Murphy v. PA Higher Educ Asst, et al

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 01-10516
_______________
IN THE MATTER OF:
DANIEL G. MURPHY,
Debtor.
DANIEL G. MURPHY,
Appellant,
VERSUS
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY
and
EDUCATIONAL CREDIT MANAGEMENT CORPORATION,
Appellees.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________
March 5, 2002

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Before SMITH and DEMOSS, Circuit Judges,
and LAKE, District Judge.*
JERRY E. SMITH, Circuit Judge:
Daniel Murphy borrowed approximately
$55,000 in federally guaranteed loans to attend
institutions of higher learning. Shortly after
receiving and L.L.M. degree, he filed for
chapter 7 bankruptcy. The bankruptcy court
held that 11 U.S.C. § 523(a)(8) bars him from
discharging any of those loans in bankruptcy,
because he obtained them to finance his
education and signed promissory notes
reflecting that purpose. The district court
affirmed, and, finding no error, we also affirm.
I.
Murphy matriculated at Michigan State
University in 1986 and graduated in 1990. He
then attended Thomas M. Cooley Law School
for three years and received his J.D. degree.
In 1997, he obtained an L.L.M. from Wayne
State University. He financed his education
through approximately $55,000 in student
loans issued under the Federal Family
Education Loan Program “(FFELP”), 20
U.S.C. §§ 1071 et seq.
Murphy describes a uniform procedure for
receiving the loans: He appeared at the
financial aid office, discussed his needs, and
signed a promissory note. The lender
disbursed the loan to the school, which
withheld tuition and expenses and gave
Murphy the remainder for discretionary
spending. Murphy used the money to
purchase a car, housing, and food and to pay
fraternity dues and other ordinary living
expenses.
Education Credit Management Corporation
(“ECMC”) is a non-profit Minnesota
corporation that provides financial assistance
to students enrolled in higher education
programs. ECMC holds nine promissory notes
executed by Murphy.1 As of March 15, 2000,
Murphy owed ECMC $64,178.54.
Pennsylvania Higher Education Assistance
Agency (“PHEAA”) is a government agency
organized under the laws of Pennsylvania, that
provides financial assistance to students en-
rolled in higher education programs. PHEAA
holds a promissary note dated July 5, 1996 for
federal Stafford loans totaling $18,5000. The
parties stipulated that Murphy spent $7,000 on
tuition and related expenses and $11,500 on
other living expenses; as of March 10, 2000,
he owed PHEAA $22,472.40.
Murphy filed and obtained a consumer
chapter 7 discharge, then filed an adversary
proceeding against PHEAA and ECMC, al-
leging that the portion of the student loans
spent on living expenses was nondischarge-
able. The bankruptcy court granted summary
judgment in favor of PHEAA and ECMC.
II.
The Bankruptcy Code prevents former
students from discharging educational loans in
bankruptcy. 11 U.S.C. § 523(a)(8). Courts
have divided over whether students who use a
portion of their student loans for room, board,
and living expenses can discharge that portion
* District Judge of the Southern District of
Texas, sitting by designation.
1 The notes reflect the following dates and
amounts: (1) May 3, 1993, $7,500; (2) April 18,
1994, $8,500; (3) October 4, 1994, $4,500;
(4) April 17, 1995, $2,834; (5) April 17, 1995,
$3,334; (6) August 22, 1995, $5,666; (7) August
22, 1995, $6,666; (8) May 3, 1993, $4,000; and
(9) April 18, 1994, $5,500.

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of the debt in bankruptcy. Some courts have
held that when the lender makes the loan
available for educational purposes, no part of
the loan can be discharged in bankruptcy, re-
gardless of the actual use.2 Other courts have
held that when the student spends the money
on noneducational items and services, that
portion can be discharged.3 We conclude that
the text of the Bankruptcy Code, the Federal
Family Education Loan Program (“FFELP”),
and Murphy’s promissory notes support
nondischargeability. In other words, it is the
purpose, not the use, of the loan that controls.
Treating FFELP guaranteed loans uniformly,
regardless of actual use, is true to the text and
will prevent recent graduates from reneging on
manageable debts and will preserve the sol-
vency of the student loan system.
A.
We review the bankruptcy and district
court’s interpretation of § 523(a)(8) de novo.4
That section explains that a discharge “does
not discharge an individual debtor from any
debtSS”
for an educational benefit overpayment
or loan made, insured or guaranteed by
a governmental unit, or made under any
program funded in whole or in part by a
governmental unit or nonprofit
institution, or for an obligation to repay
funds received as an education benefit
scholarship or stipend, unless excepting
such debt from discharge under this
paragraph will impose an undue
hardship on the debtor and the debtor’s
dependents.
11 U.S.C. § 523(a)(8). The section exempts
“educational . . . loan[s] made, insured or
guaranteed by a governmental unit.” The plain
language suggests two limitsSSthe adjective
2 Constr. Equip. Fed. Credit Union v. Roberts
(In re Roberts), 149 B.R. 547, 551 (C.D. Ill. 1993)
(finding it unnecessary to remand to apportion loan
proceeds spent on educational expenses and living
expenses); In re Pelzman, 233 B.R. 575, 580
(Bankr. D.D.C. 1999) (finding that university’s
extension of credit for room and board fell within
the scope of an educational loan); Stevens Inst. of
Tech. v. Joyner (In re Joyner), 171 B.R. 762, 764-
65 (Bankr. E.D. Pa. 1994) (finding that room,
board, and other living expenses serve an
educational purpose and refusing to find that por-
tion dischargeable); United States Dep’t of Health
and Human Servs. v. Vretis (In re Vretis), 56 B.R.
156, 157 (Bankr. M.D. Fla. 1985) (finding that sti-
pend that provided for rent and living expenses was
not dischargeable).
3 Ealy v. First Nat’l Bank (In re Ealy), 78 B.R.
897, 898 (Bankr. C.D. Ill. 1987) (finding portion
of loan that student used to purchase truck, pay off
wife’s car, and pay for other miscellaneous
expenses dischargeable in bankruptcy); United
States Dep’t of Health & Human Servs. v. Brown
(In re Brown), 59 B.R. 40, 43 (Bankr. W.D. La.
1986) (instructing government to separate portion
of stipend spent on tuition and books from portion
spent on rent and living expenses); Dep’t of Mental
Health, State of Missouri v. Shipman (In re
Shipman), 33 B.R. 80, 82 (Bankr. W.D. Mo.
1983) (discharging stipend partially because the
debtor spent the proceeds on rent and living
expenses).
4 We review a bankruptcy court’s legal
conclusions de novo. Texas Lottery Comm’n v.
Tran (In re Tran), 151 F.3d 339, 342 (5th Cir.
1998). Summary judgment decisions and statutory
interpretation questions are legal findings that we
review de novo. Samson v. Apollo Resources,
Inc., 242 F.2d 629, 633 (5th Cir.) (statutory
interpretation), cert. denied, 122 S. Ct. 63 (2001);
Herman v. Holiday, 238 F.3d 660, 663 (5th Cir.
2001) (summary judgment).

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“educational” and the requirement that a
governmental or nonprofit body make or
guarantee the loan.
At first cut, PHEEA’s and ECMC’s loans
satisfy these two limits. PHEEA and ECMC
made the loans to Murphy pursuant to a
federal statute that provides for educational
loans; the government also insured the loans
against Murphy’s default.
Murphy insists, however, that we should
read another limit into § 523(a)(8). He
contends that students may discharge the
portion of their educational loans not spent or
tuition or books. He points to cases holding
that “[t]he test for determining whether a loan
is a student loan is whether the proceeds of the
loan were used for ‘educational purposes.’”
E.g., In re Ealy, 78 B.R. at 898 (citations
omitted). None of these cases considers a loan
made pursuant to a federal student loan
statute, but Murphy would have us extend
their reasoning. He variously argues that the
word “educational” or phrase “educational
benefit” permits students to discharge the por-
tion of student loan proceeds spent on living
or social expenses.
The textual hook for Murphy’s argument is
puzzling; he reads too much into the adjective
“educational.” Section 523(a)(8) does not ex-
pressly state that only loans “used for tuition”
are nondischargeable. Nor does it define edu-
cational loans as excluding living or social ex-
penses. Barth v. Wis. Higher Educ. Corp. (In
re Barth), 86 B.R. 146, 148 (Bankr. W.D.
Wis. 1988) (“The language of section
523(a)(8) does not refer to whether the debtor
or anyone else derived educational benefits.”).
Loans for room and board facilitate an
education and meet expenses incidental to
attending school full-time.5
In the alternative, Murphy argues that the
phrase “educational benefit” modifies both
overpayment and loan. He infers that the re-
sulting phrase “educational benefit loan” re-
quires not only that the lender intend that the
funds go towards educational purposes but
also that the borrower spend the funds on
tuition or books. For three reasons, Murphy’s
interpretation is strained, at best.
First, the word “educational,” rather than
“educational benefit,” modifies “loan.” When
Congress amended § 523(a)(8) in 1990, it
replaced “educational loan” with “educational
benefit overpayment or loan.”6 Courts have
interpreted the phrase “educational benefit
overpayment” to include a category of
governmental programs that pay students for
the anticipated cost of future tuition.7 After
5 In re Pelzman, 233 B.R. at 580; In re Joyner,
171 B.R. at 764-65.
6 Before the 1990 amendments, § 523(a)(8)
excluded from discharge “an educational loan
made, insured or guaranteed by a governmental
unit, or made under any program funded in whole
or in part by a governmental unit or nonprofit in-
stitution.” 11 U.S.C. § 523(a)(8) (1988). To
expand § 523(a)(8)’s scope, the 1990 amendments
added the categories of (1) overpaying a grant and
(2) scholarship funds or stipends. Crime Control
Act of 1990, Pub. L. No. 101-647, § 3621(a), 104
Stat. 4964, 4964-65 (1990). See Santa Fe Med.
Servs., Inc. v. Segal (In re Segal), 57 F.3d 342,
348-49 (3d Cir. 1995).
7 “An ‘educational benefit overpayment’ is an
overpayment from a program such as the GI Bill
under which where students receive periodic
payments while they are enrolled in school, but if
the students receive payments after they have left
(continued...)

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the 1990 amendments, courts continued to
examine loans to determine whether they were
“educational loans”;8 no court has suggested
that the word “benefit” should reduce the
scope of covered loans.
Additionally, § 523(a)(8)’s second use of
the word “educational benefit” before
“stipend” creates a serious problem for Mur-
phy’s interpretation. The section employs a
parallel structure when describing another type
of nondischargeable debt as arising from “an
education benefit scholarship or stipend.”
“Stipend” is defined in part as “a regular
allowance paid to defray living expenses; esp.
a sum paid to a student under the terms of a
fellowship or scholarship.” WEBSTER’S THIRD
NEW INTERNATIONAL DICTIONARY at 2245
(Merriam-Webster 3d ed. 1986).9 If
“educational benefit ” modifies both
“scholarship” and “stipend,” then Murphy’s
interpretation of the phrase “educational
benefit” would eliminate a core meaning of the
word “stipend.” If the second “educational
benefit” modifies only the word “scholarship”
and not the word “stipend,” then it is difficult
to understand why the second invocation of
“educational benefit” should have more limited
scope than does the first.
In other words, why would Congress have
placed the phrase “educational benefit” before
two separate series of items in the same
paragraph and intended for it to modify
different elements in each series? The
inclusion of the word stipend proves either
that “educational benefit” includes living
expenses or that it describes only the type of
overpayment and not the type of loan.
Finally, even if we were to interpret
§ 523(a)(8) to require an “educational benefit
loan,” Murphy does not explain why that
phrase requires us to look to use rather than
purpose. All Stafford loans are intended to
convey educational benefits, and a grant of
living expenses enables a student to attend
school full-time, which certainly has
educational benefits. We now turn to the
FFELP to examine the unique features of loans
made pursuant to that federal statute.
7(...continued)
the school, that is an educational benefit
overpayment.” College of Saint Rose v. Regner
(In re Renshaw), 229 B.R. 552, 556 & n.7 (BAP
2d Cir. 1999), aff’d, 222 F.3d 82 (2d Cir. 2000).
New Mexico Inst. of Mining and Tech. v. Coole
(In re Coole), 202 B.R. 518, 519 (Bankr. D.N.M.
1996); Alibatya v. New York Univ. (In re
Alibatya), 178 B.R. 335, 338 (Bankr. E.D.N.Y.
1995); Johnson v. Va. Commonwealth Univ. (In re
Johnson), 222 B.R. 783, 786 (Bankr. E.D. Va.
1998).
8 E.g., In re Renshaw, 229 B.R. at 559-60
(characterizing question as whether debtor received
an “educational loan” and not an “educational
benefit loan”); Shaffer v. United Student Aid
Funds (In re Shaffer), 237 B.R. 617, 618 (Bankr.
N.D. Tex. 1999) (same); In re Pelzman, 233 B.R.
at 576-77 (same); In re Alibatya, 178 B.R. at 338
(“The term ‘educational’ is merely an adjective
describing ‘loan.’”).
9 Other dictionaries contain even broader de-
finitions of “stipend.” BLACK’S LAW DICTIONARY
at 1426 (West Deluxe 7th ed. 1999) (“A salary or
other regular, periodic payment.”); XVI OXFORD
ENGLISH DICTIONARY 713 (Oxford 2d ed. 1989)
(“A fixed periodical payment of any kind, e.g. a
pension or allowance . . . . Also . . . to keep in
stipend, to defray the maintenance of.”).

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B.
The FFELP includes living expenses in its
loans to full-time students for educational pur-
poses. First, the FFELP contemplates that stu-
dents can use federal loans to finance a full-
time education. The statute distinguishes be-
tween students who take heavier course loads
and those who take lighter loads.10 Permitting
students to take out loans for living expenses
enables them to attend school full time.
Second, the FFELP calculates the “costs of
attendance” by including allowances for “room
and board,” 20 U.S.C. § 1097ll(3),
“miscellaneous personal expenses,” 20 U.S.C.
§ 1087ll(2), and child care, 20 U.S.C.
§ 1087ll(8). The FFELP’s need analysis as-
sumes that loans must cover a full-time stu-
dent’s living expenses so that he has the time
and energy to study and attend classes.
Murphy argues that the Bankruptcy Code
and not the FFELP should define discharge-
able and nondischargeable loans. First,
§ 523(a)(8) has a direct link to the Higher Ed-
ucational Act, because Congress originally in-
cluded it in the educational act and only later
moved it to the Bankruptcy Code. In re Ship-
man, 33 B.R. at 82. Second, we should
attempt to give horizontal coherence to the
United States Code and ensure that different
statutes interact coherently and harmonious-
ly.11 If Congress defined living expense al-
lowances as serving an educational purpose in
the student loan statutes, we should assume it
also interpreted those living expense
allowances as having an educational purpose in
the Bankruptcy Code.
The evidence in this particular case
confirms that Murphy borrowed money for
living expenses as part of his broader effort to
obtain an education. In the promissory notes,
he acknowledged that he was borrowing the
money for educational purposes.12 He later
10 As an initial condition for insurance
eligibility, a student must take half of the courses
necessary for full-time enrollment. 20 U.S.C.
§ 1077(a). The need analysis then includes larger
living expense allowances for full-time students
and smaller living expense allowances for part-time
or correspondence students. 20 U.S.C. § 1087ll(4)
(withholding room and board and personal
expenses from less than half-time students); 20
U.S.C. § 1087ll (limiting the room and board costs
of correspondence students to any necessary
residential training).
11 E.g., Pierce v. Underwood, 487 U.S. 552,
561-63 (1988) (interpreting phrase “justified to a
high degree” in the Equal Access to Justice Act as
having the same meaning as the same phrase
contained in other statutes and the Federal Rules of
Civil Procedure); Lorillard v. Pons, 434 U.S. 575,
584 (1978) (looking to judicial interpretation of
identical terms in other statutes).
12 The PHEAA note provides that the loans
were (1) issued under the Federal Stafford Loan
Program and (2) governed by the Higher Education
Act of 1965, 20 U.S.C. § 1070. Murphy rep-
resented on the borrower certification of the note
that (1) he must return all loan proceeds not rea-
sonably attributed to educational expenses for the
cost of attendance on at least a half-time basis; and
(2) the total amount of loans received under the
note would not exceed his maximum eligibility
under the Higher Education Act of 1965. The
amount of the PHEAA loans corresponded exactly
to the “cost of attendance” certified by Wayne
State University on the note.
The ECMC note also included a “borrower
certification” that Murphy would “immediately
repay any loan proceeds that cannot reasonably be
attributed to educational expenses for attendance
on at least a half-time basis at the certifying
(continued...)

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testified that he borrowed the funds to support
his full-time attendance. When a federal
student loan statute authorizes the loan, the
student signs an agreement to spend the funds
on educational expenses, and the government
guarantees the loan, then the loan should be
nondischargeable.
C.
Permitting students to discharge student
loans in bankruptcy because the student spent
the money on social uses, alcohol, or even
drugs would create an absurd result. Students
who used the loan proceeds to finance an edu-
cation would retain the burden of paying them
even after a chapter 7 discharge; irresponsible
students who abused the loans would gain the
benefits of discharge. Courts have emphasized
two purposes when analyzing § 523(a)(8): (1)
preventing undeserving debtors from abusing
educational loan programs by declaring
bankruptcy immediately after graduating;13 and
(2) preserving the financial integrity of the loan
system.14 Murphy’s interpretation would
create two perverse effects: (1)
Dischargeability would reward irresponsible
student borrowers and punish responsible
borrowers; and (2) the federal government
would have to pay out more to cover the costs
of defaulting students’ loans. Murphy’s
interpretation would create the type of absurd
result that even rigid textualists seek to
avoid.15
Murphy argues that private lenders
currently receive the benefit of governmental
guarantees on these loans, so these lenders
have an incentive to expand the scope of “edu-
cational loans.” Perhaps. If so, then the gov-
ernment has the judicial remedy of suing pri-
vate lenders directly and the legislative remedy
of redefining the needs analysis of the FFELP.
The potential windfalls of private lenders do
not provide a persuasive reason for us to
rewrite § 523(a)(8). Doing so would affect
the private lenders only indirectly, because the
governmental insurers, rather than private
lenders, would bear the burden of the loss.
This remedy also would create perverse
incentives for student borrowers, squarely at
odds with the only purposes that Congress has
12(...continued)
school.”
13 In re Segal, 57 F.3d at 348-49
(acknowledging that § 523(a)(8) was enacted to
“remedy abuses of the educational loan system by
restricting the ability of a student to discharge an
educational loan by filing for bankruptcy shortly
after graduation”); Andrews Univ. v. Merchant (In
re Merchant), 958 F.2d 738, 740 (6th Cir. 1992)
(citing a House report and floor statement by
Senator DeConcini).
14 In re Renshaw, 222 F.3d at 86-87 (“Congress
enacted § 523(a)(8) because there was evidence of
an increasing abuse of the bankruptcy process that
threatened the viability of educational loan
programs and harm to future students as well as
(continued...)
14(...continued)
taxpayers.”); In re Alibatya, 178 B.R. at 340
(citing a Senate Report, House Report, and Senator
DeConcini’s statement).
15 E.g., Green v. Bock Laundry, 490 U.S. 504,
527 (1999) (Scalia, J., concurring) (“I think it
entirely appropriate to consult all public materials,
including the background of Rule 609(a)(1) and the
legislative history of its adoption, to verify that
what seems to us an unthinkable disposition . . .
was indeed unthought of, and thus to justify a
departure from the ordinary meaning of the word
‘defendant.’”).

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ascribed to the FFELP.
Because the bankruptcy and district courts’
interpretation of § 523(a)(8) best comports
with the text of the Bankruptcy Code and
FFELP, the judgment is AFFIRMED.

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