed and held a consolidated loan and a Stafford loan; that motion

was granted by agreement. Doc. 30. Pennsylvania Higher Education Assistance

Agency (PHEAA), also known as AES, filed an answer out of time. AES was the

servicer of the Stafford loan. Pursuant to a stipulated dismissal, PHEAA (AES) was

voluntarily dismissed as a party to this proceeding. Doc. 49. Nelnet serviced the

ECMC guaranteed and currently holds two student loans in the

principal amount of $15,577—a FFELP Consolidation loan disbursed in 1992

in the amount of $12,077 and a FFELP Stafford loan disbursed in 2009 in the

amount of $3,500. The Consolidation loan accrues interest at the rate of 9%;

it combined three student loans Goodvin took out while attending Brooks

(1987-1990). Goodvin incurred the Stafford loan while studying at SBCC. It

accrues interest at the rate of 6%.

Goodvin has made payments totaling $21,817 on the ECMC loans—

$19,527 on the Consolidation loan and $2,290 on the Stafford loan. Goodvin

now owes approximately $49,581 on the Consolidation loan and $2,147 on the

Stafford loan. Goodvin’s last loan payments were made under a Standard

repayment plan: $302.01 on the Consolidated loan and $50 on the Stafford

loan. The Consolidated loan accrues monthly interest of $372 and the

Stafford loan accrues about $11 interest per month.9

2. DOE Loans10

While attending SBCC, Goodvin incurred student loan debt in the

principal amount of $23,500, consisting of five student loans disbursed

consolidated loan held by ECMC but never filed an answer. The Court concludes

that ECMC and DOE are the proper parties before it.

9 Goodvin briefly defaulted on the Consolidation loan in 2005, but the loan was

“rehabilitated” in 2007. Doc. 57 at ¶4.

10 DOE Ex. A.

between 2009 and 2012: a FFELP Stafford loan in the amount of $4,500 and

four Direct Stafford loans in the amounts of $4,500, $4,000, $4,500, and

$6,000. The interest rates on those loans range from 3.4% to 6.8%.

Goodvin has made payments totaling at least $6,25611 on the DOE

loans. As of October 4, 2019, the balance owed on the student loans is

$25,541. The repayment period on the DOE loans began in November 2013,

six months after completing his studies at SBCC; his first payments began in

March 2014. He initially entered the Graduated repayment plan and made

monthly payments for nearly two and one-half years totaling $5,244 on the

DOE loans.12 In late 2016, he applied for an income driven repayment (IDR)

plan and was enrolled in the Income Based Repayment (IBR) plan, making

payments between 2017-2019 totaling $1,032, until holds were placed on his

student loans in April 2019 due to his bankruptcy filing.13 Most of the DOE

11 The Court’s addition of the Graduated and IBR repayments total $6,276, not

$6,256. In addition to those repayment plans he made a single payment of $171.59

during his brief withdrawal from SBCC. With the inclusion of that payment,

Goodvin has paid some $6,448 on the DOE loans. See DOE Ex. A, ¶s 24, 26, 28.

12 Goodvin’s monthly payments under the Graduated plan started at $166, and by

the start of the third year those monthly payments had increased to nearly $217

under the repayment schedule. The last 21 payments under the Graduated plan

were scheduled to be $475.98. See DOE Ex. A, ¶¶ 25-26.

13 Under the IBR 25-year plan, a borrower’s monthly payments are capped at 15% of

“discretionary” income (the amount by which Adjusted Gross Income [AGI] exceeds

150% of the HHS Poverty Guideline amount for a family of one). This describes the

“old IBR plan.” See John Patrick Hunt, Help or Hardship?: Income-Driven

Repayment in Student-Loan Bankruptcies, 106 GEO. L. J. 1287, 1312 n. 179 and n.

181 (2018) (hereafter “Help or Hardship?”). Goodvin’s monthly payment started at

$46.83, based on his AGI of $32,010 and family size of one; after his bankruptcy

student loans accrue monthly interest in the $12-$30 range, the exception

being the 2010 $4,000 loan at 6.8%—it accrues interest at $42 per month,

which results in a current balance of $7,493 after application of Goodvin’s

payments on this loan in the amount of $1,268.

C. The Union Apprentice Program

As part of his career shift to becoming a plumber and pipefitter in the

spring of 2018, Goodvin applied for and was accepted into the union’s five-

year apprentice program and was hired by Waldinger Corporation as a first-

year apprentice working in Topeka. Because he was working more than sixty

miles from Waldinger’s Wichita division office he received a per diem (or

subsistence) for expenses, in addition to his hourly wage for an Apprentice 1

under the local union pay schedule. As part of the apprentice program,

Goodvin is required to complete seven, one-week courses each year and meet

certain work hour requirements. His tuition for the classes is $600 each year.

Goodvin receives unemployment during each of the seven weeks he is

attending classes and is not paid by Waldinger. Upon successfully completing

the five-year apprentice program, Goodvin will be elevated to a certified

journeyman.

discharge was entered, Goodvin recertified his income in September of 2019 which

reduced his monthly payment to $44.55. The DOE reinstated the hold on Goodvin’s

account when he filed this adversary proceeding to discharge his student loans. See

DOE Ex. A, ¶¶ 27-31.

He started his first course in the program in the fall of 2018 and

completed his first-year apprenticeship while working for Waldinger. He

started his second year as apprentice in 2019 but in late January 2020

Waldinger laid off Goodvin; he was able to continue taking the coursework for

the apprentice program. While laid off he shifted his focus to HVAC (Heating,

Ventilation and Air Conditioning), believing it would yield better and more

secure employment. Waldinger re-hired him in June of 2020, this time to

work in Wichita. At the time of trial, Goodvin was a second-year apprentice

in HVAC, anticipating advancement to third-year apprentice, and employed

by Waldinger.

Goodvin is paid weekly. As a second-year apprentice, he is currently

paid $20.86 per hour for a forty-hour week per the union pay scale and his

most recent June paystub (for the week ending June 16) shows weekly gross

earnings of $834.40.14 He nets $615.16 a week after taxes and other payroll

deductions. He works in Wichita and is no longer paid a per diem.15 During

his four-month layoff from Waldinger in 2020 (February-May) Goodvin drew

weekly unemployment of $366, plus an extra $600 in increased

14 Ex. 7, p. 269 and Ex. 6, p. 208.

15 Ex. 6, p. 208. The per diem or “subsistence” would show up on the paystub as

“Other Earnings & Reimbursements.” None is reported for the current week ending

June 16, but he had been paid $720 year-to-date while working in Topeka prior to

his layoff.

unemployment benefits as part of the first COVID-19 stimulus relief package

(i.e. The CARES Act).16 He was also paid unemployment of $428 for each

week he was attending apprentice classes in 2020. Goodvin testified that he

continued to take apprentice classes after he was laid off. The annual forty-

five-work weeks and seven-classroom weeks (with attendant unemployment

compensation) will continue until Goodvin completes his apprenticeship

program in 2023.

D. Goodvin’s Current Income and Expenses

Extrapolating the above pay figures, and assuming Goodvin remains

continuously employed, his current monthly income is about $2,556,17 per the

calculation below.

$27,675 = Regular net weekly Waldinger income of $615 x 45 weeks

$2,996 = Unemployment for apprentice coursework $428 x 7 weeks18

$30,671 = Annual Net Income

$2,556 = Monthly Net Income ($30,671 ÷ 12)

16 Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. 116-

136, 134 Stat. 281 (Mar. 27, 2020).

17 The Court recognizes that Goodvin will have less current monthly income in 2020

because he will not have worked the full 45 weeks. He was unemployed

approximately sixteen weeks (February through May). So, in tax year 2020

Goodvin would have his regular wages income for twenty-nine weeks, regular

unemployment benefits for sixteen weeks, and unemployment compensation for

apprentice coursework for seven weeks.

18 Goodvin testified at trial that he believed no taxes were withheld from these

unemployment benefits. If so, his monthly net income would be less.

The Court observes that Goodvin has received very small income tax refunds,

suggesting that he hasn’t over withheld income taxes that would necessitate

an adjustment on his Form W-4.19

Goodvin’s current monthly expenses are not as straightforward, as

three varying monthly expense schedules between April 2019 and December

2019 were admitted into evidence in which monthly expenses ranged from a

low of $2,195 to a high of $2,734. ECMC introduced a demonstrative exhibit

of a side-by-side comparison of the monthly expenses per Schedule J on the

date of filing,20 amended Schedule J filed September 27, 2019,21 and

Goodvin’s answer to Interrogatory No. 18.22 Unlike the typical student loan

case before this Court, Goodvin’s monthly expenses were not hotly contested

by defendants and they are reasonable. Some differences can be explained by

expenses being placed in combined categories as provided for on Schedule J

(e.g. line 6a: Electricity, heat, natural gas) and those broken down into

separate categories as provided on Interrogatory No. 18 (e.g. Electricity/Gas

19 Ex. 8 (2017 tax refund of $402); Ex. 9 (2018 tax refund of $74); Ex. 10 (2019 tax

refund of $74). Courts generally consider tax refunds as part of debtor’s monthly

income. See Piccinino v. U.S. Dept. of Educ. (In re Piccinino), 577 B.R. 560, 564 (8th

Cir. BAP 2017); Gesualdi v. Educ. Credit Mgmt. Corp. (In re Gesualdi), 505 B.R.

330, 341 (Bankr. S.D. Fla. 2013).

20 ECMC Ex. F.

21 Ex. 11, pp. 374-75.

22 Ex. 11, p. 347 (Goodvin 00023)

and Heat).23 The Court has compared those category numbers and finds that

the difference between Amended Schedule J and answers to Interrogatory

No.18 are de minimis.

For ease of reference and familiarity, the Court will work off Goodvin’s

Amended Schedule J filed September 27, 2019.24 At trial, Goodvin updated

his mortgage payment to $528, rather than $507. The increased payment was

not disputed. Goodvin claims $120 for electricity/heat/natural gas on line 6a

of amended Schedule J; those categories total $78 in his interrogatory

answer. The Court allows $120 as a reasonable expense. For the category of

telephone/internet/cable on line 6c, Goodvin lists $163 on amended Schedule

J. Those separate categories in the interrogatory answer total $158, allowing

for an increased cable/internet cost of $76 as Goodvin testified, Netflix $9,

and telephone $73. The Court will allow $163 as shown on Schedule J. Water,

sewer, and trash on line 6b is $56. Those components total $60 on the

interrogatory answer. The Court will allow $60. Goodvin listed his monthly

food and housekeeping supplies expense at $400 on Schedule J. In the

interrogatory answer, food was broken down into separate categories,

23 See also, Schedule J, line 6b (Water, sewer, garbage collection) versus

Interrogatory No. 18 (Water/Sewer and Trash); Schedule J, line 6c (Telephone, cell

phone, internet, satellite, and cable services) versus Interrogatory No. 18

(Telephone and Cable/Internet and Netflix).

24 Amended Schedule J was filed as an attachment to the complaint in the

adversary proceeding. See Doc. 1, pp. 17-19.

groceries/household items and meals outside household (i.e. eating out); that

totaled $550. The Court finds $550 to be a reasonable monthly expense for

food and household items. The $50 monthly expense for Goodvin’s

apprenticeship classes should be allowed as he testified in his deposition that

the costs of those classes were $600 annually.25 Monthly expenses of $22 for

Goodvin’s elderly mother should be disallowed because he testified in his

deposition that his assistance to her consists of running errands, checking on

her welfare and the like, not financial assistance.26 To summarize, the

following monthly expenses and amounts are reasonable:

Home mortgage27 528

Home maintenance, etc. 100

Electricity, heat, natural gas 120

Water, sewer, trash 60

Telephone, cable, internet, etc. 163

Food and household supplies 550

Clothing, laundry, dry cleaning 75

Personal care products/services 125

Medical/dental expenses 40

Transportation, etc. 150

Entertainment, recreation, etc. 75

Car Insurance 108

Car Tags28 15

Car loan payment 188

Apprenticeship classes 50

Total monthly expenses $2,347

25 Ex. 11, p. 48.

26 Ex. 11, pp. 9-10

27 Because Goodvin has not separately listed property insurance or real estate taxes

on his home on lines 4a or 4b of Schedule J, the Court assumes those expenses are

included in the mortgage payment.

28 Per line 16 of Schedule J for taxes, the Court assumes the “car tags” entry

includes annual personal property taxes on the car and registration of the vehicle.

Deducting the monthly expenses from his current net monthly income as

previously calculated ($2,556), Goodvin’s disposable income is $209. His last

monthly payments on all student loans was a combined $398.84. Monthly

interest on the combined loans accrues in the amount of $502.29

Goodvin was paying $46.83 a month on the DOE loans under an IBR

repayment plan until this bankruptcy was filed. The five DOE loans

collectively accrue monthly interest of $120.23.30 On the two ECMC loans,

Goodvin’s most recent payment amounts under a Standard repayment plan

were $302.01 on the Consolidation loan and $50 on the Stafford loan. The

ECMC loans accrue monthly interest of $372 and $11, respectively.31

In addition to his current monthly income and expenses, Goodvin

reported Adjusted Gross Income (AGI) of $42,735 on his 2017 tax return,32

$30,104 on his 2018 tax return,33 and $38,022 on his 2019 tax return, his first

full year employed as an apprentice by Waldinger.34

29 Ex. 12, p. 454.

30 Id.

31 Id.

32 Ex. 8. $11,900 of AGI consists of Goodvin’s liquidation of a retirement account for

a down payment on his house, which subjected him to an additional 10% tax on the

withdrawal. He was employed by news stations in 2017.

33 Ex. 9. Of his 2018 AGI, approximately $6,000 was attributed to unemployment

compensation. This was Goodvin’s first year working for Waldinger (about seven

months) and in the apprentice program.

34 Ex. 10. The 2019 AGI included another $2,318 IRA distribution (for his

bankruptcy attorney’s fees), and $2,194 unemployment compensation.

II. Conclusions of Law

An adversary proceeding concerning “the dischargeability of particular

debts” is a core proceeding under 28 U.S.C. § 157(b)(2)(I), over which this

Court may exercise subject matter jurisdiction.35

What is strikingly absent in this student loan case is any vigorous

contest that Goodvin has failed to maximize his income or minimize his

expenses in arriving at his minimal standard of living.36 The DOE and ECMC

contend that Goodvin does not meet the Brunner test for a complete

discharge of his student loan debt that is now in excess of $77,000. They

suggest the solution for Goodvin is to consolidate all of the loans and enter

into the income-driven REPAYE (Revised Pay as You Earn) plan, committing

to pay $157 a month (or whatever his annual certified AGI requires) for the

next twenty years, and at the end of the repayment term obtain “forgiveness”

of the balance. The REPAYE plan is similar to the IBR plan. It caps a

35 This Court has jurisdiction pursuant to 28 U.S.C. § 157(a) and §§ 1334(a) and (b)

and the Amended Standing Order of the United States District Court for the

District of Kansas that exercised authority conferred by § 157(a) to refer to the

District’s Bankruptcy Judges all matters under the Bankruptcy Code and all

proceedings arising under the Code or arising in or related to a case under the Code,

effective June 24, 2013. D. Kan. Standing Order 13-1, printed in D. Kan. Rules of

Practice and Procedure (March 2018).

36 See Buckland v. Educ. Credit Mgmt. Corp. (In re Buckland), 424 B.R. 883, 890

(Bankr. D. Kan. 2010) (noting that a court must “determine if the debtor has made

a good faith effort to repay the loan as measured by his or her efforts to obtain

employment, maximize income and minimize expenses” (internal quotation and

alteration marks omitted)).

borrower’s monthly payment at 10%, rather than 15%, of discretionary

income—the amount by which Goodvin’s AGI exceeds 150% of the federal

poverty guidelines for a family of one.37 However, in closing argument,

defendants did not contend that Goodvin could repay the student loans. To

argue otherwise would strain credibility.

A. Discharging Student Loan Debt Under § 523(a)(8)

Section 523(a)(8) excepts qualified educational loans from discharge

“unless excepting such debt from discharge . . . would impose an undue

hardship on the debtor and the debtor’s dependents.”38 More than thirty

years ago, the courts developed a judicial test—based on the three-prong

Brunner test39—to determine whether a debtor’s circumstances are such that

repaying an educational loan constitutes an undue hardship. In Polleys, the

Tenth Circuit Court of Appeals adopted the Brunner test, describing what the

debtor must show to establish undue hardship:

(1) that the debtor cannot maintain, based on current income and

expenses a “minimal” standard of living for [himself] and [his]

dependents if forced to repay the loans; (2) that additional

circumstances exist indicating that this state of affairs is likely to

persist for a significant portion of the repayment period of the

student loans; and (3) that the debtor has made good faith efforts

to repay the loans.40

37 See note 13, supra.

38 11 U.S.C. § 523(a)(8).

39 Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987).

40 Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1307 (10th Cir. 2004)

(emphasis added).

Polleys further instructs that discharging student debt should be based upon

an inability to earn and not simply a reduced standard of living.41 This Court

isn’t strictly confined to the Brunner test, but may consider other facts and

circumstances. The Polleys court cautioned: “[T]o better advance the

Bankruptcy Code’s ‘fresh start’ policy, and to provide judges with the

discretion to weigh all the relevant considerations, the terms of the test must

be applied such that debtors who truly cannot afford to repay their loans may

have their loans discharged.42 In other words, bankruptcy’s fresh start policy

is a relevant consideration in the student loan undue hardship analysis.43

1. Minimal Standard of Living

Based on his current budget, Goodvin has $209 of disposable income

each month that he could apply toward his student loan debt. This is

insufficient to repay his student loans. Defendants contend that Goodvin is

eligible for consolidation of all his loans and can afford to pay $157 monthly—

the current monthly payment calculated under the 20-year REPAYE plan.

That is all true as far as it goes. This is less than half of what he was trying

to pay collectively on his student loans through various repayment options.

His difficulty in making nearly $400 monthly student loan payments likely

41 Id. at 1306.

42 Id. at 1309 (emphasis added).

43 See Help or Hardship?, 106 GEO. L. J. 1287, 1295, 1299, 1318-23.

explains why he has accumulated $20,000 in credit card debt. He liquidated a

retirement account for a down payment to buy a very modest home to live

in.44 He withdrew most of the funds from another retirement account to pay

his bankruptcy attorney. In short, Goodvin has lived a lifestyle far-removed

from excess; in theory his current monthly budget allows a $50 “cushion,” but

he is unable to save for retirement in any significant way or repay his student

loan debt.

The availability of an IDR plan is a factor that is usually considered

under Brunner’s good faith prong,45 but the Court also mentions it here, to

the extent that participation in an IDR plan makes a minimal payment

affordable to a student loan debtor.46 To be clear, the REPAYE plan is not the

panacea that defendants make it. Goodvin’s loans can be consolidated into a

Federal Direct Consolidation Loan that is eligible for the various IDR

options, including the REPAYE plan.47 By consolidating all the loans into a

44 Goodvin has an IRA of some $12,000 remaining from his employment with the

City of Santa Barbara.

45 See Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1206

(10th Cir. 2005) (participating in a repayment program is not required to satisfy the

good faith prong but “is considered an important indicator of good faith”). See also

Help or Hardship?, 106 GEO. L. J. 1287, 1326-28.

46 See Murray v. Educ. Credit Mgmt. Corp. (In re Murray), 563 B.R. 52, 60 (Bankr.

D. Kan 2016) (rejecting availability of IDR plan as a basis for finding debtors’ net

income to be sufficient to repay the loans while maintaining a minimal standard of

living), aff’d sub nom. Educ Credit Mgmt. Corp v. Murray, No. 16-2838-CM, 2017

WL 4222980 (D. Kan. Sept. 22, 2017).

47 DOE Ex. A, ¶¶ 35-36.

Federal Direct Consolidation Loan, Goodvin will be subjected to a higher

interest rate than the interest rates on most of the individual loans. The

applicable interest rate on the Direct Consolidation Loan will be a weighted

average of the interest rates on the unpaid principal balance of the loans

being consolidated, rounded up to the nearest one-eighth of one percent.48 By

the Court’s calculation using an online weighted average interest rate

calculator,49 the annual weighted average interest rate on the unpaid

principal amounts of Goodvin’s loans is at least 6.67%,50 and rounded up to

the nearest 1/8th of 1 percent51 equals 6.750%. Thus, the monthly accrual of

interest at this rate on a $77,270 Direct Consolidation Loan is over $400.

In short, the REPAYE plan acronym is a misnomer. In this case, it

won’t even “repay” the interest accruing each month on the student loan debt.

In the loan or finance context, repayment means paying the amount

borrowed and the interest. And because the REPAYE plan does not apportion

payments between principal and interest, but applies payments first to

48 See 20 U.S.C. § 1087e(b)(8)(D).

49 See https://studentloanhero.com/calculators/weighted-average-interest-rate-

calculator.

50 The Court used the following loan amounts and corresponding interest rates on

each of the seven loans from Exhibit 12, p. 453 as follows: ECMC $12,078 (9%);

ECMC $2,148 (6%); DOE $4,239 (5.6%); DOE $4,199 (4.5%); DOE $4,000 (6.8%);

DOE $4,315 (3.4%); and DOE $5,295 (6.8%). If accrued interest was capitalized and

included as part of the unpaid principal balance of each loan, the current balances

of the loans and corresponding interest rates would yield an even higher weighted

average interest rate when rounded up to the nearest one-eighth of one percent.

51 One-eighth increments of 1% are .125, .250, .375, .500, .625, .750, .875, and 1.

accrued interest, when the payment amount is less than the interest accrual,

the REPAYE plan “repays” neither.

Goodvin’s projected $157 payment under the REPAYE plan will not

cover the monthly accrual of interest and will not make a dent in paying

down the principal amount of the student loan debt. Currently, interest of

$503 accrues on the total student loan debt each month.52 If the weighted

average interest rate of 6.750% on a Direct Consolidated Loan is applied to

the current loan balance of $77,270, the monthly interest accrual is $434.64.

Debtor is merely “paying” on the student loan debt, he is not repaying

principal or interest, nor will he by the end of the 20-year term.53 Instead he

will have to rely on forgiveness of the outstanding balance at the end of

twenty years, when Goodvin’s student loan debt will likely have ballooned to

an amount far more than it is today so long as the accrual of interest

outpaces the REPAYE plan payment.

52 Ex. 12, p. 454.

53 See Nightingale v. N.C. State Educ. Assistance Auth. (In re Nightingale), 529 B.R.

641, 649-50 (Bankr. M.D.N.C. 2015) (refusing “to jump the logical chasm necessary”

to conclude that an IDR plan that requires zero payment constitutes “repayment”

and finding the first prong of Brunner satisfied); Reagan v. Educ. Credit Mgmt.

Corp. (In re Reagan), 587 B.R. 296, 303 (Bankr. W.D. Pa. 2018) (rejecting argument

that Brunner’s first prong can’t be met where debtor has a $0-dollar payment);

Pierson v. Navient, et al (In re Pierson), Adv. No. 17-3096, 2018 WL 4849658, at *7

(Bankr. N.D. Ohio Oct. 4, 2018) (satisfying first prong of Brunner notwithstanding

debtor’s participation in IBR plan with a zero payment).

In its purest sense, Goodvin is unable to repay the student loan debt

while maintaining a minimal standard of living.54 Goodvin satisfies the first

prong of Brunner.

2. Additional Circumstances that Goodvin’s Situation is

Likely to Persist

Defendants contend that even if Goodvin satisfies Brunner’s first prong,

his financial situation is likely to improve during the 20-year repayment

period of a REPAYE plan, enabling him to make a larger monthly payment

as his AGI increases. They do not contend, however, that Goodvin will be able

to repay the debt during the 20-year repayment period. Based on the current

union pay scale, as Goodvin advances through the apprenticeship program he

will receive an annual hourly rate increase of $3.47 for each succeeding year

of the program. His forty-five-week regular net income will therefore increase

each year of his apprenticeship provided he remains employed. If and when

he attains journeyman certification at age sixty, his hourly rate will bump up

another $3.48 to $34.76.55 But this anticipated increase in income and

presumed increase in AGI would not yield a monthly payment under

54 See Educ. Credit Mgmt. Corp. v. Metz (In re Metz), No. 18-1281-JWB, 2019 WL

1953119, at *5 (D. Kan. May 2, 2019) (noting the Polleys court’s use of the term

“repaying” the debt suggests that courts should determine whether sufficient

payments can be made to pay down the principal).

55 See Ex. 7, pp. 268-69.

REPAYE that would repay the interest and pay down principal on the

consolidation loan.

It also ignores the entire twenty-year repayment term (2020–2040) and

Goodvin’s plan to retire at his full retirement age of sixty-seven, ten years

into the REPAYE plan.56 Goodvin’s highest earning capacity as a journeyman

will only last seven years, from 2024 through 2030. At that point, his only

income will be meager retirement funds and social security. He has already

liquidated most of his modest prepetition retirement accounts, save for a

$12,000 IRA from his time working for the City of Santa Barbara.57 He has

been unable to save further for retirement in his monthly budget. Goodvin

may be eligible to receive a pension through the local union, but he was

unsure how many years he had to work for that benefit to vest or the amount

of the pension.58

Upon retiring, Goodvin’s social security benefit is likely to be the

predominant source of his income. It will be substantially less than his

56 The second prong of Brunner considers whether there are other circumstances

making it likely that debtor will not be able to pay his loans for a significant portion

of the repayment period. See Alderete v. Educ. Credit Mgmt. Corp (In re Alderete),

412 F.3d 1200, 1205 (10th Cir. 2005).

57 Goodvin liquidated a $12,000 retirement account to make a down payment on his

home and took another IRA distribution of some $2,300 to pay his attorney for the

bankruptcy filing.

58 Goodvin testified in his deposition that he thought it took twenty years to become

fully vested in the local pension but the local union made no contributions on his

behalf. Ex. 11, p. 000303 (Deposition pp. 50-51).

journeyman income. The monthly social security retirement benefit is based

on the highest thirty-five years of earnings.59 Goodvin’s highest earnings as a

journeyman over a 7-year period will be diluted by his twenty-eight years of

lower earnings. And social security doesn’t pay one hundred percent of one’s

pre-retirement income; retirees receive on average forty percent of their pre-

retirement income.60 In retirement then, Goodvin’s lower income is likely to

result in a lower or zero payment under the REPAYE plan for the last ten

years of the plan, while the balance of his student loan debt will continue to

accrue interest and grow exponentially. He will likely have difficulty

maintaining his current budget. This is the same situation Goodvin finds

himself presently. The Court finds that Goodvin’s circumstances are likely to

persist for a significant portion of the repayment period. Goodvin satisfies the

second Brunner prong.

3. Good Faith Efforts to Repay

This prong requires the Court to “focus on questions surrounding the

legitimacy of the basis for seeking a discharge” and whether debtor “willfully

contrive[d] a hardship.”61 Courts should look at ‘“efforts to obtain

59 See https://www.ssa.gov/benefits/retirement/learn.html#h1 viewed on Aug. 5,

2020.

60 Id.

61 Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302. 1310 (10th Cir. 2004).

employment, maximize income and minimize expenses.”’62 The Court is

particularly struck by Goodvin’s efforts to repay his student loans, better his

employment opportunities, and improve his income earning capability at this

stage of his life. During his first career in photography and filmmaking, he

moved from California to the Midwest to find jobs where the cost-of-living

was cheaper.63 He freelanced when he could not find regular employment.

Through no apparent fault of his own, Goodvin’s working years have been

marked by repeated job loss and intermittent unemployment. Goodvin’s trial

testimony was sincere and showed his frustration with an inability to get

ahead, save money, and plan for his retirement years. He has an income

problem that he has tried mightily to rectify over the years, most recently by

changing his career path mid-life to a HVAC service technician to find better

paying and more stable employment opportunities. Through it all he has

enrolled in the Standard, Graduated, and IBR repayment plans and managed

to pay $21,817 on the ECMC loans having a principal amount of $15,577 and

$6,256 on the DOE loans in the principal amount of $23,500. There may be

62 Buckland v. Educ. Credit Mgmt. Corp. (In re Buckland), 424 B.R. 883, 890

(Bankr. D. Kan. 2010) (quoting In re Innes, 284 B.R. 496, 510 (D. Kan. 2002)).

63 See Azwar v. Texas Guaranteed Student Loan Corp. (In re Azwar), 326 B.R. 165,

174 (10th Cir. BAP 2005) (unwillingness to re-locate to pursue other employment);

Wolph v. U.S. Dept. of Educ. (In re Wolph), 479 B.R. 725, 732 (Bankr. N.D. Ohio

2012) (debtor unwilling to seek employment in a large metropolitan area where

greater prospects of higher paying jobs existed).

student loan debtors who have willfully contrived a hardship, but Goodvin is

not one of them.

As noted previously, the availability of an IDR repayment plan like the

REPAYE plan is a factor in the good faith analysis.64 Goodvin availed himself

of an IDR plan with respect to the five DOE loans. He enrolled in an IBR plan

in late 2016, making monthly payments of $46.83 during 2017-2019, until he

filed bankruptcy. His participation in the IBR plan yielded a negative

amortization of the DOE $4,000 loan.65 That loan’s current balance of $7,493

is nearly double the original principal amount due to the $42 monthly

interest accrual. Goodvin clearly recognizes that his participation in another

IDR plan like REPAYE for all his loans is an exercise in futility.66 As noted

previously, Goodvin will retire ten years into the repayment period and have

little, if any, discretionary income from which to make payments for the final

ten years of the period.67 After twenty years he will not have repaid his

64 Though enrollment in an IDR plan is not required to satisfy the good-faith prong,

Goodvin has in fact already participated in an IBR plan. See Alderete, 412 F.3d at

1206.

65 Help or Hardship?, 160 GEO. L. J. 1278, 1339 (describing negative amortization as

the situation when the IDR payments are insufficient to cover the interest on the

debt, resulting in a rising debt balance while the debtor is in an IDR plan).

66 Because the student loan debtor pays even less discretionary income (10%) under

the REPAYE plan over the twenty-year period, the outcome at the end will be even

worse than the IBR plan paying 15% of discretionary income. See Murray, 563 B.R.

at 59-60 (discharging portion of student loan debt where monthly payments, though

affordable under repayment plan, would be insufficient to pay the interest).

67 See Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791, 803-04

(1st Cir. BAP 2010) (when the projected IDR payment is zero, the availability of

student loan debt. Rather, Goodvin’s student loan debt will have ballooned

even more. Goodvin’s reluctance to participate in the REPAYE plan for

another twenty years is not a lack of good faith; it’s called hopelessness. The

REPAYE plan effectively eliminates Goodvin’s fresh start, or at best, delays

it until he is seventy-six years of age.68

Goodvin has made a good faith effort to repay his student loans and

satisfies the third Brunner prong.

B. Partial Discharge of Goodvin’s Student Loan Debt

In Alderete, the Tenth Circuit Court of Appeals recognized the

bankruptcy court’s ability to partially discharge student loans, provided it

makes the requisite findings that repaying part of the student loan debt

imposes an undue hardship on debtor.69 The courts in this District have

granted partial discharge of student loan debt in circumstances similar to

those here.

IDR should not bar discharge); Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490

B.R. 908, 919-20 (9th Cir. BAP 2013) (finding it “futile” to make the debtor enroll in

IDR to make “payments” of zero).

68 As District Court Judge Broomes remarked in Metz “what a pleasant system.”

Educ. Credit Mgmt. Corp. v. Metz, No. 18-1281-JWB, 2019 WL 1953119, at *5 n.7

(D. Kan. May 2, 2019) (regarding debtor’s prospect of staying in an IDR plan until

she is 80 years old when the debt is forgiven and keeping her impoverished or

insolvent during the repayment period). See Help or Hardship?, 160 GEO. L. J. 1287,

1328-1350 (evaluating certain factual situations when failure to participate in an

IDR plan should not weigh against good faith). See also Nightingale, 529 B.R. 641,

650 (noting the injustice of denying discharge when the debtor has a zero-payment

IDR option and denying a fresh start to the debtor most in need of one).

69 Alderete, 412 F.3d at 1207.

In Metz,70 the debtor borrowed $16,613 to fund her studies at a

community college from 1989 to1991; she earned no degree. In 1994, she

combined her loans into a 9% interest-bearing consolidation loan. She paid a

total of $14,789 on the student loan debt, most of it through three successive

chapter 13 plans. At the time of trial, the debtor was fifty-nine years of age

and her outstanding loan balance was $67,278. She declined to participate in

an IDR repayment plan contending that she could not maintain a minimal

standard of living while repaying the loan. The debtor was steadily employed

and her income had gradually increased due to modest pay raises. Like the

current case, the debtor’s consolidation loan was in a negative amortization.

The bankruptcy court granted the debtor a partial discharge, concluding that

paying the accrued interest on her consolidation loan imposed an undue

hardship and thwarted her fresh start.71 On appeal, the district court

affirmed the bankruptcy court’s discharge of all but the original principal

balance of the consolidated loan.72

70 Metz v. Educ. Credit Mgmt. Corp. (In re Metz), 589 B.R. 750 (Bankr. D. Kan.

2018), aff’d sub nom. Educ. Credit Mgmt. Corp. v. Metz, No. 18-1281-JWB, 2019 WL

1953119 (D. Kan. May 2, 2019).

71 589 B.R. at 759 (concluding that loan in a negative amortization was not a fresh

start).

72 Metz, 2019 WL 1953119 (D. Kan. May 2, 2019).

In Murray,73 the debtor-wife borrowed $41,883 through a series of

twelve loans to obtain undergraduate and master’s degrees in music and

debtor-husband borrowed $35,641 through nineteen loans to obtain his

undergraduate and master’s degrees in vocal music. The debt was incurred in

the late 1980’s to the mid-1990’s. At the time of trial, the debtors were in

their late forties. As of September 2016, the wife owed $168,178 on a

principal balance of $144,344 on her consolidated loans and the husband

owed $143,390 on a principal balance of $123,043 on his. They made

payments of $54,000 over four years under an IBR plan until they filed

bankruptcy, but that was insufficient to pay the interest accruing at 9% on

the consolidated loans. They were both employed and had monthly disposable

income of $1,658 that was sufficient to make monthly payments under the

IBR plan or the REPAYE plan. The bankruptcy court concluded that the

debtors could not maintain a minimal standard of living if forced to repay the

full $311,569 owed on their student loans. Though the IBR and REPAYE

monthly payments were affordable, they were insufficient to pay the interest

accruing on the loans and the debt would increase under these payment

options. The Murray court rejected “the availability of repayment plans as a

73 Murray v. Educ. Credit Mgmt. Corp. (In re Murray), 563 B.R. 52 (Bankr. D. Kan.

2016), aff’d sub nom. Educ. Credit Mgmt. Corp. v. Murray, No. 16-2838-CM, 2017

WL 4222980 (D. Kan. Sept. 22, 2017).

basis for finding Debtors’ net income to be sufficient to repay the loans while

maintaining a minimal standard of living.”74 It concluded that applying the

Brunner factors in such a fashion fails to further the fresh start policy of the

Bankruptcy Code. The bankruptcy court granted a partial discharge of the

Murrays’ student loan debt, discharging the accrued interest on the loans,

which comprised 75% of the student loan debt, and excepting from discharge

the original principal of $77,524. The district court affirmed the bankruptcy

court’s decision.75

That brings us to the current case and the elephant in the room—

ECMC’s consolidation loan bearing interest at the rate of 9%. It comprises

the oldest and largest portion of Goodvin’s student loan debt, some 64%, and

bears the highest interest rate. The original loan amount of $12,078 was

disbursed in 1992 and is the largest of the seven educational loans he

incurred. Goodvin has made payments totaling $19,527 on this consolidation

loan. Yet he still owes $49,581. It is the only one of Goodvin’s outstanding

loans on which he has already paid more than original amount of the loan. It

is in negative amortization and that will continue for the duration of a

REPAYE plan, ten years of which Goodvin will be retired and likely to pay a

zero amount. The interest rate and unpaid principal amount of the loan will

74 563 B.R. at 60.

75 Murray, 2017 WL 4222980.

weigh more heavily in the determination of the weighted average interest

rate if his loans are consolidated under a Direct Consolidation Loan as

defendants urge. It is this loan that imposes an undue hardship; it prevents

Goodvin from being able to repay his student loan debt and attain a fresh

start.

The debtor’s benefit from bankruptcy’s fresh start policy is having “a

new opportunity in life and a clear field for future effort, unhampered by the

pressure and discouragement of pre-existing debt.”76 The purpose of §

523(a)(8), on the other hand, is “to prevent indebted college . . . students from

filing for bankruptcy immediately upon graduation, thereby absolving

themselves of the obligation to repay their student loans.”77 Balancing these

competing policies under the facts of this case and heeding Polleys’

admonition that bankruptcy courts should apply the test of undue hardship

such that debtors who truly cannot afford to repay their loans may have them

discharged,78 I conclude that requiring Goodvin to repay the ECMC

consolidation loan imposes an undue hardship on him. It is discharged.

III. Conclusion

76 Local Loan v. Hunt, 292 U.S. 234, 244 (1934).

77 Tenn. Student Assistance Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 436-37

(6th Cir. 1998).

78 Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1309 (10th Cir. 2004)

(applying the undue hardship test “to better advance the Bankruptcy Code’s ‘fresh

start’ policy” and to give judges discretion to weigh all the relevant considerations).

The Court grants in part, and denies in part, Goodvin’s complaint to

discharge his student loan debt under 11 U.S.C. § 523(a)(8). Finding that

repayment of the ECMC consolidation loan imposes an undue hardship on

Goodvin, it is discharged in toto. The remaining six student loans with a

combined balance of approximately $27,689 are excepted from Goodvin’s

discharge.79 Judgment will be entered this day.

# # #

79 $77,270.06 of total student loan debt minus the $49,581.09 ECMC consolidation

loan = $27,688.97. See Ex. 12, p. 453 and ECMC Ex. A.