UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
SUSAN M. RICE
DEBTOR CASE NO. 94-20068
SUSAN M. RICE PLAINTIFF
VS. ADV. NO. 94-2017
COMMONWEALTH OF KENTUCKY HIGHER
EDUCATION ASSISTANCE AUTHORITY,
et al. DEFENDANTS
FINDINGS OF FACT
CONCLUSIONS OF LAW
This matter came on for trial before the Court on August 10, 1994. The Court having considered testimony offered at trial, the joint stipulation of the parties, the briefs of the parties, and the documentary and other pertinent evidence of record in this case, and being otherwise fully advised, now, in accordance with Rule 52 of the Federal Rules of Civil Procedure, made applicable herein by Rule 7052 of the Federal Rules of Bankruptcy Procedure, makes the following Findings of Fact and Conclusions of Law:
Findings of Fact
The plaintiff and defendants Kentucky Higher Education Assistance Authority ("KHEAA"), Illinois Student Assistance Commission ("ISAC"), and USA Group, Inc. entered into a Joint Stipulation which set out the following facts:
The plaintiff, a 30 year old female, attended the University of Kentucky from August 1982 to June 1986, and obtained a B.S. degree in psychology. She obtained a loan from KHEAA in the original principal amount of $4,712.00. She made some payments on this loan, the last being made on July 21, 1988. The outstanding balance of principal and interest as of July 23, 1994, was $4,351.58, with interest accruing at the rate of $0.99 per day.
The plaintiff enrolled as a candidate in a five year doctoral degree program in clinical psychology at the University of Health Sciences/The Chicago Medical School in August 1988. While pursuing this degree the plaintiff obtained the following student loans:
1. Stafford loans through the Illinois Designated Account Purchase Program in the original principal amount of $26,250.00 for the academic years August 1988 through June 1992. The outstanding balance of principal and interest on these loans is $27,017.98 as of July 27, 1994;
2. SLS loans through the Educational Loan Servicing Center in the original principal amount of $14,000.00 for the academic years August 1988 through June 1992. The outstanding balance of principal and interest on these loans is $19,548.55 as of June 24, 1994, with interest accruing at the rate of $3.63 per day;
3. Perkins loans through the University of Health Sciences/The Chicago Medical School in the original principal amount of $3,150.00 for the academic years August 1988 through June 1992;
4. HEAL loans through the Loan Servicing Center in the original principal amount of $13,000.00 for the academic years August 1989 through June 1992. The outstanding balance of principal and interest as of May 31, 1994, is $16,468.24; and
5. PEP loans through Educational Loan Services, Inc. in the original principal amount of $2,000.00 for the academic years August 1988 through June 1989.
Since March 6, 1993, the plaintiff has been under the care of Dr. Jarl E. Dyrud Jr., a psychiatrist practicing in Cincinnati, Ohio. She has been diagnosed with schizo-affective disorder, a condition in which components of schizophrenia present individually and co-exist with depression. She has been hospitalized six times since March 1993, including a hospitalization on account of a suicide attempt on February 28, 1994. She also spent approximately three months in a hospital outpatient program in 1993.
The plaintiff began full-time employment on June 1, 1994, at The Welcome House, a social service agency in Covington, Kentucky, at a yearly salary of $16,500.00. She resides with her mother and has been paying $200.00 per month for room and board since she became employed. Plaintiff's father has been diagnosed with schizo-affective disorder, and has suffered from mental illness for approximately forty years.
The plaintiff's schizo-affective disorder is likely to be chronic in nature, and it has prevented her from obtaining a Ph.D. or Masters degree in psychology. It is therefore unlikely that she will be able to obtain and maintain employment that will allow her to repay her student loans. Based upon her projected monthly budget, her expenses will exceed her income.
Conclusions of Law
This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(I). Determination of the dischargeability of student loans is made pursuant to 11 U.S.C. '523(a)(8). In the instant case, the debtor claims pursuant to '523(a)(8)(B) that excepting her student loan debt from discharge will impose an undue hardship on her.
Case law has established a tripartite test for determining whether the repayment of student loans will cause undue hardship. The elements of the tripartite test are the mechanical test, the good faith test, and the policy test. In re Berthiaume, 138 B.R. 516 (Bkrtcy.W.D.Ky. 1992). The debtor meets the requirements of the mechanical test in that her financial resources in the foreseeable future will not be sufficient to enable her to maintain a minimal standard of living if she is required to repay her student loan obligations.
The debtor meets the requirements of the good faith test in that she has made a bona fide attempt to find and retain a good-paying job in order to maximize her financial resources, and is living with her mother in order to minimize her expenses. She meets the requirements of the policy test because there is no indication that she is attempting to abuse the bankruptcy system by having her student loans discharged.
This Court therefore concludes that the debtor's student loans as set out hereinabove are dischargeable pursuant to 11 U.S.C.'523(a)(8)(B), and judgment will be entered for her accordingly.
Dated this ____ day of September, 1994.
By the Court -
Sharon S. Elliston, Esq.
Diana L. Barber, Esq.
Terry Risner, Esq.
David J. Hershman, Esq.