Hedlund v. Educational Resources Institute, Inc.

Hedlund (plaintiff) was a law-school graduate who could not pass the Oregon bar exam. Hedlund found employment as a juvenile counselor for the county juvenile department. Hedlund could not repay his student loans, which were serviced by The Educational Resources Institute (TERI) and the Pennsylvania Higher Education Assistance Agency (PHEAA) (defendants). After several hardship forbearances expired, Hedlund’s loans went into default. Hedlund attempted to negotiate payment plans for his loans. PHEAA offered two options, but both required a large lump sum or a high monthly payment, neither of which Hedlund could afford. Hedlund did make a one-time payment of $950 to PHEAA and offered to make a $5,000 lump-sum payment in exchange for lower monthly payments, but PHEAA refused. PHEAA began garnishing Hedlund’s wages in January of 2002 for $250 per month. This continued until May of 2003, when TERI garnished $1,100 from Hedlund’s bank account. Hedlund then filed a Chapter 7 bankruptcy petition and sought a partial discharge of his student loans. Prior to trial, Hedlund settled with TERI for a monthly payment of $50, but could not settle with PHEAA. The bankruptcy court granted a partial discharge to Hedlund of all but $32,080 of the PHEAA debt. The bankruptcy court found that Hedlund could not maintain a minimal standard of living if required to repay the loans in full, that there were circumstances that indicated Hedlund’s inability to pay would persist, and that Hedlund had made a good-faith effort to pay the loans. PHEAA appealed, and the district court reversed, finding the bankruptcy court erred in finding that Hedlund had acted in good faith. Hedlund appealed.