IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 01-10516
_______________
IN THE MATTER OF:
DANIEL G. MURPHY,
Debtor.
DANIEL G. MURPHY,
Appellant,
VERSUS
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
and
EDUCATIONAL CREDIT MANAGEMENT CORPORATION,
Appellees.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________
March 5, 2002
Before SMITH and DEMOSS, Circuit Judges, Education Credit Management Corporation
and LAKE, District Judge.* (“ECMC”) is a non-profit Minnesota
corporation that provides financial assistance
JERRY E. SMITH, Circuit Judge: to students enrolled in higher education
programs. ECMC holds nine promissory notes
Daniel Murphy borrowed approximately executed by Murphy.1 As of March 15, 2000,
$55,000 in federally guaranteed loans to attend Murphy owed ECMC $64,178.54.
institutions of higher learning. Shortly after
receiving and L.L.M. degree, he filed for Pennsylvania Higher Education Assistance
chapter 7 bankruptcy. The bankruptcy court Agency (“PHEAA”) is a government agency
held that 11 U.S.C. § 523(a)(8) bars him from organized under the laws of Pennsylvania, that
discharging any of those loans in bankruptcy, provides financial assistance to students en-
because he obtained them to finance his rolled in higher education programs. PHEAA
education and signed promissory notes holds a promissary note dated July 5, 1996 for
reflecting that purpose. The district court federal Stafford loans totaling $18,5000. The
affirmed, and, finding no error, we also affirm. parties stipulated that Murphy spent $7,000 on
tuition and related expenses and $11,500 on
I. other living expenses; as of March 10, 2000,
Murphy matriculated at Michigan State he owed PHEAA $22,472.40.
University in 1986 and graduated in 1990. He
then attended Thomas M. Cooley Law School Murphy filed and obtained a consumer
for three years and received his J.D. degree. chapter 7 discharge, then filed an adversary
In 1997, he obtained an L.L.M. from Wayne proceeding against PHEAA and ECMC, al-
State University. He financed his education leging that the portion of the student loans
through approximately $55,000 in student spent on living expenses was nondischarge-
loans issued under the Federal Family able. The bankruptcy court granted summary
Education Loan Program “(FFELP”), 20 judgment in favor of PHEAA and ECMC.
U.S.C. §§ 1071 et seq.
II.
Murphy describes a uniform procedure for The Bankruptcy Code prevents former
receiving the loans: He appeared at the students from discharging educational loans in
financial aid office, discussed his needs, and bankruptcy. 11 U.S.C. § 523(a)(8). Courts
signed a promissory note. The lender have divided over whether students who use a
disbursed the loan to the school, which portion of their student loans for room, board,
withheld tuition and expenses and gave and living expenses can discharge that portion
Murphy the remainder for discretionary
spending. Murphy used the money to
purchase a car, housing, and food and to pay 1
The notes reflect the following dates and
fraternity dues and other ordinary living amounts: (1) May 3, 1993, $7,500; (2) April 18,
expenses. 1994, $8,500; (3) October 4, 1994, $4,500;
(4) April 17, 1995, $2,834; (5) April 17, 1995,
$3,334; (6) August 22, 1995, $5,666; (7) August
*
District Judge of the Southern District of 22, 1995, $6,666; (8) May 3, 1993, $4,000; and
Texas, sitting by designation. (9) April 18, 1994, $5,500.
2
of the debt in bankruptcy. Some courts have nondischargeability. In other words, it is the
held that when the lender makes the loan purpose, not the use, of the loan that controls.
available for educational purposes, no part of Treating FFELP guaranteed loans uniformly,
the loan can be discharged in bankruptcy, re- regardless of actual use, is true to the text and
gardless of the actual use.2 Other courts have will prevent recent graduates from reneging on
held that when the student spends the money manageable debts and will preserve the sol-
on noneducational items and services, that vency of the student loan system.
portion can be discharged.3 We conclude that
the text of the Bankruptcy Code, the Federal A.
Family Education Loan Program (“FFELP”), We review the bankruptcy and district
and Murphy’s promissory notes support court’s interpretation of § 523(a)(8) de novo.4
That section explains that a discharge “does
not discharge an individual debtor from any
2
Constr. Equip. Fed. Credit Union v. Roberts debtSS”
(In re Roberts), 149 B.R. 547, 551 (C.D. Ill. 1993)
(finding it unnecessary to remand to apportion loan for an educational benefit overpayment
proceeds spent on educational expenses and living or loan made, insured or guaranteed by
expenses); In re Pelzman, 233 B.R. 575, 580 a governmental unit, or made under any
(Bankr. D.D.C. 1999) (finding that university’s program funded in whole or in part by a
extension of credit for room and board fell within governmental unit or nonprofit
the scope of an educational loan); Stevens Inst. of institution, or for an obligation to repay
Tech. v. Joyner (In re Joyner), 171 B.R. 762, 764- funds received as an education benefit
65 (Bankr. E.D. Pa. 1994) (finding that room, scholarship or stipend, unless excepting
board, and other living expenses serve an
such debt from discharge under this
educational purpose and refusing to find that por-
paragraph will impose an undue
tion dischargeable); United States Dep’t of Health
and Human Servs. v. Vretis (In re Vretis), 56 B.R. hardship on the debtor and the debtor’s
156, 157 (Bankr. M.D. Fla. 1985) (finding that sti- dependents.
pend that provided for rent and living expenses was
not dischargeable). 11 U.S.C. § 523(a)(8). The section exempts
“educational . . . loan[s] made, insured or
3
Ealy v. First Nat’l Bank (In re Ealy), 78 B.R. guaranteed by a governmental unit.” The plain
897, 898 (Bankr. C.D. Ill. 1987) (finding portion language suggests two limitsSSthe adjective
of loan that student used to purchase truck, pay off
wife’s car, and pay for other miscellaneous
expenses dischargeable in bankruptcy); United
4
States Dep’t of Health & Human Servs. v. Brown We review a bankruptcy court’s legal
(In re Brown), 59 B.R. 40, 43 (Bankr. W.D. La. conclusions de novo. Texas Lottery Comm’n v.
1986) (instructing government to separate portion Tran (In re Tran), 151 F.3d 339, 342 (5th Cir.
of stipend spent on tuition and books from portion 1998). Summary judgment decisions and statutory
spent on rent and living expenses); Dep’t of Mental interpretation questions are legal findings that we
Health, State of Missouri v. Shipman (In re review de novo. Samson v. Apollo Resources,
Shipman), 33 B.R. 80, 82 (Bankr. W.D. Mo. Inc., 242 F.2d 629, 633 (5th Cir.) (statutory
1983) (discharging stipend partially because the interpretation), cert. denied, 122 S. Ct. 63 (2001);
debtor spent the proceeds on rent and living Herman v. Holiday, 238 F.3d 660, 663 (5th Cir.
expenses). 2001) (summary judgment).
3
“educational” and the requirement that a attending school full-time.5
governmental or nonprofit body make or
guarantee the loan. In the alternative, Murphy argues that the
phrase “educational benefit” modifies both
At first cut, PHEEA’s and ECMC’s loans overpayment and loan. He infers that the re-
satisfy these two limits. PHEEA and ECMC sulting phrase “educational benefit loan” re-
made the loans to Murphy pursuant to a quires not only that the lender intend that the
federal statute that provides for educational funds go towards educational purposes but
loans; the government also insured the loans also that the borrower spend the funds on
against Murphy’s default. tuition or books. For three reasons, Murphy’s
interpretation is strained, at best.
Murphy insists, however, that we should
read another limit into § 523(a)(8). He First, the word “educational,” rather than
contends that students may discharge the “educational benefit,” modifies “loan.” When
portion of their educational loans not spent or Congress amended § 523(a)(8) in 1990, it
tuition or books. He points to cases holding replaced “educational loan” with “educational
that “[t]he test for determining whether a loan benefit overpayment or loan.”6 Courts have
is a student loan is whether the proceeds of the interpreted the phrase “educational benefit
loan were used for ‘educational purposes.’” overpayment” to include a category of
E.g., In re Ealy, 78 B.R. at 898 (citations governmental programs that pay students for
omitted). None of these cases considers a loan the anticipated cost of future tuition.7 After
made pursuant to a federal student loan
statute, but Murphy would have us extend 5
their reasoning. He variously argues that the In re Pelzman, 233 B.R. at 580; In re Joyner,
171 B.R. at 764-65.
word “educational” or phrase “educational
benefit” permits students to discharge the por- 6
Before the 1990 amendments, § 523(a)(8)
tion of student loan proceeds spent on living excluded from discharge “an educational loan
or social expenses. made, insured or guaranteed by a governmental
unit, or made under any program funded in whole
The textual hook for Murphy’s argument is or in part by a governmental unit or nonprofit in-
puzzling; he reads too much into the adjective stitution.” 11 U.S.C. § 523(a)(8) (1988). To
“educational.” Section 523(a)(8) does not ex- expand § 523(a)(8)’s scope, the 1990 amendments
pressly state that only loans “used for tuition” added the categories of (1) overpaying a grant and
are nondischargeable. Nor does it define edu- (2) scholarship funds or stipends. Crime Control
cational loans as excluding living or social ex- Act of 1990, Pub. L. No. 101-647, § 3621(a), 104
penses. Barth v. Wis. Higher Educ. Corp. (In Stat. 4964, 4964-65 (1990). See Santa Fe Med.
re Barth), 86 B.R. 146, 148 (Bankr. W.D. Servs., Inc. v. Segal (In re Segal), 57 F.3d 342,
348-49 (3d Cir. 1995).
Wis. 1988) (“The language of section
523(a)(8) does not refer to whether the debtor 7
“An ‘educational benefit overpayment’ is an
or anyone else derived educational benefits.”). overpayment from a program such as the GI Bill
Loans for room and board facilitate an under which where students receive periodic
education and meet expenses incidental to payments while they are enrolled in school, but if
the students receive payments after they have left
(continued...)
4
the 1990 amendments, courts continued to (Merriam-Webster 3d ed. 1986).9 If
examine loans to determine whether they were “educational benefit ” modifies both
“educational loans”;8 no court has suggested “scholarship” and “stipend,” then Murphy’s
that the word “benefit” should reduce the interpretation of the phrase “educational
scope of covered loans. benefit” would eliminate a core meaning of the
word “stipend.” If the second “educational
Additionally, § 523(a)(8)’s second use of benefit” modifies only the word “scholarship”
the word “educational benefit” before and not the word “stipend,” then it is difficult
“stipend” creates a serious problem for Mur- to understand why the second invocation of
phy’s interpretation. The section employs a “educational benefit” should have more limited
parallel structure when describing another type scope than does the first.
of nondischargeable debt as arising from “an
education benefit scholarship or stipend.” In other words, why would Congress have
placed the phrase “educational benefit” before
“Stipend” is defined in part as “a regular two separate series of items in the same
allowance paid to defray living expenses; esp. paragraph and intended for it to modify
a sum paid to a student under the terms of a different elements in each series? The
fellowship or scholarship.” WEBSTER’S THIRD inclusion of the word stipend proves either
NEW INTERNATIONAL DICTIONARY at 2245 that “educational benefit” includes living
expenses or that it describes only the type of
overpayment and not the type of loan.
Finally, even if we were to interpret
7 § 523(a)(8) to require an “educational benefit
(...continued)
loan,” Murphy does not explain why that
the school, that is an educational benefit
overpayment.” College of Saint Rose v. Regner phrase requires us to look to use rather than
(In re Renshaw), 229 B.R. 552, 556 & n.7 (BAP purpose. All Stafford loans are intended to
2d Cir. 1999), aff’d, 222 F.3d 82 (2d Cir. 2000). convey educational benefits, and a grant of
New Mexico Inst. of Mining and Tech. v. Coole living expenses enables a student to attend
(In re Coole), 202 B.R. 518, 519 (Bankr. D.N.M. school full-time, which certainly has
1996); Alibatya v. New York Univ. (In re educational benefits. We now turn to the
Alibatya), 178 B.R. 335, 338 (Bankr. E.D.N.Y. FFELP to examine the unique features of loans
1995); Johnson v. Va. Commonwealth Univ. (In re made pursuant to that federal statute.
Johnson), 222 B.R. 783, 786 (Bankr. E.D. Va.
1998).
8
E.g., In re Renshaw, 229 B.R. at 559-60
9
(characterizing question as whether debtor received Other dictionaries contain even broader de-
an “educational loan” and not an “educational finitions of “stipend.” BLACK’S LAW DICTIONARY
benefit loan”); Shaffer v. United Student Aid at 1426 (West Deluxe 7th ed. 1999) (“A salary or
Funds (In re Shaffer), 237 B.R. 617, 618 (Bankr. other regular, periodic payment.”); XVI OXFORD
N.D. Tex. 1999) (same); In re Pelzman, 233 B.R. ENGLISH DICTIONARY 713 (Oxford 2d ed. 1989)
at 576-77 (same); In re Alibatya, 178 B.R. at 338 (“A fixed periodical payment of any kind, e.g. a
(“The term ‘educational’ is merely an adjective pension or allowance . . . . Also . . . to keep in
describing ‘loan.’”). stipend, to defray the maintenance of.”).
5
B. statutes interact coherently and harmonious-
The FFELP includes living expenses in its ly. 11 If Congress defined living expense al-
loans to full-time students for educational pur- lowances as serving an educational purpose in
poses. First, the FFELP contemplates that stu- the student loan statutes, we should assume it
dents can use federal loans to finance a full- also interpreted those living expense
time education. The statute distinguishes be- allowances as having an educational purpose in
tween students who take heavier course loads the Bankruptcy Code.
and those who take lighter loads.10 Permitting
students to take out loans for living expenses The evidence in this particular case
enables them to attend school full time. confirms that Murphy borrowed money for
living expenses as part of his broader effort to
Second, the FFELP calculates the “costs of obtain an education. In the promissory notes,
attendance” by including allowances for “room he acknowledged that he was borrowing the
and board,” 20 U.S.C. § 1097ll(3), money for educational purposes.12 He later
“miscellaneous personal expenses,” 20 U.S.C.
§ 1087ll(2), and child care, 20 U.S.C.
§ 1087ll(8). The FFELP’s need analysis as- 11
E.g., Pierce v. Underwood, 487 U.S. 552,
sumes that loans must cover a full-time stu- 561-63 (1988) (interpreting phrase “justified to a
dent’s living expenses so that he has the time high degree” in the Equal Access to Justice Act as
and energy to study and attend classes. having the same meaning as the same phrase
contained in other statutes and the Federal Rules of
Murphy argues that the Bankruptcy Code Civil Procedure); Lorillard v. Pons, 434 U.S. 575,
and not the FFELP should define discharge- 584 (1978) (looking to judicial interpretation of
identical terms in other statutes).
able and nondischargeable loans. First,
§ 523(a)(8) has a direct link to the Higher Ed- 12
The PHEAA note provides that the loans
ucational Act, because Congress originally in- were (1) issued under the Federal Stafford Loan
cluded it in the educational act and only later Program and (2) governed by the Higher Education
moved it to the Bankruptcy Code. In re Ship- Act of 1965, 20 U.S.C. § 1070. Murphy rep-
man, 33 B.R. at 82. Second, we should resented on the borrower certification of the note
attempt to give horizontal coherence to the that (1) he must return all loan proceeds not rea-
United States Code and ensure that different sonably attributed to educational expenses for the
cost of attendance on at least a half-time basis; and
(2) the total amount of loans received under the
10
As an initial condition for insurance note would not exceed his maximum eligibility
eligibility, a student must take half of the courses under the Higher Education Act of 1965. The
necessary for full-time enrollment. 20 U.S.C. amount of the PHEAA loans corresponded exactly
§ 1077(a). The need analysis then includes larger to the “cost of attendance” certified by Wayne
living expense allowances for full-time students State University on the note.
and smaller living expense allowances for part-time
or correspondence students. 20 U.S.C. § 1087ll(4) The ECMC note also included a “borrower
(withholding room and board and personal certification” that Murphy would “immediately
expenses from less than half-time students); 20 repay any loan proceeds that cannot reasonably be
U.S.C. § 1087ll (limiting the room and board costs attributed to educational expenses for attendance
of correspondence students to any necessary on at least a half-time basis at the certifying
residential training). (continued...)
6
testified that he borrowed the funds to support create two perverse effects: (1)
his full-time attendance. When a federal Dischargeability would reward irresponsible
student loan statute authorizes the loan, the student borrowers and punish responsible
student signs an agreement to spend the funds borrowers; and (2) the federal government
on educational expenses, and the government would have to pay out more to cover the costs
guarantees the loan, then the loan should be of defaulting students’ loans. Murphy’s
nondischargeable. interpretation would create the type of absurd
result that even rigid textualists seek to
C. avoid.15
Permitting students to discharge student
loans in bankruptcy because the student spent Murphy argues that private lenders
the money on social uses, alcohol, or even currently receive the benefit of governmental
drugs would create an absurd result. Students guarantees on these loans, so these lenders
who used the loan proceeds to finance an edu- have an incentive to expand the scope of “edu-
cation would retain the burden of paying them cational loans.” Perhaps. If so, then the gov-
even after a chapter 7 discharge; irresponsible ernment has the judicial remedy of suing pri-
students who abused the loans would gain the vate lenders directly and the legislative remedy
benefits of discharge. Courts have emphasized of redefining the needs analysis of the FFELP.
two purposes when analyzing § 523(a)(8): (1)
preventing undeserving debtors from abusing
educational loan programs by declaring The potential windfalls of private lenders do
bankruptcy immediately after graduating;13 and not provide a persuasive reason for us to
(2) preserving the financial integrity of the loan rewrite § 523(a)(8). Doing so would affect
system.14 Murphy’s interpretation would the private lenders only indirectly, because the
governmental insurers, rather than private
lenders, would bear the burden of the loss.
12
(...continued) This remedy also would create perverse
school.” incentives for student borrowers, squarely at
odds with the only purposes that Congress has
13
In re Segal, 57 F.3d at 348-49
(acknowledging that § 523(a)(8) was enacted to
14
“remedy abuses of the educational loan system by (...continued)
restricting the ability of a student to discharge an taxpayers.”); In re Alibatya, 178 B.R. at 340
educational loan by filing for bankruptcy shortly (citing a Senate Report, House Report, and Senator
after graduation”); Andrews Univ. v. Merchant (In DeConcini’s statement).
re Merchant), 958 F.2d 738, 740 (6th Cir. 1992)
15
(citing a House report and floor statement by E.g., Green v. Bock Laundry, 490 U.S. 504,
Senator DeConcini). 527 (1999) (Scalia, J., concurring) (“I think it
entirely appropriate to consult all public materials,
14
In re Renshaw, 222 F.3d at 86-87 (“Congress including the background of Rule 609(a)(1) and the
enacted § 523(a)(8) because there was evidence of legislative history of its adoption, to verify that
an increasing abuse of the bankruptcy process that what seems to us an unthinkable disposition . . .
threatened the viability of educational loan was indeed unthought of, and thus to justify a
programs and harm to future students as well as departure from the ordinary meaning of the word
(continued...) ‘defendant.’”).
7
ascribed to the FFELP.
Because the bankruptcy and district courts’
interpretation of § 523(a)(8) best comports
with the text of the Bankruptcy Code and
FFELP, the judgment is AFFIRMED.
8