Chief Bankruptcy Judge Tad J. Collins for the U.S. Bankruptcy Court for the Northern District of Iowa continues to lead the way on discharging student loan debt in the Eighth Circuit.   In February 2019 Judge Collins found that a debtor was entitled to an undue hardship discharge of $230,000 in student loans. See In re Martin 16-9052 (Bankr. N.D. Iowa Feb. 16, 2018).  More recently, on July 10, 2019, in the case of In re Swafford[1], Judge Collins issued another court order in favor of a husband and wife, by discharging all but $23,900 of their $154,000 in student loan debt.

Under the Bankruptcy Code, student loan debt is generally non-dischargeable unless “excepting such debt from discharge…would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8).  The majority of circuit courts employ the Brunner test, which imposes a higher burden requiring debtors to show that repaying their student loans would force them and their dependents below a minimal standard of living. The Eighth Circuit employs the more lenient “totality of circumstances” test in which debtors must prove, by a preponderance of the evidence, that continuing to be obligated on their student loans would impose an undue hardship.

In Swafford, the husband had a bachelor’s degree in psychology, but earned more income working at a factory where he grossed approximately $49,600 annually.  His wife, a stay at home mom, cared for their three dependent children. The wife also had a fourth child with her ex-husband who had custody of the child and whom she owed child support arrears. The wife had minimal work history, and whenever she would work she was subject to child support garnishments, that would leave her with less than $200 for take home pay. The husband had eight separate student loans totaling approximately $137,000 and the wife had one student loan for $17,000.

Judge Collins in his opinion applied the Eighth Circuit’s “totality of circumstances” test to determine whether debtors’ student loans were an undue hardship and should be discharged. In doing so, Judge Collins found that the wife’s inconsistent work history, lack of work experience/skills, and child support arrears made it unlikely that she will ever have any disposable income to pay toward her student loan and therefore she was entitled to a discharge of her student loan debt.

In determining whether the husbands eight student loans were an undue hardship, Judge Collins found that the husband’s income was not likely to increase significantly in the future because he lacked skills for promotion in the factory where he had worked for several years. The husband’s income covered most of the necessary household expenses but not much more. However, Judge Collins stated that although a debtor “is not expected or required to implement every conceivable cost savings measure”, the husband has “some opportunities for reduction”, but not enough for him to make significant payments on all his student loans. This factor weighed against discharging all the husband’s student loans.

Judge Collins said that the Eighth Circuit does not allow partial discharge of a student loan, “it is all or nothing”. However, when a debtor has several student loans, the court may determine whether each loan, separately imposes an undue hardship and may discharge some loans while declining to discharge others. The Court found that the husband’s five largest loans imposed an undue hardship and were entitled to discharge. The Court found through spending reductions, the husband could repay the three smallest loans totaling approximately $23,900.

The student loan companies argued that the couple’s eligibility for an income-based repayment plan (“IBR”), made the student loans affordable and not an undue hardship because based on the couple’s income they qualified for a monthly IBR payment of $0. Judge Collins conceded that IBR was a relevant factor, but monthly payments of $0 does not erase the undue hardship on the debtor. The mental and emotional stress of the student loans debt continuing grow under IBR and the debtor’s inability to obtain future credit due to the mounting debt is still cause the debtor an undue hardship.

The ruling in Swafford has many implications for debtors and student loan companies.  The key lessons being that (1) had the husband consolidated all eight of his student loans into one, then Judge Collins more than likely would have discharged all his student loan debt under the Eighth Circuit position that a bankruptcy court cannot discharge a portion of a student loan. It’ all or nothing. By having several separate student loans Judge Collins was able to determine that the husband could pay the three smallest student loans; (2) Debtors in the Eighth Circuit may want to consider consolidating their student loans before filing bankruptcy to prevent the court from discharging only some of the debtors’ student loans; and (3) Student loan companies cannot rely on income based or income contingent repayment plans with minimal to no monthly payment requirement to counter that a student loan is not an undue hardship. The magnitude of the student loan balance can cause an undue hardship on the debtor’s mental and emotional well-being, even if no monthly payment is required.

Debtors’ and creditors’ rights, obligations, and potential liabilities under the Bankruptcy Code can be hard to navigate. If you need assistance understanding how to safely proceed in Bankruptcy Court, contact the experienced attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.


[1] Swafford v. King (In re Swafford), 16-09012 (Bankr. N.D. Iowa July 10, 2019).

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