In Arizona it is possible to discharge student debt, in whole or in part, but it is a difficult process. Arizona applies the test set forth in the case of Brunner v. New York State Higher Educational Services Corp. 831 F.2d 395 (2nd Cir. 1987). The Brunner test allows the discharge of a student loan as an “undue hardship” where all of the following three circumstances can be proven to exist:
- The debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if he must repay the student loan;
- Additional proof must exist to show that these circumstances are likely to persist for a significant portion of the repayment period; and
- The debtor has made significant efforts to repay the loan.
In practice, proving these three items has been difficult for all but the poorest of debtors. In 2006 debtors got a little help from the Court in the case of Educ. Credit Management Corp. v. Nys 446 F3d 938 (9th Cir. 2006). The Nys court listed a number of circumstances that could help debtors prove that their current poor circumstances will continue. These are:
- Serious disability of the debtor or his dependents
- The debtor’s obligation to care for dependents.
- Lack of education
- Poor quality of education
- Lack of job skills
- Maximized income in job and no better paying jobs available
- Advanced age
- Factors that may preclude retraining
- Lack of assets
- Increasing expenses
- Lack of better job opportunities elsewhere.
Finally, in 2013, the 9th Circuit signaled that it might loosen eligibility standards for the discharge of student loans in the case of Hedlund v. Educational Resources Institute, Inc. 718 F. 3d 848 (9th Cir. 2013). The Hedlund case established that it is possible to partially discharge a student loan in Arizona and, also, that a debtor does not need to be destitute to be eligible for a discharge. Hedlund had a few luxury items and his wife was voluntarily unemployed so that she could care for their children.
The strict application of the Brunner test has been criticized by Bankruptcy Judges as too strict and no longer appropriate under current circumstances. Experience in the 9th Circuit seems to confirm that requirements are loosening up, but discharging of student loans still is an uphill battle.