Brooklyn Man Beats Lender In Groundbreaking Student Loan Decision

BROOKLYN, NY – Private student loans may now be nixed in bankruptcy after a Brooklyn graduate beat a major lender in court.

New York’s 2nd Circuit Court of Appeals affirmed Thursday that Navient, the successor of lender Sallie Mae, unduly collected cash from an Emerson College graduate after he declared bankruptcy in 2009, court records show.

The case rested on the definition of “funds received as educational benefit,” which are exempt from discharge under federal law and must be repaid regardless of bankruptcy status.

While Navient argued Hilal K. Homaidan’s approximately $12,000 “Tuition Answer” loan provided educational benefit because it covered academic expenses, the court ruled this was too broad an interpretation of federal bankruptcy law.

“Under Navient’s reading of that provision, the term ‘educational benefit’ would encompass virtually all private student loans,” the decision reads.

“But that reading cannot be reconciled with the text and structure of [U.S. law on debtor duties and benefits.]”

Circuit judges Dennis Jacobs, Denny Chin and William Nardini determined instead that “educational benefit” applies only to loans granted with academic conditions.

Examples include the Reserve Officer Training Corps or the National Health Service Corps, which pay the tuition of students who promise upon graduation to join the military or practice medicine in communities with limited healthcare access.

This was not Homaidan’s situation, the court ruled.

Homaidan first declared Chapter 7 bankruptcy —agreeing to liquidate assets to discharge his loans — in 2009, two years after he graduated from Emerson College in Boston.

Although his $12,567 loans were not specifically addressed in the discharge order, Navient demanded repayment and Homaidan handed over the cash, the ruling states.

Both Eastern District of New York Bankruptcy and appeals courts found Homaidan fell victim to what Judge Jacobs in his decision called “a scheme of issuing dischargeable loans to unsophisticated student borrowers and then demanding repayment even after those loans are discharged in bankruptcy."

This ruling comes as the nation faces a ballooning student debt crisis, which reached a record-breaking total of $1.57 trillion in 2021, and the economic fallout of a global pandemic.

President Joe Biden faces mounting pressure to forgive student loans after not including the measure in his recent budget proposal.

But Biden may be considering canceling debt through executive action, Politico reported in April, and Forbes estimates the president has already used various means to cancel up to $40 billion in student loans.