The Real Student-Loan Scandal: Undue Hardship Discharge Litigation

For a debtor to obtain a discharge of educational debt in bankruptcy, an adversary proceeding between the debtor and the creditor must be initiated, and the debtor must establish that repayment of the debt would impose an undue hardship. This empirical study documents and analyzes trial-level outcomes of such proceedings. An original data set has been compiled of all terminated undue hardship discharge proceedings in the U.S. Bankruptcy Court for the Western District of Washington that were commenced during the five-year period beginning on January 1, 2002 and ending on December 31, 2006. The study seeks to provide an account of the determinants of the extent of discharge obtained by debtors, whether through settlement or through court adjudication. Bivariate and regression analyses of the data reveal that case characteristics that decisional law would deem irrelevant to the merits of a debtor's claim of undue hardship, such as the level of experience of the debtor's attorney and the identity of the judge assigned to the debtor's adversary proceeding, predominate the group of determinants of the extent of discharge. We conclude that our findings raise serious concerns regarding access to justice and thus challenge long-standing assumptions regarding the propriety of discharge litigation for relief from student loans in a bankruptcy system designed to provide a fresh start for debtors.