Mazloom v. Navient Solutions, Inc.

So Ordered.

Signed this 26 day of January, 2023.

La “Dy if

Sz LZ

Ip 4 PY rq 4 —

% eae Ja Diane Davis

Gey, ss United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF NEW YORK

In re:

STEPHANIE MAZLOOM, Chapter 7

Case No.: 18-60206-06

Debtor.

STEPHANIE MAZLOOM, on behalf of herself

and all others similarly situated, Adv. Pro. No.: 20-80033-6

Plaintiffs,

v.

NAVIENT SOLUTIONS, LLC and

NAVIENT CREDIT FINANCE CORPORATION,

Defendants.

APPEARANCES:

BOIES SCHILLER FLEXNER LLP GEORGE CARPINELLO, ESQ.

Attorneys for Plaintiff ADAM SHAW, ESQ.

30 South Pearl Street, 11th Floor

Albany, NY 12207

JONES SWANSON HUDDELL & LYNN SWANSON, ESQ.

DASCHBUCH, LLC

Attorneys for Plaintiff

601 Poydras Street, Suite 2655

New Orleans, LA 70130

FISHMAN HAYGOOD LLP JASON W. BURGE, ESQ.

Attorneys for Plaintiff

201 St. Charles Avenue, 46th Floor

New Orleans, LA 70170

McGUIRE WOODS K. ELIZABETH SIEG, ESQ.

Attorneys for Defendants JOSEPH A. FLORCZAK, ESQ.

1251 Avenue of the Americas, 20th Floor

New York, NY 10020

Honorable Diane Davis, Chief United States Bankruptcy Judge

MEMORANDUM-DECISION AND ORDER

INTRODUCTION AND PROCEDURAL BACKGROUND

In this adversary proceeding, Stephanie Mazloom (“Plaintiff”) seeks a determination that

her debt to Navient Solutions, LLC and Navient Credit Finance Corporation (“Defendants”) falls

outside of the exception to discharge for student loans outlined in 11 U.S.C. § 523(a)(8).1

Defendants seek the opposing determination, that Plaintiff’s debt is a non-dischargeable debt

pursuant to the same Code section. The debt in question was a loan taken out by Plaintiff to attend

medical school. There are two essential disputes which this Court must resolve before it can

establish whether the loan in question is non-dischargeable. First, was the loan part of a ‘program’

1 Unless otherwise stated, all statutory references are to sections of the United States Bankruptcy Code (hereinafter,

the “Code”), 11 U.S.C. § 101 et seq., and will hereafter be referred to as “§ (section number).”

funded in part by the government as that term is used in 11 U.S.C. § 523(a)(8), and second, was

the loan procured for the purpose of attending a Title IV institution. The parties agree on the

relevant facts, but advocate for applications of the law which create divergent results, thus making

this issue well-suited for summary judgment.

Both parties previously moved for summary judgment on this issue. The Court denied both

motions in a prior opinion in light of the underdeveloped record at that time. (ECF No. 108.)

Accordingly, the Court will assume some degree of familiarity with the procedural history of the

case through its prior decision. Following additional discovery and briefing, the parties once again

filed cross-motions for summary judgment, each arguing for judgment as a matter of law under

both §§ 523(a)(8)(A)(i) and 523(a)(8)(B). Plaintiff filed her Renewed Motion for Summary

Judgment on September 13, 2022 (ECF No. 138), followed by Defendants’ Cross-Motion for

Summary Judgment on October 4, 2022 (ECF No. 150). Plaintiff filed her reply brief on October

18, 2022 (ECF No. 155), and Defendants followed with their surreply on October 24, 2022 (ECF

No. 156). The Court then held a hearing on October 25, 2022, after which the matter was taken

under submission. The Court is not submitting findings of fact and conclusions of law in this

matter, since Federal Rule of Civil Procedure (“FRCP”) 52(a)(3), made applicable to this

proceeding by Federal Rule of Bankruptcy Procedure (“FRBP”) 7052, does not require such a

submission when ruling on a motion for summary judgment.2

Because the Court finds that Plaintiff’s loan is excepted from discharge as a “qualified

education loan” under § 523(a)(8)(B), the Court’s analysis would normally end here. However,

because this case is a putative class action, the Court finds sufficient reason to consider

§ 523(a)(8)(a)(i), and holds that Plaintiff’s debt was not made as part of a program funded in whole

2 In re Gayety Candy Co., 625 B.R. 390, 399 n.5 (Bankr. N.D. Ill. 2021), citing In re Pers. Communs. Devices, LLC,

588 B.R. 661, 662 (Bankr. E.D.N.Y. 2018).

or part by a governmental unit. Accordingly, the Court grants Plaintiff’s Motion for Summary

Judgment as to § 523(a)(8)(A)(i), and grants Defendants’ Motion for Summary Judgment as to

§ 523(a)(8)(B).

JURISDICTIONAL STATEMENT

The Court has jurisdiction over the Parties and subject matter of this adversary proceeding

pursuant to 28 U.S.C. §§ 1334(a), 1334(b), 157(a), and 157(b)(2)(A), (I), and (O). Venue is proper

pursuant to 28 U.S.C. § 1409(a).

STANDARD OF REVIEW

The standard of review is unchanged from the Court’s previous decision. Mazloom v.

Navient Sols., LLC (In re Mazloom), 2022 Bankr. LEXIS 806 (Bankr. N.D.N.Y. Mar. 29, 2022).

The Court may enter summary judgment only if it concludes that there is no genuine dispute as to

the material facts and that, based on the undisputed facts, the moving party is entitled to judgment

as a matter of law. Fed. R. Civ. P. 56(a); see, e.g., Celotex Corp v. Catrett, 477 U.S. 317, 322-3

(1986); In re Baker, 465 B.R. 359, 363 (Bankr. N.D.N.Y. 2012) (same). “Where the record taken

as a whole could not lead a rational trier of fact to find for the non-moving party, there is no

genuine dispute as to a material fact for trial and summary judgment is appropriate.” In re

Birnbaum, 513 B.R. 788, 799 (Bankr. E.D.N.Y. 2014) (citing McClellan v. Smith, 439 F.3d 137,

144 (2d Cir. 2006)).3

If the moving party meets its burden of demonstrating the absence of a genuine issue of

material fact, the burden then shifts to the non-moving party “to come forward with evidence

3 In other words, “only when reasonable minds could not differ as to the import of evidence is summary judgment

proper.” In re Krautheimer, 210 B.R. 37, 56 (Bankr. S.D.N.Y. 1997). “It is well settled that on a motion for summary

judgment, the court is not empowered to ‘try’ issues of fact; it can only determine whether there are issues to be tried.”

Id. (citing American Mfrs. Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 279 (2d

Cir. 1967)).

sufficient to create a genuine dispute as to a material fact for trial.” In re Khan, 2014 Bankr. LEXIS

4205 at *17 (Bankr. E.D.N.Y. Sept. 30, 2014). The non-moving party must “do more than simply

show there is some metaphysical doubt as to the material facts.” Id. (citing Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). A party moving for summary judgment can

meet its burden either by producing evidence showing the absence of a genuine issue of material

fact, or by pointing out to the Court that there is an absence of evidence supporting one or more

essential elements of the non-moving party’s case. In re Krautheimer, 210 B.R. 37, 56 (Bankr.

S.D.N.Y. 1997); Long Oil Heat, Inc. v. Spencer, 375 F. Supp. 3d 175, 190 (N.D.N.Y. 2019) (same).

In this proceeding, both Parties have moved for summary judgment to determine whether

the Plaintiff’s student loan debt is excepted from discharge pursuant to §§ 523(a)(8)(A)(i) and

523(a)(8)(B). This does not alter the underlying standard for each summary judgment motion.

“When faced with cross-motions for summary judgment…the court must consider ‘each motion

separately on its own merits to determine whether either of the parties deserves judgment as a

matter of law.’” In re Rood, 448 B.R. 149, 158 (Bankr. D. Md. 2011) (citing Rossignol v.

Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)); In re N-Liquidation, Inc., 2018 Bankr. LEXIS 2138

at *10 (Bankr. N.D.N.Y. July 20, 2018) (when considering a cross motion for summary judgment,

court must weigh the merits of each motion independently). Cross motions for summary judgment

do not require the court to decide the case on the merits. “[T]he court can deny both motions if

both parties have failed to meet the burden of establishing that no genuine issues of material fact

exist and that they are entitled to judgment as a matter of law.” In re Kogos, 2010 Bankr. LEXIS

4079 at *9 (Bankr. N.D. Ill. Nov. 30, 2010); see also Guard Ins. Group v. Reliable Ins. Servs.,

LLC, Shah Builders, & Carlos Quin De Hurtado, 2018 U.S. Dist. LEXIS 237072 at *9 (E.D.N.Y.

March 20, 2018) (denying both parties’ motions for summary judgment); Sosne v. FDIC, 2016

U.S. Dist. LEXIS 24201 (E.D. Mo. Feb. 29, 2016) (same); Ohio Cas. Ins. Co. v. Twin City Fire

Ins. Co., 2018 U.S. Dist. LEXIS 234831 (E.D.N.Y. June 28, 2018) (same).

In an action to determine the dischargeability of a student loan debt pursuant to § 523(a)(8),

the creditor has the initial burden to establish, by a preponderance of the evidence, the existence

of the debt and that the debt is an educational loan within the statute’s parameters. In re Kashikar,

567 B.R. 160, 168 (B.A.P. 9th Cir. 2017); see also Grogan v. Garner, 498 U.S. 279, 287 (1991).

If this burden is met, the burden of production shifts to the debtor, while the creditor retains the

ultimate burden of proof by a preponderance of the evidence. Grogan, 498 U.S. at 286.

FACTS

From 2006 through 2008 Plaintiff attended medical school in Antigua and Barbuda. Decl.

of Stephanie Mazloom ¶ 3, ECF No. 41. Plaintiff was accepted to the American University of

Antigua/Kasturba Medical College Twinning Program. Decl. of Joseph Florczak, Ex. B, ECF No.

152-2. In August 2006, in order to finance the cost of her education, Plaintiff obtained a private

student loan from Nellie Mae Bank in the amount of $38,400 (“Private Student Loan”).

Defendants’ Response to Plaintiff’s Counter-Statement of Undisputed Material Facts 2, ECF No.

84. Nellie Mae Bank was one of the predecessors-in-interest to defendant Navient Solutions LLC,

which has at all relevant times serviced the Private Student Loan. Id. This loan was made as a part

of the EXCEL Grad Loan Program. Decl. of Patricia Peterson ¶ 4, ECF No. 56-2. As a part of the

loan application process, Plaintiff signed a promissory note detailing the terms under which she

received the Private Student Loan. Id. at Ex. A. The medical school listed on Plaintiff’s loan

application was Kasturba Medical College (“KMC”); the American University of Antigua

(“AUA”) was not listed on any part of this application. Id. It is undisputed that at the time Plaintiff

received her loan, KMC was a Title IV institution. Decl. of Joseph Florczak, Ex. E, ECF No. 152-

5. Plaintiff signed this promissory note, which she acknowledged was “true, complete, and correct

to the best of [her] knowledge and belief[.]” Decl. of Patricia Peterson, Ex. A at 9, ECF No. 56-2.

Plaintiff later received a Truth-In-Lending statement (“TILA Statement”), which stated that the

loan received by Plaintiff was to pay for an education from KMC, and that the Private Student

Loan funds would be sent directly to KMC. Decl. of Stephanie Box, Ex. 1, ECF No. 151-1.

The promissory note included language stating that “EXCEL Grad Loans…are private

education loans…that complement the Federal Stafford Loan program…” and that Plaintiff’s “loan

is an educational loan and is made under a program that includes Stafford Loans and other loans

and which is funded in part by non-profit organizations, including governmental units, and,

therefore, is not dischargeable in bankruptcy.” Decl. of Patricia Peterson, Ex. A at 8, ECF No. 56-

2. This language did not appear in any other internal or public documents produced by Defendants.

Peterson Dep. 95:21-101:8, Aug. 5, 2022, ECF No. 140-5. It is uncontested that Navient provides

both private loans and Stafford loans, and that Plaintiff’s loan was funded entirely with private

funds. Decl. of Patricia Peterson, Ex. A, ECF No. 56-2. While Defendants offer both loans, they

utilize different applications, and provide differing interest rates and forgiveness provisions.

Peterson Dep. 162:6-21, Aug. 5, 2022, ECF No. 140-5. Plaintiff did not receive a Stafford loan.

Plaintiff’s Counter-Statement of Undisputed Material Facts 1-2, ECF No. 85.

On February 21, 2018, Plaintiff filed a petition under Chapter 7 of the Bankruptcy Code.

Decl. of Stephanie Mazloom ¶ 6, ECF No. 41. Plaintiff scheduled the Private Student Loan in the

amount of $38,400, described it as a “student loan” and did not classify it as contingent,

unliquidated or disputed. Plaintiff’s Counter-Statement of Undisputed Material Facts 7, ECF No.

85. On June 4, 2018, this Court entered its order discharging all of Plaintiff’s properly scheduled

debts, excluding those generally excepted from discharge under § 523(a). Id. The Parties agree

that the EXCEL Grad Loan is a Private Student Loan. Plaintiff’s Memorandum of Law in

Opposition to Defendants’ Initial Motion for Summary Judgment 2, ECF No. 86.

On June 10, 2020, Plaintiff requested that her Chapter 7 case be reopened to bring the

current adversary proceeding against Defendants. Id. at 3. The Court granted the motion on June

24, 2020, and Plaintiff commenced this adversary proceeding on July 2, 2020. Id. Plaintiff’s

complaint does not allege that the Private Student Loan caused Plaintiff undue hardship. Rather,

the Parties’ Summary Judgment Motions now before the Court concern only whether the Private

Student Loan is dischargeable pursuant to §§ 523(a)(8)(A)(i) and 523(a)(8)(B).

DISCUSSION

Section 523(a)(8) restricts the dischargeability of “four categories of educational debt from

discharge,” namely: (i) educational benefit overpayments or loans made, insured, or guaranteed

by a governmental unit; (ii) educational benefit overpayments or loans made under any program

partially or fully funded by a governmental unit or nonprofit institution; (iii) funds received as an

educational benefit, scholarship or stipend; or (iv) qualified educational loans as defined in

§ 221(d)(1) of the Internal Revenue Code. In re Golden, 596 B.R. 239, 257 (Bankr. E.D.N.Y.

2019). Section 523(a)(8) is written in the disjunctive, meaning a loan need only fall within one of

these four categories to be non-dischargeable. The previous cross-motions for summary judgment

addressed only § 523(a)(8)(A)(i). Following additional discovery by the parties, the renewed

motions make additional arguments under subsection (A)(i), as well as arguments under

§ 523(a)(8)(B). The Court will first address the Parties’ arguments under § 523(a)(8)(A)(i) before

turning to § 523(a)(8)(B).

Section 523(a)(8)(A)(i):

Section 523(a)(8)(A)(i) excepts from discharge “an educational benefit overpayment or

loan made, insured, or guaranteed by a governmental unit, or made under any program funded in

whole or in part by a governmental unit or nonprofit institution.” Defendants assert that the loan

issued to Plaintiff is excepted from discharge under § 523(a)(8)(A)(i) because the Private Student

Loan was made under a program that offers both the EXCEL Grad Loan Program and federal

Stafford loans. It is uncontested that the Private Student Loan was made for the purpose of

financing Plaintiff’s attendance at medical school, and thus was an educational loan within the

meaning of § 523(a)(8)(A)(i). For purposes of this subsection, it is not relevant whether the medical

school in question was a Title IV school. For Defendants to prevail on a motion for summary

judgment, however, they must also establish that the Private Student Loan was made under a

program funded in part by a governmental unit.

Because the primary purpose of the bankruptcy discharge is to provide a fresh start to the

honest but unfortunate debtor, courts have long recognized that exceptions to discharge, including

§ 523(a)(8)(A)(i), must be narrowly construed against the creditor. In re Campbell, 547 B.R. 49,

54 (Bankr. E.D.N.Y. 2016) (quoting Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998)). It is also

widely accepted that the purpose of § 523(a)(8) is to “preserve the financial integrity of educational

loan programs.” In re Hammarstrom, 95 B.R. 160, 163 (Bankr. N.D. Cal. 1989). To accomplish

this goal, § 523(a)(8) limits “the instances in which such [student loan] obligations can be

discharged in bankruptcy.” Id. (citing 124 Cong. Rec. 1791-2 (1978) (statement of Rep. Allen

Ertel)). As stated by another court, “[t]he legislative history clearly bears out that the broad purpose

of the provision was ‘to keep our student loan programs intact.’” In re Karben, 201 B.R. 681, 684

(Bankr. S.D.N.Y. 1996) (citing 124 Cong. Rec. 1791-2 (1978) (statement of Rep. Ertel)). More

specifically, Congress was concerned with “safeguarding the financial integrity of governmental

entities and nonprofit institutions that participate in educational loan programs.” 4 Collier on

Bankruptcy ¶ 523.14[1] (Richard Levin & Henry J. Sommer eds., 16th ed.). This Court is mindful

of these underlying purposes of § 523(a)(8) when evaluating both Parties’ Motions for Summary

Judgment.

Defendants fail in their motion for summary judgment on essentially the same grounds as

in their previous motion. As articulated in the Court’s previous decision, Defendants are entirely

reliant on the boilerplate language of the promissory note, coupled with the self-serving statements

of Patricia Peterson to bolster the notion that the Private Student Loan was made as part of an

unnamed program funded in whole or part by a governmental unit. Despite seemingly exhaustive

discovery conducted by the parties since the Court’s previous decision, Defendants have returned

with the same arguments as their initial motion. Defendants state that “the testimony of Navient

employee Patty Peterson, [and] the promissory notes in the Excel Grad Loan program contained

substantially identical disclosures regarding it being part of a broader program including Stafford

loans from 2003 until the termination of the Excel Grad Loan program in 2008.” Defendants’

Cross-Motion 16, ECF No. 150. This is the same tautological reasoning that the Court found

unpersuasive in the past, and it carries no greater weight today. The failure to bring forward any

additional documentation that could substantiate the existence of a named program that included

both the EXCEL Grad Loans and Stafford loans is particularly damaging to Defendants’ position

given the substantial discovery conducted in search of that exact evidence.

Defendants not only rely on the same evidence as they did in their initial motion for

summary judgment, they continue to cite to cases the Court explicitly distinguished as

uncompelling in its previous decision. More specifically, Defendants spend considerable time in

their briefs drawing comparisons between the current matter before the Court and both Mader v.

Experian Info. Sols., LLC, 2020 U.S. Dist. LEXIS 132073 (S.D.N.Y. July 24, 2020) and In re

Drumm, 329 B.R. 23 (Bankr. W.D. Pa. 2005). Defendants do not use these cases to craft new

arguments, but instead disregard the past pronouncements of this Court in the hopes that the same

old approach will somehow yield different results. This is a forlorn hope. These cases remain

inapposite in the present case. Not only that, in the intervening period the Second Circuit held that

the district court’s reliance on the declaration of Ms. Peterson as sufficient grounds to grant

summary judgment to Defendants in the Mader case was in error. Mader v. Experian Info. Sols.,

LLC, 2023 U.S. App. LEXIS 79 at *8 (2d Cir. Jan. 4, 2023). Given the lack of additional, relevant

evidence or caselaw from Defendants, their motion for summary judgment must, once again, be

denied.

Turning to Plaintiff’s motion for summary judgment, Plaintiff again seeks a determination

that the Private Student Loan was not funded, even in part, by a governmental unit as required by

the terms of § 523(a)(8)(A)(i). In order to prevail, Plaintiff must establish that there is an absence

of evidence supporting a necessary element of Defendants’ argument. In this instance, that

necessary element is the existence of the broader program which allegedly included both the

Private Student Loan and federal Stafford loans.

Other courts around the country have accepted a broad range of evidence to establish that

a particular loan was made under a program funded in whole or in part by a non-profit or

governmental unit. The Second Circuit has articulated the standard that the non-profit or

governmental unit must have made “any meaningful contribution” to the program to satisfy §

523(a)(8)(A)(i). In re O’Brien, 419 F.3d 104, 105 (2d Cir. 2005). In O’Brien, it was sufficient that

the non-profit had guaranteed the loans, which meant it “was clearly devoting some of its financial

resources to supporting the program.” Id. at 106. As with O’Brien, whenever a court has found a

program in existence that comports with the requirements of § 523(a)(8)(A)(i), there exists a

concrete relationship between the private loan and the non-profit or governmental unit that is

demonstrable from evidence other than self-serving statements from the loan provider as to the

existence of the program. See, e.g., In re Jean Baptiste, 584 B.R. 574 (Bankr. E.D.N.Y. 2018)

(formal, written, and legally binding Loan Sale Agreement between private loan provider and non-

profit sufficient proof of funded program); In re Taratuska, 2008 U.S. Dist. LEXIS 93206 at *17-

18 (D. Mass. August 25, 2008) (finding § 523(a)(8)(A)(i) requirement to be met where the non-

profit maintained money in segregated reserves to support its guaranty obligations, thus devoting

financial resources to the loan program); In re Medina, 2020 Bankr. LEXIS 2459 at *10-11 (Bankr.

S.D. Cal. 2020) (finding guaranty critical to program due to fact that loans would not have been

made but for non-profit’s guaranty to purchase defaulted loans, such that non-profit acted as sine

qua non of program). For Plaintiff to prevail at this stage, they must establish that no such concrete

relationship existed at the time the Private Student Loan was made.

Plaintiff’s previous motion for summary judgment, while legally sound, was undermined

by an incomplete factual record. Plaintiff was overly reliant on a 2014 Prospectus from Defendants

that did nothing to inform the Court of the situation in 2006 when Plaintiff received her loan.

Additionally, while the documentation available at that time did nothing to support the existence

of the broader program as argued by Defendants, there was simply too little in the record to allow

the Court to conclude that there was no genuine dispute as to the material facts. Plaintiff has since

performed extensive discovery in an effort to fill the gaps in the record and to demonstrate

conclusively that Defendants’ purported program was nothing more than a fiction. To this end,

Plaintiff requested, “[a]ll Documents, whenever created, relating to the creation, funding,

modification or implementation of the ‘program’ described in Plaintiff’s promissory note,” as well

as documents related to the EXCEL Grad Loan Program and the promissory note itself. Plaintiff’s

Motion for Summary Judgment, Ex. A, ECF No. 140-3. Plaintiff also conducted an additional

deposition of Patricia Peterson, an executive with Defendants, to discuss these newly discovered

documents as they related to the program in question. The result of this process reveals that the

unnamed ‘broader program’ exists only as a sentence in a promissory note meant to protect

Defendants debt from being discharged in bankruptcy. Put simply, Defendants’ broader program

does not exist.

The language in the promissory note upon which Defendants heavily rely states, in

pertinent part:

‘I understand that this loan is an educational loan and is made under a program that

includes Stafford Loans and other loans and which is funded in part by non-profit

organizations, including governmental units and, therefore, is not dischargeable in

bankruptcy[.]’

Defendants’ Motion for Summary Judgment, Peterson Decl., Ex. A, ECF No. 56-3. Throughout

every document provided by Defendants, this is the sole reference made to the broader program

upon which Defendants’ entire argument rests. Furthermore, Defendants’ own longstanding

executive, Patty Peterson, was unable to point to any documents that included this language apart

from the promissory notes. Peterson Dep. 95:21-101:8, Aug. 5, 2022, ECF No. 140-5. When asked

how she would determine if a loan offered by Defendants was a part of the broader program or

not, Ms. Peterson was unable to provide any means of determining this apart from checking for

the boilerplate language in the promissory note. Id. at 196:16-197:15. Nor could Ms. Peterson

name a single document released to the public that included any mention of the broader program

or included the language from Plaintiff’s promissory note. Id. at 332:9-22. This includes legal

disclosures provided to the government, including SEC filings. Id. at 41:12-43:4. Ms. Peterson

acknowledged that loans within the EXCEL Grad Loan Program were not governed by federal

regulations under the Higher Education Act of 1965, given that loans within that program were

entirely private. Id. at 335:1-18.

In the absence of any substantial and verifiable relationship between the private loans

offered by Defendants and the Stafford loans that allegedly existed under the purported broader

program, counsel for Plaintiff attempted to define exactly what Defendants believe had brought

this umbrella program into existence. In the latest deposition of Ms. Peterson, counsel and the

witness had the following exchange:

Q: It’s your testimony that the broader program, as you defined it, exists in this

point in time because Nellie Mae is offering this EXCEL loan and is also offering

Stafford and PLUS loans, is that your testimony?

A: Yes…the idea is for them to get one stop for all of their financing needs.

Id. at 113:6-14. This notion of ‘one stop shopping’ is fundamentally insufficient to create a

program as that term is used in § 523(a)(8)(A)(i). The idea that any company could sell two

products contemporaneously, without any additional benefit or synergistic effect from their

combined purchase, and use that fact alone to treat the two as a package deal would eviscerate the

concept of a package deal. This is the exact concern voiced by the Second Circuit in both its

Homaidan and more recent Mader decisions, and a concern voiced by this very Court in its prior

decision. Defendants’ understanding of the term program would draw “virtually all student loans

within [its] scope….transforming section 523(a)(8) into a catch-all for educational loans.” Mader

v. Experian Info. Sols., LLC, 2023 U.S. App. LEXIS 79 at *8 (2d Cir. Jan. 4, 2023) (quoting

Homaidan v. Sallie Mae, Inc., 3 F.4th 595, 602 (2d Cir. 2021)). EXCEL Grad Loans and Stafford

loans have different applications, have different eligibility requirements, have different interest

rates, and contain different forgiveness provisions. Peterson Dep. 162:6-21, Aug. 5, 2022, ECF

No. 140-5. While Defendants ‘encourage’ applicants to first maximize their Stafford loans before

receiving EXCEL Grad Loans, there is no requirement that applicants do so before receiving

EXCEL Grad Loans. Id. at 62:3-15. When asked to point to language in any document that speaks

to the existence of the broader program apart from the language in the promissory note, Ms.

Peterson could point to nothing more than the platitudinous language about the benefits of one-

stop shopping. Id. at 225:14-227:12. While programs such as the EXCEL Grad Loan Program are

governed by specific documents and can be found listed on internal documents collecting all

private loan programs offered by Defendants, there exist no corresponding documents for this

unnamed broader program. Id. at 124:14-125:23.

Defendants, in an effort to evade the debtor’s discharge, placed boilerplate language into

their promissory notes claiming that their private loans were a part of a broader program that also

offered federal Stafford loans. Defendants did nothing else to bring this broader program into

existence. Its contents cannot be identified without use of the promissory note, it is not referenced

in either internal or public documents, and there are no practical benefits or effects of any kind to

obtaining both loans in the alleged program. It exists solely in the promissory note and for a single

purpose: to prevent the discharge of debts pursuant to § 523(a)(8)(A)(i). This is not enough to

satisfy the meaning of the term program as used in that section. Such an understanding of the term

program would turn § 523(a)(8)(A)(i) into a catch-all for student loans, vitiating the other

subsections of § 523(a)(8). Because Plaintiff has shown an absence of evidence supporting an

essential element of Defendants’ claim, namely that the Private Student Loan was made as a part

of a program funded in whole or part by a governmental unit, Plaintiff’s motion for summary

judgment is granted with regard to § 523(a)(8)(A)(i).

Section 523(a)(8)(B):

In addition to the above, both parties have also moved for summary judgment to determine

whether the Private Student Loan is excepted from discharge pursuant to § 523(a)(8)(B).

Establishing the contours of this Code section first requires delving into a nesting doll of statutory

definitions. Section 523(a)(8)(B) excepts from discharge, “[A]ny other educational loan that is a

qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986,

incurred by a debtor who is an individual[.]” 11 U.S.C. § 523(a)(8)(B). Section 221(d)(1) in turn

defines a ‘qualified education loan’ as “any indebtedness incurred by the taxpayer solely to pay

qualified higher education expenses.” 26 U.S.C. § 221(d)(1). Section 221(d)(1) further defines

‘qualified higher education expenses,’ in relevant part, as “the cost of attendance (as defined in

section 472 of the Higher Education Act of 1965…) at an eligible educational institution, reduced

by the sum of” other applicable financial aid. Id. Finally, an ‘eligible education institution’ is

treated by § 221(d)(1) as having the same meaning as in 26 U.S.C. § 25A(f)(2), which defines the

term as an institution “which is eligible to participate in a program under title IV of [the Higher

Education Act of 1965.]” 26 U.S.C. § 25A(f)(2). Put more succinctly, the Court must determine if

either party has established whether the Private Student Loan was incurred to pay a qualified

education expense. If Defendants are correct that the Private Student Loan was incurred for this

purpose, then Plaintiff’s debt will be held to be non-dischargeable.

Both Parties agree that the ‘purpose test,’ also known as the ‘substance of the transaction

test,’ governs in this case. This test, which has been adopted by a number of circuit courts

throughout the nation, holds that the proper analysis in a § 523(a)(8)(B) case is to look at the initial

purpose of the loan, rather than the actual use of the funds, to establish the purpose of the loan.

See, e.g., Conti v. Arrowood Indem. Co. (In re Conti), 982 F.3d 445 (6th Cir. 2020); Busson-

Sokolik v. Milwaukee Sch. of Eng’g (In re Busson-Sokolik), 635 F.3d 261 (7th Cir. 2011). The

parties agree on the operative facts in this case, but dispute the application of the purpose test to

those facts. Plaintiff would have the Court apply the purpose test at a high level of generality,

arguing the purpose here should be read as ‘educational’ only, and that the Court should then look

beyond the stated purpose to the actual use to determine the more specific purpose. To that end,

that more specific purpose would be an education at a non-Title IV university, AUA. Defendants,

however, argue that the purpose test should be applied with a high degree of specificity from the

outset, thus obviating any need for the Court to look beyond the initial agreement between the

Parties. Here, that specific purpose would not be merely an ‘education,’ but rather ‘the cost of

attendance at Kasturba Medical College,’ as stated in the promissory note signed by Plaintiff and

the Truth-in-Lending Statement she received. The Court believes that the bright-line approach

advocated by Defendants is most consistent with the statutory language of § 523(a)(8)(B), more in

keeping with the Congressional purposes of the Code, and consistent with the approach taken by

bankruptcy courts nationwide. Accordingly, for the reasons discussed below, the Court adopts this

rule here, and will look only to the specific initial purpose of the loan to determine whether a

debtor’s loans fall within the scope of § 523(a)(8)(B).

The plain text of § 523(a)(8)(B) requires looking to the stated purpose of the loan at the

time of the agreement, rather than supplementing the stated purpose with ancillary information

from the debtor’s use of the loan funds. The Court must determine whether the Private Student

Loan is a loan that was “incurred…to pay” higher education expenses, which speaks to the terms

of the contract at the moment the agreement was struck, not informed by subsequent choices made

after the signing of the promissory note. 26 U.S.C. § 221(d)(1); see also Conti, 982 F.3d at 449.

While the plain text alone is enough to support the Court’s application of the purpose test,

it is also the case that Plaintiff’s construction of § 523(a)(8)(B) would run counter to the legislative

purpose of this Code section. The central aim of the bankruptcy system is to provide a discharge

procedure that allows the honest but unfortunate debtor to enjoy “a new opportunity in life with a

clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

Grogan v. Garner, 498 U.S. 279, 286 (1991). This aim, however, is in limited circumstances

outweighed by matters of public policy, including concerns about the availability and solvency of

educational loan programs. Andrews Univ. v. Merchant (In re Merchant), 958 F.2d 738, 740 (6th

Cir. 1992). If a student such as Plaintiff could receive a loan with the stated purpose of attending

a Title IV institution, and then use those funds at a non-Title IV school instead, thus transforming

the debt from non-dischargeable to dischargeable, lender confidence would plummet, and the

solvency of the student loan system would be threatened.

The bright-line rule adopted by the Court today also has the advantage of not requiring

lenders to make decisions about whether to lend to prospective students based upon that student’s

unknown future behavior. If, as Plaintiff argues, the purpose of a loan could be divined not just

from the language at the time of the agreement, but from subsequent actions by the debtor, then

the purpose of the loan would not be determinable at the time the agreement was made. In the

present case, while the signed note states KMC, Plaintiff believes that her actions after making this

agreement in attending AUA should alter that purpose.

This would undermine lender confidence in issuing loans, and could lead to an increase in

the fees imposed by lenders to cover the additional risk, which would in turn further burden the

federal government as the guarantor for many of these loans. Applying the purpose test to the

specific terms of the agreement between the parties ensures the agreement between the parties is

honored and not subjected to future, unknown factors.

Finally, this bright-line rule is more consistent with the application of the purpose test made

by other courts and prevents arbitrary application on a case-by-case basis. Plaintiff attempts to

muddy the waters by pointing out that, in many of the leading cases applying the purpose test,

“there was no factual dispute that plaintiff had in fact attended a Title IV school[.]” Plaintiff’s

Reply Memorandum 8, ECF No. 155. Plaintiff argues that because the purpose test was not being

applied to the identical issue of the specific school attended by debtor in these cases, they are of

no use in the present matter. For example, in Murphy v. Pa. Higher Educ. Assistance Agency (In

re Murphy), 282 F.3d 868 (5th Cir. 2002), the parties agreed that the debtor attended a Title IV

institution, and the dispute centered on whether the term ‘educational’ included expenses such as

room and board. Plaintiff is correct that the court in Murphy did not need to use the purpose test

to determine that the loans were made to attend a specific institution, but merely to discern that the

loans were educational because they were made to a qualifying institution, that is, a Title IV school.

This, however, does nothing to support the contention that the purpose test is somehow limited to

establishing that loans were made for educational purposes, and thus cannot be used to determine

the exact institution for which the debtor procured the loan. Had that more specific issue been in

doubt in Murphy, there is no indication that the court would not have used the purpose test to

determine the exact institution. Plaintiff attempts to use this same flawed reasoning to discount the

application of the purpose test in Conti v. Arrowood Indem. Co. (In re Conti), 982 F.3d 445 (6th

Cir. 2020), and Monyak v. Navient Sols., LLC, 2021 Bankr. LEXIS 239* (Bankr. D. Ohio Feb. 2,

2021), with similarly unpersuasive results. Even if the caselaw supported such an interpretation of

the purpose test, to adopt this approach would inevitably lead to inconsistent outcomes among

different courts. Plaintiff here would like the Court to use the purpose test solely to determine that

the loan is ‘educational’ in nature, and then look at the facts as they developed after the agreement.

But Plaintiff provides no reasons why using the purpose test only to determine if a loan is

educational is better than using the purpose test to determine if a loan was for a ‘qualified

educational purpose.’ Plaintiff simply proposes an ad hoc level of generality that suits her position

in this case, without considering its application in different circumstances. Using the purpose test

to establish the specific purpose of the loan, rather than any abstract and generalized purpose,

avoids this pitfall while conserving judicial time and resources.

Applying this straightforward test to the present facts, it is incontrovertible that the Private

Student Loan was incurred to cover the qualified education expenses of Plaintiff, and so constitutes

a non-dischargeable debt under § 523(a)(8)(B). The Parties do not dispute that KMC was a Title

IV institution at the time Plaintiff incurred the Private Student Loan. Decl. of Joseph Florczak, Ex.

E, ECF No. 152-5. Nor does Plaintiff dispute that she signed the promissory note, acknowledging

that the information within was true and correct to her knowledge. Plaintiff’s Response to

Defendants’ Statement of Undisputed Material Facts, ECF No. 85. Additionally, the TILA

Statement makes clear that the Private Student Loan funds were sent directly to KMC. Decl. of

Stephanie Box, Ex. 1, ECF No. 151-1. Plaintiff posits the theory that because part of the loan

application paperwork was completed by an employee of KMC, Severine Barrie, this absolves

Plaintiff of responsibility for the dispute as to which school she attended, and instead gives rise to

a potential legal claim by Defendants against KMC and AUA. While the Court does not have an

opinion on any aspect of the legal relationship between Defendants and the educational institutions

in question, it is the case that school certifications such as the one found in the record are routine,

and do not alter Plaintiff’s responsibility under the terms promissory note. Decl. of Patricia

Peterson, Ex. B, ECF No. 56-2; see, e.g., Monyak, 2021 Bankr. LEXIS at *3-4. The Nellie Mae

Loan Certification completed by Ms. Barrie is unavailing in light of the language of the promissory

note, which named KMC as the school for which Plaintiff sought the loan and in which Plaintiff

acknowledged the information she provided was, “true, complete, and correct to the best of [her]

knowledge and belief[.]” Decl. of Patricia Peterson, Ex. A at 9, ECF No. 56-2. Any arguments that

this language in the promissory note is mere boilerplate language akin to the statement about the

‘broader program’ discussed above is based on a faulty analogy. That ‘broader program’ language

was the same in every promissory note and not based upon any facts specific to the applicant and

their loan. Meanwhile, the exact school for which Plaintiff sought her loan, KMC and not AUA,

was specifically tailored to her application. Furthermore, after receiving approval of the loan for

KMC, Plaintiff received the “TILA Statement” which unambiguously stated that the loan received

by Plaintiff was to pay for an education from KMC. Decl. of Stephanie Box, Ex. 1, ECF No. 151-

1. The TILA Statement also stated that the funds for the Private Student Loan would be paid

directly to KMC. Id. Plaintiff had numerous indicators that the loan she received was for the

purpose of attending KMC, both within the promissory note, and throughout additional materials

she received after submitting her loan application. The letter advising Plaintiff of her acceptance

to medical school contained the letterhead of both AUA and KMC and stated clearly that Plaintiff

was accepted to the “American University of Antigua/Kasturba Medical College Twinning

Program.” Decl. of Joseph Florczak, Ex. B, ECF No. 152-2. Plaintiff’s ‘Financial Aid Eligibility

Notice’ similarly referenced the Twinning Program between the two schools. Decl. of Joseph

Florczak, Ex. C, ECF No. 152-3. The paperwork completed or received by Plaintiff prior to her

matriculation was replete with references to KMC, and make clear that the purpose of Plaintiff’s

loan was to attend KMC.

Counsel for Plaintiff argued at the hearing that to expect Plaintiff, a first-year medical

student, to “undertake a full inquiry of the scope of the bankruptcy laws and the concept of Title

IV, and whether the school she’s going to is properly identified as Kasturba or AUA” is an

unreasonably high bar, and so Plaintiff should be excused from her agreement to the terms of the

promissory note and the language of the TILA Statement. Hearing on Renewed Motions for

Summary Judgment 59:3-18, Oct. 25, 2022, ECF No. 164. The extent of Plaintiff’s obligation,

however, is not so onerous as her counsel would make it seem. There was no requirement to

conduct any research into bankruptcy law at the time the loan was taken, nor even to investigate

the relevance of the Title IV designation. All that was required of Plaintiff was that she have

knowledge of the purpose for which the loan was incurred. If Plaintiff now says that she failed to

meet this minimal requirement, it does not require, or even permit, the Court to excuse her of her

obligations under the promissory note. Plaintiff is bound by her representations as to the clear

intended purpose for which she received the Private Student Loan. Defendants have shown that

there is no genuine issue of material fact in their Motion for Summary Judgment as to

§ 523(a)(8)(B), as Plaintiff’s loan was a qualified education loan as defined in section 221(d)(1)

of the Internal Revenue Code of 1986. Consequently, Defendants’ Motion for Summary Judgment

is granted as to the claim under § 523(a)(8)(B).

CONCLUSION

For the forgoing reasons, the Court grants Plaintiff’s motion for summary judgment as to

the first claim for relief under § 523(a)(8)(A)(i) and denies Plaintiff’s motion for summary

judgment as to the second claim for relief under § 523(a)(8)(B). The Court likewise denies

Defendants’ motion for summary judgment as to the claim for relief under § 523(a)(8)(A)(i) and

grants Defendants’ motion for summary judgment as to the second claim for relief under

§ 523(a)(8)(B).

Accordingly, it is hereby

ORDERED, that Defendants Navient Solutions LLC’s and Navient Credit Finance

Corporation’s Initial Motion for Summary Judgment is Denied in part and Granted in part; and it

is further

ORDERED, that Plaintiff Stephanie Mazloom’s Motion for Summary Judgment is Denied

in part and Granted in part; and it is further

ORDERED, that Plaintiff Stephanie Mazloom’s Private Student Loan is a non-

dischargeable debt, pursuant to 11 U.S.C. § 523(a)(8)(B), and it is further

ORDERED, that the Parties are directed to appear at a conference to consider remaining

pending matters in this case, if any, on January 31st, 2023, at 1:00 in the afternoon.

###