## Facts

- Mark Allen Jesperson incurred substantial student-loan debt to finance multiple degrees, including a law degree.
- He passed the bar and became a licensed attorney.
- He filed a Chapter 7 bankruptcy case and sought to discharge his student loans as an “undue hardship” under 11 U.S.C. § 523(a)(8).
- At trial, he worked as an attorney performing document review/contract work, and his income had increased significantly since the bankruptcy filing, exceeding roughly $60,000 annually.
- Jesperson had no dependents and no significant health limitations affecting employment.
- He lived with his brother rent-free and testified he expected to pay $500 per month, but the bankruptcy court used $1,000 per month as his necessary housing expense.
- Income-contingent repayment options were available that would adjust payments to Jesperson’s income.

## Issues

1. Whether Jesperson proved that repayment of his student loans would impose an “undue hardship” under 11 U.S.C. § 523(a)(8) using the Eighth Circuit’s totality-of-the-circumstances test.
2. Whether the bankruptcy court clearly erred in its expense findings, including its housing-cost calculation, and whether those errors affected the undue-hardship determination.
3. What significance, if any, should be given to Jesperson’s future earning capacity and the availability of income-contingent repayment plans.

## Decision

- The Eighth Circuit reversed the judgment affirming the bankruptcy court and vacated the undue-hardship discharge of Jesperson’s student loans.
- The court held Jesperson did not carry his burden to prove undue hardship under the totality-of-the-circumstances test.
- The court found clear error in the bankruptcy court’s $1,000 monthly housing estimate where the evidence supported $500.
- The court remanded for further proceedings consistent with its ruling denying discharge.

## Legal Principles

- Student-loan debt is excepted from discharge unless the debtor proves “undue hardship” under 11 U.S.C. § 523(a)(8).
- In the Eighth Circuit, undue hardship is evaluated under a totality-of-the-circumstances test considering:
  - the debtor’s past, present, and reasonably reliable future financial resources;
  - the debtor’s reasonable and necessary living expenses; and
  - other relevant facts and circumstances.
- The debtor bears the burden to show, by a preponderance of the evidence, that repayment would prevent maintaining a minimal standard of living and that the hardship is likely to persist.
- Bankruptcy-court factual findings are reviewed for clear error; misstatements of necessary expenses can require reversal when they materially distort the debtor’s ability to pay.
- A debtor’s education, health, employability, and likely income growth weigh against undue hardship when they support a realistic capacity to repay over time.
- The availability of income-contingent repayment may be considered as a relevant circumstance indicating the debtor can make adjusted payments without undue hardship.

## Conclusion

The court held that a young, healthy, newly licensed attorney with improving earnings and access to income-contingent repayment did not establish that student-loan repayment would impose an undue hardship, particularly where the bankruptcy court’s expense findings overstated necessary housing costs.


Educ. Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775 (8th Cir. 2009)