In a surprising decision, the U.S. Supreme Court has ruled, in United Student Aids Funds v. Espinosa, that a student may discharge the interest on their student loan debt, even though the student did not allege “undue hardship” if required to repay the loans. When the student, Francisco Espinosa, sought bankruptcy protection and submitted his plan to the bankruptcy court judge, the student loan creditor, United Student Aids Funds, did not object. Instead, the creditor later sought to void the plan under Federal Rule of Civil Procedure 60(b)(4).
Writing for a unanimous Court, Justice Thomas stated, “Rule 60(b)(4) does not provide a license for litigants to sleep on their rights…Where, as here, a party is notified of a plan’s contents and fails to object to confirmation of the plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate, and the party’s failure to avail itself of that opportunity will not justify Rule 60(b)(4) relief.”
As a general rule, student loans are considered non-dischargeable in the absence of proof of undue hardship to the debtor if required to repay the loans. Will this ruling by the Supreme Court breathe new life into the question of student loan dischargeability? That remains to be seen. It certainly gives more than a faint glimmer of hope in an area of bankruptcy law that many students and graduates have argued should be subject to at least partial dischargeability.
For further information on the procedural history of this important new case, you may check out these links to the ABA here and here. You may also refer to the SCOTUS blog here. I have also placed a PDF of the Espinosa decision in the Box for downloading.