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Second Circuit Rule Private Student Loan May Be Dischargeable in Bankruptcy

Second Circuit Rule Private Student Loan May Be Dischargeable in Bankruptcy

Author: David EdelbergDate: October 1, 2021

The Second Circuit Court of Appeals has joined the Tenth and Fifth Circuits in ruling that certain private student loans may be dischargeable in a Chapter 7 bankruptcy. The Second Circuit specifically held in Homaidan v. Sallie Mae, Inc., 3 F.4th 595 (2d Cir. 2021) that the loans at issue did not qualify as “student loans” under 11 U.S.C. § 523(a)(8)(A)(ii)—which excepts from discharge “an obligation to repay funds received as an educational benefit, scholarship, or stipend.”

Hilal K. Homaidan took out loans totaling $12,567 from Defendant-Appellants Sallie Mae Inc., Navient Solutions, LLC, and Navient Credit Finance Corporation (collectively, “Navient”). Although the loans helped underwrite Homaidan’s college education, they were not made through Emerson’s financial aid office, nor—Homaidan alleges—were they made solely to cover Emerson’s cost of attendance. They went straight to Homaidan’s bank account, and the loan proceeds exceeded the cost of Emerson’s tuition.

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