Photographer: Drew Angerer/Bloomberg

The Supreme Court May Weigh In on a Student Debt Battle

One deeply indebted student borrower may become an unlikely hero to the 41 million Americans with education debt.

Mark Tetzlaff is a 57-year-old recovering alcoholic who has been convicted on misdemeanor victim intimidation and domestic abuse. He may also be the person with the best shot at upending the way U.S. courts treat student debt for bankrupt borrowers.

Tetzlaff has spent three years battling lawyers for the Department of Education over the right to have his student loans canceled in bankruptcy. On Thursday, he appealed his case to the Supreme Court. If the nation's highest court takes the case on, it will be one of the rare occasions when it has addressed the $1.3 trillion pile of student debt held by 41 million Americans. 

Tezlaff also got a new attorney after representing himself for most of his case. The lawyer, Douglas Hallward-Driemeier, successfully argued part of the landmark June case that made same-sex marriage a legal right in all 50 states. Hallward-Driemeier and his team have asked the court to clarify 1970s-era rules that prevent borrowers from getting rid of education debt in bankruptcy, except in cases in which repaying it would constitute an “undue hardship.” Lawmakers never fully defined "undue hardship," leaving it to the courts to define these special, and rare, circumstances in individual cases. Tetzlaff has said that the standard being applied to his case is unconstitutional.

The Supreme Court may be tempted to consider the case partly because it would be able to resolve a split between federal courts in their interpretation of the law, according to court documents. Courts disagree mainly on which of two tests should be used to determine whether someone can erase his or her debt in bankruptcy. The so-called Brunner test is used in most federal courts and was applied in Tetzlaff's case. It is the strictest version of the standard because it requires debtors to prove that they have diligently tried to repay their loans, that making any payments would deprive them of a "minimal" standard of living, and that the hardship affecting them today will persist long into the future. Over the past two decades, lawyers arguing on behalf of the government have further pushed courts to take the most stringent view of each one of those components.

Tezlaff's legal team has said the Supreme Court should instead apply a less harsh alternative to the Brunner test, known as the "totality of the circumstances" test, which has been gaining ground in courts across the country. That option does not require debtors to show that people have made "good faith" efforts to pay back their loans or that their lives will be characterized by unmitigated financial pain for the foreseeable future.

A federal court in Chicago has said Tetzlaff needs to show his future will be characterized by a “certainty of hopelessness, not simply a present inability to fulfill financial commitment.” Tetzlaff has argued that the standard applied should be whether he can reasonably expect his life to get better, not whether he is certain it will get worse. 

Forecasting someone’s life prospects is never easy, but it is a particularly tricky exercise in Tetzlaff’s case. The Wisconsinite accumulated $260,000 in student debt after getting an MBA at Marquette University; then attending, but not graduating from, law school at DePaul University; and finally finishing his law degree at the for-profit Florida Coastal School of Law. He failed the bar exam twice. He has been out of work since 2004 and says he cannot get employed anywhere because employers repeatedly reject him on the basis of his criminal record. He now lives with his 86-year-old mother, and the two survive on her Social Security income.

Tetzlaff’s lawyers say the courts have become increasingly imaginative in their interpretation of undue hardship. The criteria used to judge whether someone is worthy of bankruptcy have been transformed “into an unforgiving and strict requirement with no rational connection to the statutory text.”

They write:

Debtors … have been denied a ‘fresh start’ under a rigid and restrictive standard of ‘undue hardship’ that is based on a misreading of statutory language and purpose.

That argument is one that may appeal to certain conservative justices. Justice Antonin Scalia has long argued that laws should be applied as written, rather than on the basis of what lawyers have said they mean. Sticking to the letter of the law might help student debtors, since government lawyers have spent years urging the courts to use the harshest definition of undue hardship, and courts have largely agreed, requiring debtors to show they have a “total incapacity” to repay their debts or that repaying the debt would “strip [them] of all that makes life worth living.”

It would be hard to overstate the significance of this case for people struggling with student debt. Student loans are the largest source of consumer debt aside from mortgages. The total amount of outstanding student debt is expected to double to $2.5 trillion in the next decade. One in four borrowers is either delinquent or in default on his or her student loans. A ruling in their favor would offer an escape from a type of debt that, until now, has followed even the most destitute borrowers to their deaths. A change in how loans are handled in bankruptcy would open the possibility of a fresh start for defaulted borrowers, who may see their loan balances balloon with fees and penalties while they don't make any progress toward paying down their debt. 

For the government, the stakes are about as high. If bankruptcy becomes a real option for people with student loans, the Education Department will have to contend with the reality that a good chunk of the $1 trillion-plus in outstanding debt is not ever going to be recovered. That may prompt some questions about the viability of the loan program in general from the people who pay for it: the taxpayers.

Correction: The original version of this story incorrectly cited $2.5 billion as the nation's projected outstanding debt load. It is $2.5 trillion. 

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