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Student-loan Dischargeability Does the Doctrine of Laches Apply

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Over the last three decades, Congress has attempted to make the collection of defaulted student loans easier and their dischargeability more difficult. To this effect, the Education Amendments of 1976, §439A (EA), was passed.2 Section 439A, later codified at 11 U.S.C. §523(a)(8), provided that student loans were not dischargeable in bankruptcy unless failure to discharge the debt would cause an undue hardship on the debtor or their dependents.3 Section 439A was a reaction to the rapid increase in the number of bankruptcies filed by recent college graduates who were not in financial distress, but still filed bankruptcy for the purpose of discharging their student loans.4

Despite the intended difficulty §523(a)(8) was meant to create by preventing discharge of student loan obligations, defaults still continued to rise. Collection efforts were hindered by divergent federal and state statutes of limitations.5 Congress, apparently finding that "[s]tatutes of limitation find their justification in necessity and convenience rather than in logic,"6 acted to normalize student-loan collection statute-of-limitations provisions.

Standardization of the divergent statute of limitations was accomplished in The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).7 COBRA provided that, "[n]otwithstanding any provision of state law that would set an earlier deadline for filing suit..."8 "the United States could file suit to recover on defaulted student loans"9 "until [six] years following the date on which the loan [wa]s assigned to the Secretary [of Education]."10

Congress again amended the statute-of-limitations provision in 1991.11 Legislators commented that the complete elimination of a statute-of-limitations provision resulted in "[s]ubstantial additional collections of defaulted guaranteed student loans..."12 At the request of the administration and pursuant to the Higher Education Technical Amendments Act of 1991 (HETA), Congress removed the statute of limitations on an interim basis13 and later eliminated the statute of limitations altogether as codified in 20 U.S.C. §1091(a).14 Congress further strengthened the recovery provisions of HETA by making the amendments effective as if enacted by COBRA of 1985.15 "As a necessary consequence of th[is] express retroactivity clause, actions that had become time-barred after the enactment of COBRA...were revived."16 Therefore, regardless of when a student loan default had occurred, the loans again became subject to collection efforts.

Debtors—confronted with the retroactivity clause of §1091(a) and a delay by the government in initiating the recovery of their defaulted loans—have attempted several indirect novel theories in an attempt to escape collection efforts. Debtors have alleged that the retroactivity clause violates the Fourteenth Amendment's guarantee of due process and equal protection.17 This argument has been rejected because "[i]t is within the power of Congress to enact such revivals because the repeal of a statute of limitations on personal debts does not deprive a debtor of property in violation of...due process..."18

Debtors have attempted to maneuver around the retroactivity clause by arguing that it is inapplicable due to lack of consideration or because of the ex post facto effect of the clause. Courts have rejected both arguments. In rejecting the consideration argument, one court found that "[f]ailure of consideration is the legal claim that a person did not get something of value in exchange for his promise to pay. In a student loan case, what the student got from the lender was money, and its value is unquestionable."19 The invocation of the ex post facto clause has similarly been rejected because "[the] prohibition applies only to criminal or penal measures that are applied retroactively."20

Debtors attempting a direct challenge to the retroactivity clause have used a laches argument. In an effort to use laches, debtors argue that due to the unreasonable or negligent delay by the government in its collection efforts, their student loans should no longer be recoverable. A debtor attempting to use the laches doctrine faces several difficulties. First, student loan debts are presumptively nondischargeable pursuant to 11 U.S.C. §523(a)(8).21 Thus, the obligee of a student loan debt does not have to take any action for their debt to be preserved, and the obligor is faced with the task of establishing that the loans prove an undue hardship, thus negating the presumption of nondischargeablity.22 Second, the retroactivity clause appears to allow the student loan obligee to take no action to effectuate recovery, regardless of how long the loan has been outstanding, even if no efforts to collect the loan or to notify the obligor of a default have been undertaken.

Third, the application of laches "is generally inapplicable against the government."23 This traditional rule "originated from notions of royal privilege, but in modern times has been consistently attributed to the public policy of preserving public rights and property against the negligence of public officers."24 The circuits are nearly unanimous in holding that "the doctrine of laches may not be asserted against the United States when it is acting in its sovereign capacity to enforce a public right or to protect the public interest..."25

The lone abstention from this majority is the Federal Circuit. In S.E.R., Jobs for Progress Inc. v. United States,26 the S.E.R. court created a limited exception to the sovereign-immunity doctrine, holding that "laches cannot ordinarily be invoked as a defense to legal claims where a statute of limitations is normally available to preclude the recovery of state claims, unless the offended party has been unmistakably prejudiced by the delay in the assertion of the claim."27 S.E.R.'s exception, possibly allowing use of the laches doctrine where "the government brings an action on a contract"28 was carved out pursuant to Public Law 89-505, was later codified at 28 U.S.C. §2415, which was the former applicable statute covering student loan statute of limitations.29

However, "Congress's retroactive elimination of all statutes of limitations for actions to recover defaulted loans appears to indicate precisely the opposite intent...[t]hat is, by retroactively eliminating all statutes of limitation and reviving claims previously time-barred...Congress sought to erase obstacles that the government might encounter in collecting defaulted loans."30 The codification of 20 U.S.C. §1091(a) abrogates S.E.R.'s. applicability in the context of student loan default collections.

Fourth, all the circuits that have reviewed the retroactivity clause of §1091(a) have rejected the laches defense, holding instead that the retroactivity clause "eliminates all limitation defenses for collection of student debts."31 In United States v. Sullivan,32 the Ninth Circuit Court of Appeals held that "there is no statute of limitations preventing the collection of...student loan debt [and even if laches applied, the debtor] failed to demonstrate [material] prejudice."33 Likewise, the Fifth Circuit Court of Appeals in United States v. Lawrence34 held that the retroactivity clause "extends to eliminate the equitable defense of laches."35 Several district courts facing these same questions have also held that the laches defense, due to Congress's creation of the retroactivity clause, is inapplicable.36

Nevertheless, even assuming the laches defense still applies, and despite Congress's apparent abrogation, a debtor would still need to establish that there was an unreasonable delay in bringing the enforcement action and the delay caused material prejudice.37 Of the courts that have discussed the application of laches, only one has found that the government's attempt to recover student loan obligations was time-barred.38 In United States v. Rhodes,39 the court, faced with a 17-year-old student loan debt in which the original lender and the school the debtor attended had dissolved and the original records had all been destroyed, found that material prejudice had been clearly established.40 The court, applying laches, barred the government's claim. Other courts not presented with the compelling factual circumstances present in Rhodes have not accepted the laches defense.41

A debtor faced with a student loan obligation, where the timeliness of the government's collection efforts is called into question, is better served by foregoing the laches defense. The S.E.R. decision, while factually supporting at least the possibility of using laches, was made pursuant to 24 U.S.C. §2415. 20 U.S.C. §1091(a), and by its express terms negates §2415 and, consequently, the S.E.R. decision, thus eliminating the laches defense.

Even if the clear and unequivocal language of §1091(a) is ignored, as the district court in Rhodes chose to do, the standard for applying laches is still exceptionally high. The obligee has to show both that the government's delay was unreasonable and that as a result of the delay, material prejudice has resulted. Only the Rhodes court, faced with unusual facts limited to that case, has found that the debtor met the unreasonableness and material prejudice burden. The decision in Rhodes, though factually compelling, is singularly unique and unsupported by §1091(a). Unless a debtor has a set of extremely extenuating factual circumstances and is before a court willing to ignore the clear statutory language of §1091(a), a debtor would be better served crafting an argument pursuant to §523(a)(8)'s undue-hardship test and avoiding the laches argument.42 The obvious congressional intent and the wording and judicial application of §1091(a) make clear that the laches defense is statutorily abrogated.43


1 Law clerk to Hon. Arthur B. Briskman, U.S. Bankruptcy Judge for the Middle District of Florida. The views expressed herein are solely those of the author. The author would like to thank Creighton Miller for his assistance. Return to article

2 See Education Amendments of 1976, Pub.L. No. 94-482, 90 Stat. 2081, 2141 (codified at 20 U.S.C. §1087-3 (1976) (repealed 1978)). Return to article

3 See Campbell, Andrew M., "Bankruptcy Discharge of Student Loan on Ground of Undue Hardship Under §523(A)(8)(B) of Bankruptcy Code of 1978," 144 A.L.R. Fed. 1 (2004). The Act also allowed a discharge of student loans if "the debt became due more than five years before the date of the filing of the bankruptcy petition." The five-year wait period was eliminated when §523(A)(8)(B) was adopted into the Bankruptcy Code of 1978. Return to article

4 See Id. Return to article

5 The Higher Education Act of 1965 §484A did not have an express statute-of-limitations provision. Instead, 28 U.S.C. §2415(a), which articulates time for commencing actions brought by the United States, provided a six-year statute of limitations; see, also, former 20 U.S.C. §1091a(a)(4)(C) of the Higher Education Act of 1965 §484A, stating, "[T]he attorney general may file suit for collection of the amount due from a borrower on a loan...until six years following the date on which the loan is assigned, transferred or referred to the secretary..." Return to article

6 Chase Securities Corp. v. Donaldson, 325 U.S. 314, 65 S.Ct. 1142, 89 L.Ed. 1628 (1945). Return to article

7 The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Pub.L. No. 99-272, 100 Stat. 82 (1986), effective April 7, 1986. Return to article

8 Id. Return to article

9 United States v. McLaughlin, 7 F.Supp.2d 90, 91 (D. Mass. 1998). Return to article

10 See The Higher Education Act of 1965 §484A (formerly codified at 20 U.S.C. §1091a(a)(4)). Return to article

11 See The Higher Education Technical Amendments of 1991(HETA), Pub.L.No. 102026, 105 Stat. 23 (1991). Return to article

12 137 Cong. Rec. H1808-02 (Mr. Ford). Rep. Ford and others were concerned that if the statute of limitations for collection and offsets of student loan obligations against tax refunds, nearly $180 million "already collected through tax refund offsets [may have to be returned] and that an additional $64.2 million per year [would not be collected]." Return to article

13 See HETA §3(a)-(c), Pub.L. No. 102-26, 105 Stat. 123 (1991). Return to article

14 See HETA §3(c), Pub.L. No. 102-325, §1551, 106 Stat. 448, 838 (1992); see, also, 20 U.S.C. §1091(a), stating, "Notwithstanding any other provision of statute, regulation or administrative limitation, no limitation shall terminate the period within which suit may be filed, a judgment may be enforced or an offset, garnishment or other action initiated or taken." Return to article

15 See HETA §3(c), Pub.L. No. 102-325, §1551, 106 Stat. 448, 838 (1992). "The amendments originally applied only to "actions pending on or after the date of enactment of [HETA]..." See Pub.L.No. 102-325, §1551, 106 Stat. 448 (1992). However, when the interim status was removed from the amendment, it became retroactively applied to the COBRA of 1985. Return to article

16 McLaughlin, 7 F.Supp.2d at 91; see, e.g., United States v. Phillips, 20 F.3d 1005, 1007 (9th Cir. 1994); United States v. Hodges, 999 F.2d 341, 341-42 (8th Cir. 1993); United States v. Glockson, 998 F.2d 896, 896-97 (11th Cir. 1993). Return to article

17 See, e.g., United States v. Dwelley, 59 F.Supp.2d 115, 118 (D. Me. 1999) (rejecting due process violation claim). Return to article

18 McLaughlin, 7 F.Supp.2d at 91, quoting United States v. Hodges, 999 F.2d at 342; see, also, Sibley v. U.S. Department of Education, 913 F.Supp. 1181, 1188-89 (N.D. Ill. 1995) (finding that "...retroactive repeal of a limitations period applicable to monetary debts does not violate due process. [citation omitted] Statutes of limitations are legislatively created defenses, not constitutionally protected 'property,' and thus are subject to legislative amendments, including retroactive appeals."). Return to article

19 United States v. Durbin, 64 F.Supp.2d 635, 637 (S.D. Tex. 1999); see, also, United States v. Davis, 817 F.Supp. 926 (M.D. Ala. 1993) (finding that student received the loan and "that [the court could not say that] her failure to receive an education was not her own fault."). Return to article

20 United States v. Dwelley, 59 F.Supp.2d 115, 119 (D. Me. 1999). Return to article

21 11 U.S.C. §523(a)(8) states that "[a] discharge under...this title does not discharge...any debt for an education benefit overpayment or loan made...unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents." See, also, committee notes to §523(a)(8), stating, "[t]his provision is intended to be self-executing, and the lender or institution is not required to file a complaint to determine the non-dischargeability of any student loan." Return to article

22 For more on the standard for proving undue hardship pursuant to 11 U.S.C. §523(a)(8), see Gaumer, Craig Peyton, "Chaos in the Courts: The Meaning of 'Undue Hardship' in 11 U.S.C. §523(a)(8) and the Argument for Establishing a Uniform Federal Standard," ___ Am. Bankr. J. ____ (2004). Return to article

23 United States v. Rhodes, 788 F.Supp. 339, 342 (E.D. Mich. 1992). Return to article

24 S.E.R., Jobs for Progress Inc. v. United States, 759 F.2d 1, 7 (Fed. Cir. 1985); see, also, Guaranty Trust Co. v. United States, 304 U.S. 126, 132, 58 S.Ct. 785, 788, 82 L.Ed. 1224 (1938); United States v. 93 Court Corp., 350 F.2d 386, 388 (2d. Cir. 1965). Return to article

25 See United States v. Menatos, 925 F.2d 333 (9th Cir. 1991); Bostwick Irrigation District v. United States, 900 F.2d 1285 (8th Cir. 1990); United States v. St. John's General Hospital, 875 F.2d 1064 (3rd Cir. 1989); United States v. Popovich, 820 F.2d 134 (5th Cir. 1987); United States v. Hughes House Nursing Home Inc., 710 F.2d 891 (1st Cir. 1983); Cassidy Comm'n. Co. v. United States, 387 F.2d 875 (10th Cir. 1967). Return to article

26 S.E.R., 759 F.2d 1. Return to article

27 Id. at 8. Return to article

28 Id. at 7. Return to article

29 The Federal Circuit Court of Appeals in S.E.R. stated that "the clear purpose of Congress...was to promote fairness to parties defending against state government contract and tort claims notwithstanding whatever prejudice might accrue thereby to the government as a result of the negligence of its officers." S.E.R. at 8. Return to article

30 United States v. Davis, 817 F.Supp. 926, 929 (M.D. Ala. 1993); aff'd., 17 F.3d 1439 (11th Cir. 1994). Return to article

31 United States v. Lawrence, 276 F.3d 193, 196 (5th Cir. 2001); see, also, Millard v. United Student Aid Funds, 66 F.3d 252 (9th Cir. 1995); United States v. Phillips, 20 F.3d 1005 (9th Cir. 1994); United States v. Glockson, 998 F.2d 896 (11th Cir. 1993). Return to article

32 United States v. Sullivan, 2003 WL 21418500 (9th Cir. 2003). Return to article

33 Id. at 1. Return to article

34 United States v. Lawrence, 276 F.3d 193 (5th Cir. 2001). Return to article

35 Id. at 196. Return to article

36 See United States v. McLaughlin, 7 F.Supp.2d 90 (D. Mass. 1998) (noting the court might have considered laches if a "special hardship" had been present); United States v. Smith, 862 F.Supp. 257 (D. Ha. 1994); United States v. Wright, 850 F.Supp. 965 (D. Utah 1993); United States v. Davis, 142 B.R. 293 (D. Ind. 1992). Return to article

37 See, e.g., S.E.R., 759 F.2d 1. Return to article

38 In United States v. Zue, 704 F.Supp. 535 (D. Vt. 1988), the court held that the government's student loan collection case could be barred by laches. However, Zue was decided prior to Congress's allowance of the retroactivity clause. Return to article

39 United States v. Rhodes, 788 F.Supp. 339 (E.D. Mich. 1992). Return to article

40 Id. at 343. Return to article

41 See, e.g., Sibley v. U.S. Dept. of Education, 913 F.Supp. 1181 (N.D. Ill. 1995) (rejecting reliance on laches and finding that the "facts here present neither an unreasonable delay...nor harm or prejudice to [the defendant] caused by the passage of time..."); United States v. Robbins, 819 F.Supp. 672 (E.D. Mich. 1993) (rejecting laches defense because the "government acted in a sufficiently timely manner to bar laches against it..."); United States v. Zue, 704 F.Supp. 535 (D. Vt. 1988) (rejecting laches defense under prior six-year statute of limitations, stating, "[t]he only delay that defendant has alleged was the university's assignment of the loan to the government, and during this time the university was actively pursing various means of collection. No prejudice to the defendant, therefore, has been shown..."). Return to article

42 See Gaumer at 22, supra. Return to article

43 See Lawrence at 276 F.3d 193. Return to article

Journal Date: 
Thursday, July 1, 2004

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