language in loan documents is not, standing alone, sufficient to prove existence of nonprofit guarantees
How later courts described this case
- language in loan documents is not, standing alone, sufficient to prove existence of nonprofit guarantees
- courts look to the purpose of a loan to determine if it is educational
Written by the judges who cited it.
The opinion
So Ordered.
Signed this 29 day of March, 2022.
{ J
ag
Diane Davis
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.
In re:
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 St., 11th Floor
Albany, New York 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 Navient Solutions JOSEPH A. FLORCZAK, ESQ.
1251 Avenue of the Americas, 20th Floor
New York, New York 10020
Honorable Diane Davis, Chief United States Bankruptcy Judge
MEMORANDUM-DECISION AND ORDER
INTRODUCTION AND PROCEDURAL BACKGROUND
Stephanie Mazloom (“Plaintiff”) entered into a loan agreement in order to pay the cost of
attending medical school. After receiving a discharge under Chapter 7 of the Bankruptcy Code,
Plaintiff brought a motion to reopen and, on her own behalf and all others similarly situated,
commenced this adversary proceeding against Navient Solutions, LLC and Navient Credit Finance
Corporation (“Defendants”) on July 2, 2020 (together, Defendants and Plaintiff are the “Parties”).
Plaintiff’s complaint contains three counts and seeks, among other things: (a) declaratory relief
that Plaintiff’s and other putative class members’ loans are dischargeable under 11 U.S.C.
§ 523(a)(8); (b) injunctive relief prohibiting Defendants from continuing to collect on discharged
debts; (c) compensatory and punitive damages and monetary sanctions for violations of the
discharge orders and statutory injunction; and (d) restitution and/or disgorgement of funds
collected since the discharge orders were entered.1
The Parties have filed competing motions for summary judgment. On April 13, 2021,
Defendants filed an Initial Motion for Summary Judgment (“Defendants’ Summary Judgment
Motion”) (ECF No. 56). On May 18, 2021, Plaintiff filed her Opposition to Defendant’s Initial
Summary Judgment Motion and Cross-Motion for Partial Summary Judgment, (“Plaintiff’s
Motion for Summary Judgment”) (ECF No. 76) (together, the “Parties’ Summary Judgment
Motions”). The Parties’ Summary Judgment Motions address the threshold issue of the
dischargeability of Plaintiff’s debt to Defendants pursuant to § 523(a)(8)(A)(i). As required by
Local Bankruptcy Rule 7056-1, the Parties filed: Defendants’ Statement of Undisputed Facts in
Support of Their Initial Motion for Summary Judgment (ECF No. 56-3); Plaintiff’s Counter-
Statement of Undisputed Material Facts (ECF No. 75); and Defendants’ Responses to Plaintiff’s
Counter-Statement of Undisputed Material Facts in Support of Her Cross Motion for Summary
Judgment (ECF No. 85). The following is based upon consideration of the Parties’ written
submissions, and arguments made before this Court on June 8, 2021. The Court is not submitting
findings of fact and conclusions of law in this matter because 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
1 Unless otherwise stated, all statutory references are to sections of the United States Bankruptcy Code, 11 U.S.C.
§ 101 et seq., and will hereafter be referred to as “§ (section number).”
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).
As set forth below, the Court finds that neither Party has met their burden to prevail at
summary judgment. Therefore, the Court denies the relief sought in both Parties’ Summary
Judgment Motions.
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 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
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. September 30, 2014). The non-moving party must “do more than
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).
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 exempt from discharge pursuant to § 523(a)(8)(A)(i). This does
not alter the underlying standard for each independent motion for summary judgment. “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. November 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. February 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 purported 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
The following recitation of facts has been drawn from the Parties’ Statements and Counter-
Statements of Material Facts, the briefs submitted by the Parties, the hearing held on June 8, 2021,
and other submissions on the Court’s docket.
From 2006 through 2008 Plaintiff attended medical school in Antigua and Barbuda.4
Plaintiff’s Counter-Statement of Undisputed Material Facts 1, ECF No. 85. In order to finance the
cost of her education, in August 2006, 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. Included in the loan documents signed by Plaintiff was a
promissory note with language stating that “EXCEL Grad Loans…are private education
loans…that complement the Federal Stafford Loan program…” and that her “loan is an educational
4 The Parties differ as to whether Plaintiff attended medical school at Kasturba Medical College or the American
University of Antigua. This dispute is of no moment to the matter currently before the Court.
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.”5 Defendants’ Statement of Undisputed Facts 3, ECF No. 56-3. It is
uncontested that Navient provides both private loans and Stafford loans, and that Plaintiff’s loan
was funded entirely with private funds. Id. at 2. Plaintiff was not eligible for, and did not receive,
a Stafford loan. Plaintiff’s Counter-Statement of Undisputed Material Facts 1, ECF No. 85.
In 2014, Defendants created a prospectus to inform students about the different loans
offered by Defendants (“Prospectus”). Navient Prospectus, Aug. 25, 2014, ECF No. 87-3. Both
Parties, in their submissions, reference to the deposition of Patty Peterson, Defendants’ Senior
Vice-President of Operations, taken on April 28, 2021, in which Ms. Peterson discussed the nature
of the EXCEL Grad Loan Program. Peterson Dep., Apr. 28, 2021, ECF No. 87-1. References were
also made to an earlier deposition of Ms. Peterson discussing the same matters in a separate case.
Peterson Dep., Dec. 17, 2020, ECF No. 87-2.
On February 21, 2018, Plaintiff filed a petition under Chapter 7 of the Bankruptcy Code.
Defendants’ Response to Plaintiff’s Counter-Statement of Undisputed Material Facts 2, ECF No.
84. 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
general order discharging all of Plaintiff’s properly scheduled debts, excluding those excepted
from discharge under § 523(a). Id. Defendants received notice of both Plaintiff’s bankruptcy case
5 The documentation of the Private Student Loan consists of a student loan application signed by the Plaintiff, in
which she attests to the fact that she has read the attached (unsigned) promissory note, which contained no signature
line for the borrower. The Parties agree that the Private Student Loan is an “EXCEL Grad Loan.”
and this Court’s discharge order. 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).
DISCUSSION
Defendants’ Motion for Summary Judgment seeks a determination that Plaintiff’s Private
Student Loan is excepted from discharge pursuant to § 523(a)(8)(A)(i). 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 disjunctively, meaning a loan need only fall within one of these four categories
to be non-dischargeable.
Here, the Court is asked to determine whether the debt at issue is an educational loan under
§ 523(a)(8)(A)(i), which 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 Defendants’ EXCEL Grad Loan Program, which is itself funded in part by 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) which would make it nondischargeable like Defendants argue. See In re
Page, 592 B.R. 334, 336 (B.A.P. 8th Cir. 2018) (courts look to the purpose of a loan to determine
if it is educational). 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. Defendants fail to demonstrate this for the following reasons.
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.). Notably, finding that
Plaintiff’s Private Student Loan was discharged would not adversely affect the financial integrity
of the Stafford loan program, or that of any nonprofit institution. This Court is mindful of these
underlying purposes of § 523(a)(8) when evaluating both Parties’ Motions for Summary Judgment.
Defendants’ justification for the claim that the Private Student Loan was part of a program
funded in part by a governmental unit is largely based on the promissory note signed by Plaintiff.
In pertinent part, the promissory note states that:
‘EXCEL Grad Loans are …private education loans… that complement the
Federal Stafford Loan program…[t]hey are designed for graduate and
professional students who have borrowed their maximum Federal Student Loan
amounts but still have remaining college expenses.’
Defendants argue that because Plaintiff signed the promissory note, she ‘certified’ her
understanding of the note’s statement that her “loan is an educational loan and is made under a
program that includes Stafford Loans, funded in part by nonprofit organizations, including
governmental units,” and the Court should therefore find that the loan was not discharged in this
case.
The promissory note, however, is unavailing at this stage, and without additional evidence
to meaningfully substantiate the language in the promissory note, it is little more than a tautology.
If lenders could simply aver that a private loan was a part of a program involving a nonprofit or
governmental unit and have that statement serve as the proof of the program’s existence, every
lender would do so. Given the inherent flaws of such a system, at the summary judgment stage of
litigation, boilerplate language in a promissory note is not dispositive with respect to a § 523(a)(8)
determination. See, e.g., In re Holquin, 609 B.R. 878, 888 (Bankr. D. N.M. 2019) (boilerplate
language of loan documents cannot prove the actual existence of a loan guarantee); In re Greer-
Allen, 602 B.R. 831, 838 (Bankr. D. Mass. 2019) (language in loan documents is not, standing
alone, sufficient to prove existence of nonprofit guarantees); In re Wiley, 579 B.R. 1, 7 (Bankr. D.
Me. 2017) (language in pre-petition loan agreements citing to § 523(a)(8) is not enough to prevail
on summary judgment and does not mandate an inference that the loans were made under a
program funded by a nonprofit institution); In re Palmer, 2021 Bankr. LEXIS 834 at *28-29
(Bankr. N.D. Ohio March 31, 2021) (prepetition stipulation/credit agreement stating that loan
made pursuant to applicable subsections of § 523(a)(8) is “not binding on this [c]ourt”). The court
in Palmer goes as far as to suggest that such boilerplate language regarding § 523(a)(8) may even
be contrary to public policy. Id.
Courts are rightfully concerned that lenders would consistently take advantage of
unsophisticated or desperate debtors by including pre-petition waivers of dischargeability in all
loan agreements, thus vitiating one of the core protections of the bankruptcy process. This Court,
however, need not reach this issue to find that such boilerplate language in a promissory note alone
cannot carry the day on summary judgment. See, e.g., In re Wiley, 579 B.R. at 7 (“pre-printed”
portions of pre-petition loan agreements purporting to control application of § 523(a)(8) are
insufficient to prevail on summary judgment, and do not mandate an inference that the loans were
“made under a program funded by a nonprofit institution.”). Moreover, the Wiley court denied
summary judgment to the private lender even though there was “some information in the record
that indicate[d] that the Loans may have been extended under a program funded by a nonprofit
institution.” In re Wiley, 579 B.R. at 7 (emphasis in original). When courts acknowledge and credit
boilerplate language like that found in Defendants’ promissory note, it is almost always
accompanied by other evidence of the existence of a program funded in whole or in part by a
nonprofit or governmental unit. This evidence takes the boilerplate language out of the realm of
tautology and provides a measure of substantiality with regard to the funding of the program.
Defendants rely heavily upon In re Drumm, 329 B.R. 23 (Bankr. W.D. Pa. 2005) as the
rare case where the court credited a promissory note as establishing the existence of a program
funded by a nonprofit without supporting evidence of substantiality. The factual record of Drumm,
however, undermines any support it may have provided to Defendants. The parties in Drumm
stipulated that the lender “had available in its ‘program’ loans that were funded by both private
for-profit entities as well as loans funded by governmental units.” Id. at 27. Moreover, the
nonprofit foundation in Drumm established and maintained a reserve account for Drumm’s loans,
providing more proof of a program extrinsic to the promissory note than Defendants’ have put
forward to prove the existence of the EXCEL Grad Loan Program. Id. at 29.
Apart from Defendants promissory note, the only other evidence they provide in support
of their contention that the Private Student Loan was part of a funded program are the depositions
of Patricia Peterson. Defendants rely upon conclusory statements made by Ms. Peterson, a senior
executive and longtime employee of Defendants, that the EXCEL Grad Loan Program is made up
of both federal Stafford loans and private loans. Ms. Peterson, however, stated that for this case
the only document she reviewed was the promissory note created by her employer. Peterson Dep.
14:13-15:7, Apr. 28, 2021, ECF No. 87-1. Self-interested statements such as these, without
supporting documentation, do not establish that there is no genuine dispute as to the material facts
surrounding this issue. In re Holgiun, 609 B.R. 878, 886-887 (Bankr. D. N.M. 2019) (finding an
affidavit that an employee had personal knowledge that a nonprofit had paid for defaulted loans
pursuant to a guaranty agreement was not sufficient at summary judgment given the lack of
corroborating documentation). Defendants’ reliance on their own statements to establish the
existence of a funded program within the meaning of § 523(a)(8)(A)(i) must fail.
Courts around the country have accepted a broad range of evidence to establish that a loan
was made under a program funded in whole or in part by a nonprofit or governmental unit. The
Second Circuit has stated that the nonprofit or government entity must have provided “any
meaningful contribution” to the program to establish funding under the terms of § 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 nonprofit
had guaranteed the loans, which meant it “was clearly devoting some of its financial resources to
supporting the program.” Id. at 106. While the existence of a guaranty agreement between the
lender and the nonprofit is often satisfactory, evidence that the nonprofit has made good on their
word by performing as the guarantor when borrowers defaulted is likewise clear proof of a funded
program within the meaning of § 523(a)(8)(A)(i). See, e.g., In re Kidd, 458 B.R. 612 (Bankr. N.D.
Ga. 2011). It is this concrete relationship between the lender and the nonprofit that is necessary to
find that a funded program exists. Further, when the nonprofit maintains a separate fund for
potential payments on defaulted loans, it can establish the requisite meaningful contribution. See,
e.g., 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 nonprofit maintained money in segregated
reserves to support its guaranty obligations, thus devoting financial resources to the loan program).
Elsewhere courts have looked for “an integrated effort to provide a streamlined method” for
providing loans as evidence of a funded program, and considered “the extent and nature of that
entity’s involvement with the administration of the program.” In re Rojas, 2018 Bankr. LEXIS
774 at *7-8 (Bankr. E.D.N.Y. March 18, 2018). Some courts have considered it determinative that
the actions of the nonprofit or government entity acted as a type of sine qua non, where the loans
would not have been made but for the involvement of the nonprofit. See, e.g., 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 nonprofit’s guaranty to purchase defaulted
loans).
Unlike each of the above cases, Defendants offer no corroborating evidence to establish
the existence of a funded program apart from statements given by their own employees and the
Prospectus. Defendants point neither to any meaningful contribution by the Stafford loan program,
nor do they offer evidence that the federal government devoted any resources to the program. The
mere availability of Stafford loans does not serve as evidence that the EXCEL Grad Loan Program
in fact was funded by the same. To find otherwise would automatically qualify any student loan
program as exempt from discharge. Because there is no evidence that the federal government was
involved with the EXCEL Grad Loan Program, Defendants are similarly unable to establish that a
governmental entity contributed to the administration of the program, maintained any separate
fund related to the program, or was integrated with the program in any way. Finally, there is no
evidence that the involvement of a governmental entity was a sine qua non to the creation of the
loans. Any statement from Defendants that they would not have made the loans if they had not
believed a program existed would invite every imaginable loan program into the protections of
§ 523(a)(8) without concomitant meaningful requirements.
Defendants ask the Court to follow the Mader decision in which the district court
concluded that the private lender’s program met the § 523(a)(8)(A)(i) requirement because it was
made under a program that also made Stafford loans. Mader v. Experian Info. Sols., LLC, 2020
U.S. Dist. LEXIS 132073 (S.D.N.Y. July 24, 2020). In Mader, the court relied upon the promissory
note itself, as well as an affidavit provided by an executive with Navient. In doing so, it concluded
that because the promissory note contained language that loan at issue was “made under a program
that also makes Stafford Loans…” the loan was therefore “made under a program funded…in part
by a governmental unit or nonprofit institution” as required by § 523(a)(8)(A)(i). Id. at *6-7.6
Relying upon O’Brien, the Mader court noted that in affirming the district court, the Second Circuit
found that the loan was non-dischargeable under § 523(a)(8)(A)(i). Id. at *5-6. In doing so, the
Mader court explained that the subsection did “not require that the nonprofit fund the loan for that
section to be applicable. Rather, § 523(a)(8) requires only that the loan ‘was made under any
program funded in whole or in part by [a governmental unit or nonprofit institution].” Id. at *3
(quoting In re O’Brien, 419 F.3d 104, 106 (2d Cir. 2005)).
This Court respectfully declines to follow the Mader decision because it finds the Mader
court’s reliance on O’Brien to be misplaced. As discussed above, O’Brien articulated that the
“meaningful contribution” test determines when a program was properly funded within the
meaning of § 523(a)(8)(A)(i). In re O’Brien, 419 F.3d at 105. The court in O’Brien, however, felt
that the program in question satisfied this test not because of a promissory note, but because of the
uncontested fact that the nonprofit in question guaranteed every loan in the program. Id. at 106.
As such, O’Brien does not absolve a party from its obligation to provide reliable, concrete evidence
of a funded program’s existence in order to succeed on summary judgment. In fact, multiple courts
have used the O’Brien analysis to rule against, rather than in favor of, creditors requesting to have
student loans deemed excepted from discharge pursuant to § 523(a)(8)(A)(i), because of a lack of
such reliable evidence. For example, in Holquin v. Nat’l Collegiate Student Loan Trust 2006-2 (In
re Holquin), 609 B.R. 878, 886-87 (Bankr. D. N.M. 2019), the court denied the lender’s summary
6 The Mader court credited the testimony of a senior Navient employee who testified to having personal knowledge
that the EXCEL Grad Loan Program was a part of a program that made loans funded or guaranteed by the
government. In re Mader, 2020 U.S. Dist. LEXIS 132073 at *8 (S.D.N.Y. July 24, 2020). While still quite
insubstantial, this is still more evidence than Defendants have provided to this Court. No current or past employee of
Defendants has claimed to have personal knowledge of any federal funding of the EXCEL Grad Loan Program in
any of the materials submitted to this Court. The Mader court stated that the plaintiff’s arguments “cannot be
accepted in light of Defendant’s admissible evidence to the contrary.” Id. at *9.
judgment motion where there was an agreement between the nonprofit and the private lender, but
where there was no evidence that it was still in effect at the time the debtor incurred his student
loans. The court also found that without actual supporting documentation of the agreement, the
lender’s affidavit as to its existence was ineffective at summary judgment to establish that the
nonprofit committed any monetary resources to fund the loan program. Similarly, in In re Palmer,
2021 Bankr. LEXIS 834 at *30 (Bankr. N.D. Ohio, March 31, 2021) the court held that the
defendant’s mere assertion that a nonprofit guaranteed debtor’s student loan debt to be insufficient
for purposes of § 523(a)(8)(A)(i), in the absence of evidence of an actual written agreement
between said nonprofit and the private lender.
The Mader decision also relies heavily upon In re Jean Baptiste, 584 B.R. 574 (Bankr.
E.D.N.Y. 2018), which held that a private student loan was non-dischargeable under
§ 523(a)(8)(A)(i) “because it was made under a program funded in part by non-profit institutions.”
Mader, 2020 U.S. Dist. LEXIS 132073 at *7 (citing In re Jean Baptiste, 584 B.R. at 584). The
facts of Jean Baptiste, however, are distinguishable from the current proceeding sufficient to
render it inapposite. In Jean Baptiste, defendant Access Group, Inc. was itself a nonprofit entity
operating solely for charitable and educational purposes. Jean Baptiste, 584 B.R. at 578. Through
the Access Group National Loan Program, it offered both federally guaranteed and private,
guaranteed education loans. Id. The loans in this program were financed by National City Bank
through the (nonprofit) Access Loan Program. Id. Pursuant to an ongoing Commitment and Loan
Sale Agreement between Access and National City, the bank agreed to sell to Access all student
loans the bank originated pursuant to the Access Loan Program. Id. The “Access Loans” were
“originated, marketed, guaranteed, funded and subsequently purchased by Access.” Id. at 578-79.
In Jean Baptiste, there was a formal, written, and legally binding Commitment and Loan
Sale Agreement between the nonprofit Access and the private loan funder National City. Id. This
formalized agreement was clearly sufficient to satisfy the “meaningful contribution” test necessary
to bring a program under the aegis of § 523(a)(8)(A)(i) sufficient to grant the defendants’ summary
judgment motion. The court in In re Golden relied upon a similar agreement when interpreting
O’Brien to support its determination that a student loan was exempt from discharge under
§ 523(a)(8)(A)(i). See In re Golden, 596 B.R. 239, 266 (Bankr. E.D.N.Y. 2019) (citing In re Page,
592 B.R. 334, 337 (B.A.P. 8th Cir. 2018)). Unlike O’Brien and its progeny, this Court has no
written evidence of participation by a nonprofit or governmental unit before it, meaningful or
otherwise. Unlike the courts in Jean Baptiste and Golden, this Court has not been provided with
reliable evidence of a funded program, nor given comparable evidence. A dispute is “genuine”
where “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is “material” if it “might affect
the outcome of the suit under the governing law[.]” Id. The moving party has the burden of
demonstrating the absence of a genuine dispute as to any material fact, and “all of the inferences
to be drawn from the underlying facts must be viewed in the light most favorable to the party
opposing the motion.” In re Birnbaum, 512 B.R. 788, 799 (Bankr. E.D.N.Y. 2014) (citing In re
Allou Distribs., Inc., 446 B.R. 32, 49 (Bankr. E.D.N.Y. 2011)). Because Defendants have failed to
meet their burden of showing the § 523(a)(8)(A)(i) exception to discharge applies to Plaintiff’s
Private Student Loan, Defendants’ Motion for Summary Judgment at this stage must be denied.
Turning now to Plaintiff’s Motion for Summary Judgment, Plaintiff seeks a determination
that the Private Student Loan, as a matter of law, was not funded or guaranteed by a governmental
or nonprofit entity as required by the terms of § 523(a)(8)(A)(i) and so was discharged. Plaintiff’s
Motion for Summary Judgment is evaluated separately from Defendants’ Motion for Summary
Judgment, and is subject to the same standard of review and legal framework outlined above. To
prevail at this stage, Plaintiff must establish that there is no genuine dispute as to any material fact
that the Private Student Loan was not part of a program funded in part by Stafford loans.
Determining whether the Private Student Loan was made under a “program funded in
whole or in part by a governmental unit” within the meaning of § 523(a)(8)(A)(i) requires not only
a clear understanding of the relevant private loan program, but of the criteria of the term “program”
more generally. Section 523(a)(8), however, does not define the term “program.” See In re Pilcher,
149 B.R. 595, 598 (B.A.P. 9th Cir. 1993). Caselaw is similarly devoid of a clear definition of
program, as that term is used in § 523(a)(8)(A)(i). “[W]hile scores of published opinions discuss
§ 523(a)(8) dischargeability, [there is no case that] defin[es] the parameters of [the term] program.”
See In re Greer-Allen, 602 B.R. 832, 836 n.2 (Bankr. D. Mass. 2019). Without an accepted
understanding of what constitutes a program, Plaintiff faces an uphill battle of establishing that
there is no genuine dispute as to whether the Private Student Loan fell inside or outside a
governmental or nonprofit program in this case.
The few cases addressing the term “program” reference the legislative history of
§ 523(a)(8), alongside the statute’s broad language. The use of the modifier “any” when describing
programs funded in whole or in part by a governmental unit that fall within § 523(a)(8)(A)(i)
“suggests a broad definition.” Pilcher, 149 B.R. at 598. A review of the “legislative history would
suggest that Congress intended an inclusive reading,” especially in light of the fact that § 523(a)(8)
“was amended three times to expand the scope of coverage.” Id. The primary sponsor of
§ 523(a)(8), Representative Ertel, spoke at length about the need to “keep our student loan
programs intact” by preventing individuals from discharging student loans in bankruptcies and
draining government funded resources, thus “penalizing students who are coming along through
the system.” In re Hammarstrom, 95 B.R. 160, 163-64 (Bankr. N.D. Cal. 1989), (citing 124 Cong.
Rec. 1791 (1978) (statement of Rep. Ertel)). Congress expressed similar concern that recent
graduates with student loans and no assets could obtain a discharge, and subsequently “enjoy the
higher earning power the loans have made possible without the financial burden that repayment
entails.” In re Renshaw, 222 F.3d 82 (2d Cir. 2000). These concerns favor a broad reading of
§ 523(a)(8) that would except most student loans from discharge and preserve the financial
integrity of the system by preventing recent graduates from manipulating the system unfairly.
Given the undeniably undefined contours of the term “program,” combined with the seemingly
broad scope of § 523(a)(8), declaring Plaintiff’s loan as discharged is poorly suited for summary
judgment at this stage.
Plaintiff attempts to use the definition of “student loan program” as that term is used in the
context of § 525 to bolster their interpretation of § 523(a)(8).7 This does nothing to support
Plaintiff’s argument. Section 525 simply defines a “student loan program” as “any program
operated under Title IV of the Higher Education Act of 1965.” 11 U.S.C. § 525. The Bankruptcy
Code’s reference to Title IV is not referenced in § 523(a)(8)(A)(i) and does not clarify the meaning
of the term “program” as that term is used in § 523(a)(8). Section 525 is concerned with prohibiting
7 Section 11 U.S.C. 525 provides, in relevant part, that:
(c) (1) A governmental unit that operates a student grant or loan program and a person engaged in a
business that includes the making of loans guaranteed or insured under a student loan program may not
deny a student grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under
this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or
bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a
bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under
this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has
not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy
Act.
(2) In this section, “student loan program” means any program operated under title IV of the Higher
Education Act of 1965 or a similar program operated under State or local law.
discrimination in the issuance of government loans and is concerned with defining government
funded student loans in that context. The maxim expressio unius est exclusio alterius cautions that
the “mention of one impliedly excludes others.” Green v. United States, 79 F.3d 1348, 1355 (2d
Cir. 1996). Additionally, the presumption of consistent usage and meaningful variation “suggest[s]
that the presence of [a phrase] applicable to one [term] makes clear that the [phrase’s] omission
elsewhere was deliberate.” United States v. Zuckerman, 897 F.3d 423, 431 (2d Cir. 2018) (internal
quotation marks omitted) (citing Novella v. Westchester Cty., 661 F.3d 128, 142 (2d Cir. 2011)).
Applying these canons of construction, the presence of a clear definition of “student loan program”
in one section of the Bankruptcy Code that is explicitly omitted in another section discussing the
same term in a distinct context indicates that Congress did not intend for the same definition to
apply in both sections. Finally, Defendants have never argued that the Private Student Loan is
itself a government loan, only that it is a part of a program that complements government loans.
For these reasons, Plaintiff’s reliance on § 525 is misplaced.
Even if the exact definition of program could be ascertained, Plaintiff provides too little
information about the specifics of Defendants’ program to satisfactorily establish that the Private
Student Loan issued by Defendants in 2006 falls outside of § 523(a)(8)(A)(i)’s parameters and was
in fact discharged. Plaintiff, like Defendants, relies heavily upon Defendants’ Prospectus, dated
August 25, 2014, as evidence that the EXCEL Grad Loan Program did not contain Stafford loans.
Specifically, Plaintiff points to the separate descriptions of the terms and conditions of each type
of loan, as well as separate appendices for each, as evidence that these loans were considered and
treated as distinct entities. Plaintiff’s Memorandum of Law in Opposition to Defendants’ Initial
Motion for Summary Judgment 13-14, ECF No. 86. Plaintiff also emphasizes that the Prospectus’
statement that “EXCEL Loans [are] funded by several commercial banks” and the program is “not
guaranteed by any federal guarantor….” Plaintiff’s Memorandum of Law in Opposition to
Defendants’ Initial Motion for Summary Judgment 14, ECF No. 86. This Court is unwilling to
credit the boilerplate language in the Prospectus without accompanying documentation.
Furthermore, whatever value it might have added to Plaintiff’s argument is obviated by its lack of
temporal connection to the Private Student Loan at issue here. No matter how rich in detail, this
Prospectus, written in 2014, tells this Court nothing about the Private Student Loan taken out by
Plaintiff in 2006. Without direct evidence that the terms of the 2014 Prospectus were in effect at
the time the loan was secured in 2006, the Prospectus cannot serve as evidence that the Private
Student Loan was made outside of a program funded in whole or in part by a governmental unit.
See In re Holguin, 609 B.R. 878, 887-88 (Bankr. D. N.M. 2019) (refusing to credit evidence that
a guaranty agreement was in effect in the past as evidence that the agreement was in effect later in
time).
Plaintiff asserts that the two depositions taken of Ms. Peterson are replete with evidence
that the EXCEL Grad Loan Program was funded entirely by private sources. This argument,
however, relies upon a selective and narrow reading of Ms. Peterson’s words, and repeatedly
conflates the EXCEL Grad Loan Program with the loans that constitute that program. Plaintiff
states that Ms. Peterson “testified that the EXCEL Grad Loan Program has always been an entirely
private loan program with absolutely no federal funding of any kind.” Plaintiff’s Memorandum of
Law in Opposition to Defendants’ Initial Motion for Summary Judgment 11, ECF No. 86. Yet
Plaintiff’s basis for this claim is merely Ms. Peterson’s statement that “EXCEL loans use private
lenders.” Peterson Dep. 116:23-118:17, Apr. 28, 2021, ECF No. 87-1. Ms. Peterson is stating her
knowledge of the EXCEL Grad Loan, which Defendants claim is just one part of the EXCEL Grad
Loan Program alongside federal Stafford loans. When Plaintiff’s attorney asked Ms. Peterson
“[j]ust to be clear, there’s no federal funding or federal guarantees involved in the EXCEL
programs, at all,” she was careful to specify in her response “[n]ot for the EXCEL loan itself, no.”
Peterson Dep. 89:24-90:6, Dec. 17, 2020, ECF No. 87-2. Plaintiff, throughout their arguments, has
attempted to erase this distinction between the program, and the loans within the program. There
is nothing within the depositions of Ms. Peterson to support their contention.
Plaintiff argues that the EXCEL Grad Loan Program does not issue Stafford loans, and
emphasizes Ms. Peterson’s agreement with this fact. Peterson Dep. 118:15-19, Apr. 28, 2021, ECF
No. 87-1. Nowhere, however, do Defendants contest this matter, and both Parties are in agreement
that Stafford loans are issued and guaranteed by the federal government. Hearing on Motion for
Summary Judgment 17:13-14, June 8, 2021, ECF No. 91. Once again, Plaintiff mischaracterizes a
dispute about the loan program as one about the loans within that program. Defendants maintain
that the EXCEL Grad Loan Program is funded in part by a governmental unit, but readily admit
the EXCEL Grad Loan is entirely privately funded, and the Stafford loan is entirely government
funded.
Plaintiff claims that Ms. Peterson admitted that “associating the private EXCEL Grad Loan
with the separate Federal Stafford loan was merely a ‘marketing channel’ used by Navient to
induce borrowers” to take out private loans. Plaintiff’s Memorandum of Law in Opposition to
Defendants’ Initial Motion for Summary Judgment 12, ECF No. 86. While Ms. Peterson did
acknowledge that she had “seen that written,” she subsequently denied any personal knowledge of
Defendants’ marketing strategies when she testified “I don’t know. I don’t know the marketing
roles.” Peterson Dep. 95:13-96:2, Dec. 17, 2020, ECF No. 87-2. Ms. Peterson as a Senior Vice-
President of Operations made clear that she was not involved with the marketing of EXCEL Grad
Loans. Even if Plaintiff could establish that Defendants used the bundling of private and Stafford
loans for marketing purposes, that would not establish a program funded in whole or part by a
governmental unit did not exist. The same information can have multiple purposes.
Plaintiff focuses on establishing that there is an absence of evidence supporting one or
more essential elements of the non-moving party’s case. However, Ms. Peterson’s testimony is
lacking as it likewise is without supporting documentation that the Private Student Loan agreement
was not part of a program. As such, it is ineffective at summary judgment to establish that the
government did not commit any monetary resources to fund the EXCEL Grad Loan Program.
Plaintiff has not shown the absence of a genuine issue of material fact in their Motion for Summary
Judgment demonstrating that Plaintiff’s Private Student Loan was not part of a program funded in
part by a governmental unit. Consequently, Plaintiff’s Motion for Summary Judgment must be
denied.
CONCLUSION
For the forgoing reasons, the motions for summary judgment filed by the Parties will be
denied and a pretrial scheduled to determine what additional discovery is necessary before trial.
Accordingly, it is hereby
ORDERED, that Defendants Navient Solutions LLC’s and Navient Credit Finance
Corporation’s Initial Motion for Summary Judgment is Denied; and it is further
ORDERED, that Plaintiff Stephanie Mazloom’s Motion for Summary Judgment is Denied;
and it is further
ORDERED, that the Parties are directed to appear at a Pretrial conference to consider
further scheduling of discovery on April 26th, 2022, at 1:00 in the afternoon.
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