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Is a Sallie Mae Career Training Loan dischargeable in bankruptcy under BAPCPA?

Sallie Mae, the student loan servicing organization, provides more than just government-insured loans. The "Career Training Loan" administered by Sallie Mae Bank, is, according to their website, "a private, credit-based student loan for technical training or trade school, online courses, and other education programs." So is this sort of loan dischargeable in bankruptcy? It depends upon the institution where the training was received.

As "everyone" knows, student loans are not discharged in bankruptcy. Section 523(a)(8) of the Bankruptcy Code excepts from discharge the following:

- an educational loan made, insured, or guaranteed by a governmental unit

- an educational loan made under any program funded in whole or in part by a governmental unit or nonprofit institution

- an obligation to repay funds received as an educational benefit, scholarship, or stipend

- an educational loan that is a qualified education loan, as defined in the Internal Revenue Code section 221(d)(1)

That last type of loan, referring to IRC section 221(d)(1), was added as an exception to discharge when the Bankruptcy Code was amended in 2005. That section states:

"Definitions: For purposes of this section - (1) Qualified education loan; The term "qualified education loan" means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses"

So what does the term "qualified higher education expenses" refer to? IRC section 1.25A-2, definitions, states:

"(d) Qualified tuition and related expenses &8212;(1) In general. Qualified tuition and related expenses means tuition and fees required for the enrollment or attendance of a student for courses of instruction at an eligible educational institution."

Okay so what is "an eligible educational institution"? IRC section 1.25A-2 defines that as:

"(b) Eligible educational institution &8212;(1) In general. In general, an eligible educational institution means a college, university, vocational school, or other postsecondary educational institution that is&8212;

(i) Described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088) as in effect on August 5, 1997, (generally all accredited public, nonprofit, and proprietary postsecondary institutions); and

(ii) Participating in a Federal financial aid program under title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program but chooses not to participate."

To summarize, a private student loan is not discharged in bankruptcy if it was used to pay educational expenses at a postsecondary educational institution that is eligible to participate in the federal student loan program.

So, is a Sallie Mae "Career Training Loan" dischargeable in bankruptcy? My analysis is that if the training was provided by an institution that is qualified to offer government student loans, the private Sallie Mae Career Training Loan is not dischargeable in bankruptcy. If, on the other hand, the training institution is not eligible to offer government student loans, the private Sallie Mae loan would be dischargeable in bankruptcy.

Please note that I cannot find any case law one way or the other on this issue, and so the above analysis is not based upon any court finding it but is just my own personal analysis.

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