On Appeal from the United States District Court for the Western District of Pennsylvania. (D.C. Civ. No. 92-00054E).
Before: Sloviter, Chief Judge, Greenberg, Circuit Judge, and Pollak, District Judge.
The issue before us, whether a non-student co-obligor of a guaranteed educational loan may be discharged from that debt in bankruptcy without proving one of the statutory exceptions, is one of first impression in the courts of appeals. Over the last ten years, the bankruptcy courts have divided on this issue,*fn1 although the three district courts to have considered it have decided against discharge.*fn2
Facts and Procedural History
The relevant facts were stipulated in the bankruptcy court. Appellant Virginia M. Pelkowski, a/k/a Virginia M. Dodd, filed a voluntary petition for Chapter 7 bankruptcy and listed among her debts seven loans guaranteed by the Ohio Student Loan Commission for the educational expenses of her children, Christine and Michael. Pelkowski filed a complaint against the Loan Commission to determine dischargeability of the seven loan debts under Bankr. Rule 4007 and 11 U.S.C. § 523(a)(8) (1988).
Pelkowski signed six of the notes as co-maker, four with Christine and two with Michael.*fn3 As of April 23, 1991, Pelkowski's liability was $7,163.74 plus 9% interest on the loans for Christine's educational expenses and $3,817.12 plus 9% interest on the loans for Michael's educational expenses.
The bankruptcy court ordered the debts discharged. The court held that 11 U.S.C. § 523(a)(8), the statutory provision limiting dischargeability of debts for certain educational loans, was inapplicable to non-student co-makers of notes for such loans. Thus, Pelkowski was not required to prove either of the exceptions to nondischargeability, i.e., that the loan came due more than five (now seven) years before she filed the bankruptcy petition, 11 U.S.C. § 523(a)(8)(A), or that nondischarge of the debt would create "undue hardship" for her and her dependents, id. § 523(a)(8)(B). The bankruptcy court acknowledged that there was a split of authority, but chose to follow cases such as In re Boylen, 29 Bankr. 924, 926-27 (Bankr. N.D. Ohio 1983), which held that section 523(a)(8) was intended to apply only to student obligors. The Loan Commission appealed.
The district court reversed. It distinguished Boylen, treating as dictum the Boylen court's Discussion of the applicability of section 523(a)(8) to non-student co-makers of loan notes. Instead, the district court agreed with the majority of recent bankruptcy court decisions which held that section 523(a)(8) applies equally to non-student co-makers and student makers. See cases cited note 1 supra. In view of the parties' stipulation in the bankruptcy court that Pelkowski could not meet either of the statutory exceptions to discharge, the district court held that the six loan debts were nondischargeable.
There was a seventh note which Pelkowski signed as sole maker for the educational expenses of Christine. The bankruptcy court, relying on In re Hudak, 113 Bankr. 923 (Bankr. W.D. Pa. 1990), held that Pelkowski's debt as sole maker was nondischargeable and ordered the debt of $1,388.89 plus 12% interest not discharged. Pelkowski apparently conceded this issue and did not appeal the order of nondischargeability of that debt to the district court, nor does she challenge that holding here.
Pelkowski appeals the order holding nondischargeable the six loans on which she served as co-obligor. We have jurisdiction under 28 U.S.C. § 158(d) (1988). As this case turns on the interpretation of a provision of the Bankruptcy Code, our review is plenary. In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992).*fn4
The Guaranteed Student Loan Program (hereafter Program), which was established as part of the comprehensive Higher Education Act of 1965, was designed to assure that colleges and students attending colleges would have reasonable access to low interest rate loans. S. Rep. No. 673, 89th Cong., 1st Sess. (1965), reprinted in 1965 U.S.C.C.A.N. 4027, 4030. Under the Program, educational loans from banks, credit unions, educational institutions, and other lenders are insured by the United States Department of Education or by state agencies or nonprofit organizations and reinsured by the Department of Education. 20 U.S.C. §§ 1078, 1084, 1085(d) (1988); see H.R. Rep. No. 595, 95th Cong., 2d Sess. 135, 140 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6096, 6101. If the borrower fails to make repayments because of death or disability, or is relieved of the ...