An analysis of Brunner v New York State Higher Education

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When we talk about getting rid of both private student loans and federal student loans in bankruptcy, we eventually mention the Brunner Test. We know what is: a test that a bankruptcy court uses to measure whether a borrower’s student loans are causing her and her dependents an undue hardship.

But where does the test come from?

The Brunner Test comes from a bankruptcy case decided in the 1980’s: Brunner v New York State Higher Education Services Corp.

That case was actually an appeal from an appeal of a decision made by a bankruptcy judge.

I’ll explain in a second. But first, let’s start with the basics: who's suing who?

Marie Brunner sued NYSHE

Marie Brunner graduated with her Master’s degree in Social work in 1982. She paid for her degree, in part, with federal student loans. In total, she borrowed about $9 thousand dollars.

Less than a year after graduating, Marie filed a chapter 7 bankruptcy. She received a discharge of her most of her unsecured debt like credit card debt, medical bills, etc. But she did not receive a discharge of her student loan debt.

Two months after getting her discharge, her first payment was due to NYSHE on her student loans.

NYSHE is a guaranty agency. Before 2011, guaranty agencies used to lend federal student money to borrowers. That money was backed by the Department of Education.

Rather than set up a payment plan to repay her student loans, Marie returned to the bankruptcy court. She asked the court to discharge her student loans under 11 U.S.C. 523(a)(8) as an undue hardship.

During a brief oral hearing, Marie told the judge about her shaky finances and the inability to find a job within the year since she graduated. The bankruptcy judge issued an oral decision that Marie’s student loans were discharged.

NYSHE appealed to the district court for the Southern District of New York.

What the district court had to say

The district court had a tough job. At that time, there was little authority for the court to look to for guidance.

Click here to read Brunner v. New York State Higher Education Services Corp. (S.D.N.Y. Oct. 14, 1987)

The Bankruptcy Code didn’t, and still doesn’t, define undue hardship. The legislative history of the statute that makes student loans nondischargeable in bankruptcy also offers little help.

Congress didn’t provide any detail to distinguish undue hardship from hardship.

The only crumb the district court could find was in a draft bill proposed by the Commission on the Bankruptcy Laws of the United States.

In that bill, the Commission noted the reason they added the undue hardship language was to combat a “rising incidence of consumer bankruptcies of former students motivated primarily to avoid payment of educational loan debts.”

The Commission believed that the rising incidence went against a general policy that a student who receives the benefit of a student loan that helps her earn substantially greater income over her working life, shouldn’t be able to discharge her student loans before she demonstrates that she can’t earn enough income to maintain herself and her dependents while repaying her debt.

To try and calculate undue hardship, the Commission sketched a test that looked at the borrower’s reliable income and wealth in comparison to her student loan debt. Based on her reliable income, if it looks like the borrower can’t maintain a minimal standard of living while paying off the student loan debt, then the student loans are an undue hardship.

After looking at the Commission’s draft bill, the district court reviewed cases from other bankruptcy courts. What the court was attempting to do was to see how other courts have tried to analyze undue hardship.

Click here to read How to File an Adversary Proceeding to Discharge Student Loans.

Could Brunner prove hardship?

What the district court settled on after its review was a test that analyzed undue hardship by asking three questions:

  1. If forced to repay the loans, can the debtor, based on her current income and expenses, maintain a minimal standard of living for herself and her dependents?
  2. Is her current state of affairs likely to persist for a significant portion of the student loan repayment period?
  3. Has she made a good faith effort to repay her student loans?

These three questions are the Brunner test.

The district court looked at Marie’s facts to try and decide if she should get a discharge of student loans.

Minimal Standard of Living

Marie had no dependents. Her financial resources were slim. She was receiving about $300/month in government aid. Her documented expenses were around $200/month. As for savings, she had about $2600 in the bank 2 months before the hearing before the district court. At the time of the hearing, she had $200.

The district court found that Marie, based on her current income and expenses, showed she couldn’t maintain a minimal standard of living for herself.

Likely Persistence

The court found that Marie was presumably healthy, intelligent, and well-educated. In the court’s mind, there was no reason why Marie would continue to have poor job prospects. The court believed she would likely find a job in the near future that would increase her monthly income so she could maintain a minimal standard of living while repaying her student loans.

The district found that there was no evidence there were additional circumstances that showed Marie’s current financial circumstances were likely to persist into the future.

Good Faith

Marie filed her adversarial proceeding within a month after her first payment was due on her student loans. Stated differently, she didn't make a loan payment. She didn't request a deferment or forbearance. Basically, Marie never attempted to repay her student loan debt.

The district court found that Marie hadn’t made a good faith effort to repay her debts.


The district court reversed the bankruptcy judge’s decision and directed her student loans be declared nondischargeable.

Marie appealed pro se to the Second Circuit Court of Appeals.

What the Circuit Court had to say

On appeal, the Second Circuit Court, over 6 short paragraphs, agreed with the district court. And with their agreement, the Brunner test was created and an undue hardship standard was set.

Click here to read Brunner v. New York State Higher Education Corp., (2d Cir. 1987)

Trying to get rid of student loans in bankruptcy would never be the same.

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