In Re: Stanton L. Segal , 57 F.3d 342 ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
6-16-1995
In Re: Stanton L. Segal
Precedential or Non-Precedential:
Docket 94-1222
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 94-1222
___________
IN RE: STANTON L. SEGAL,
Debtor
ELIZABETH CROWE SEGAL,
Debtor
SANTA FE MEDICAL SERVICES, INC.,
Appellant,
vs.
STANTON L. SEGAL; ELIZABETH CROWE SEGAL,
Appellees,
CHRISTINE C. SHUBERT, ESQ.,
Trustee
FREDERIC BAKER, ESQ.,
Trustee
___________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil No. 93-cv-06460)
___________
ARGUED JULY 20, 1994
BEFORE: SCIRICA, LEWIS and SEITZ, Circuit Judges.
(Filed June 16 , 1995)
___________
Kenneth F. Carobus (ARGUED)
Morris, Adelman, Dickman & Carpel
1920 Chestnut Street, Suite 400
Post Office Box 30477
Philadelphia, PA 19103-8477
Attorney for Appellant
Andrew N. Schwartz
David C. Silverman (ARGUED)
Shaiman, Phelan & Schwartz
1411 Walnut Street, Suite 1015
Philadelphia, PA 19102
Attorneys for Appellees
___________
OPINION OF THE COURT
___________
LEWIS, Circuit Judge.
This appeal requires us to determine whether loans made
pursuant to the terms of an employment contract, and which are
used to repay educational debt, are non-dischargeable within the
meaning of 11 U.S.C. § 523(a)(8). The Bankruptcy Court concluded
that they are dischargeable. Because we do not believe that such
loans are educational in nature and are therefore not subject to
the non-dischargeability exception set forth in section
523(a)(8), we will affirm.
I.
On June 20, 1978, Appellee Dr. Elizabeth Crowe Segal
("Dr. Crowe") signed a Scholarship Program Contract ("Scholarship
Contract") with the National Health Service Corps ("NHSC"), which
allowed her to receive educational benefits from, and caused her
to incur an obligation to, the NHSC.1 Under the terms of the
contract, Dr. Crowe received medical school tuition support and
various stipends during the course of her studies, which she
completed in 1982. Also in 1982, Dr. Crowe married Appellee Dr.
Stanton Segal ("Dr. Segal") who was at no time a party to, nor
obligated under, the Scholarship Contract.2
Pursuant to the Scholarship Contract, Dr. Crowe became
obligated, upon her graduation from medical school, to provide
medical services for approximately four years at a location
designated by the NHSC. She apparently received a deferment to
begin service immediately after completing a residency, and she
began practicing at an approved NHSC site in Jasper, Florida, in
July 1986. Dr. Crowe worked at the Jasper site until April 1989,
thereby satisfying all but approximately 19 months of her
four-year obligation to NHSC. At that time, Dr. Crowe elected to
satisfy the remaining obligation under the Scholarship Program by
way of repayment. (The Scholarship Contract provided that in
lieu of services, a cash payment could be made to satisfy the
obligation. See 42 U.S.C. § 254o.) The means by which Dr. Crowe
1
. Section 751 of the Public Health Service Act (42 U.S.C.
§ 294t) established the National Health Service Corps Scholarship
Program and authorized the Secretary of Health, Education and
Welfare to provide applicants selected to be participants in the
program with scholarship awards.
2
. For ease of reference and where appropriate, we will
occasionally refer to Dr. Crowe and Dr. Segal as the "debtors."
obtained the funds to satisfy her obligation to the NHSC,
detailed below, give rise to the controversy over the scope of
section 523(a)(8).
During the time that Dr. Crowe was practicing in
Jasper, Dr. Segal became affiliated with Lake Shore Hospital in
Lake City, Florida. Lake Shore Hospital is owned by Santa Fe
HealthCare, Inc. ("HealthCare"), which also owns Appellant Santa
Fe Medical Services ("Santa Fe"), a Gainesville, Florida,
nonprofit corporation. HealthCare was recruiting physicians to
provide Obstetrics and Gynecological ("OB\GYN") services in the
area surrounding Lake Shore Hospital. Dr. Crowe was both willing
and able to provide these medical services, but she first had to
satisfy her obligation to the NHSC. After some negotiation, Dr.
Crowe and Santa Fe, by and through its principal, HealthCare,
entered into a Physician Employment Contract ("Employment
Contract"), the terms of which included a loan from Santa Fe to
Dr. Crowe. Section 7 of the Employment Contract provides, in
pertinent part:
(a) In addition to [Dr. Crowe's] salary,
SantaFe shall loan [Dr. Crowe] up to Two
Hundred Thousand dollars ($200,000) upon the
execution of this Agreement by the Physician
and upon the execution of the attached
promissory note by the Physician and her
husband. Said amount shall be used solely
and exclusively to satisfy the Physician's
obligation to the United States National
Health Service.
The promissory note referred to in Section 7 of the
Employment Contract states at the outset:
For value received, we Betsy Crowe, M.D., and
Stanton Segal, M.D. (collectively referred to
as "the Maker") promise to pay to the order
of SantaFe Medical Services, Inc. ("Payee")
the sum of Two Hundred Thousand dollars
($200,000.00) in the following manner: in
thirty-six equal monthly payments of then
outstanding principal each, beginning May 15,
1991, and due on the first day of each month
thereafter until the entire amount is paid,
with interest on the unpaid balance at the
prime rate . . . .
In accordance with the provisions of the Employment
Contract, Santa Fe loaned the Debtors $182,619.17, an amount
which corresponds to the precise figure owed by Dr. Crowe to the
NHSC.3 On October 31, 1989, Santa Fe issued a check for that
amount made payable to the Debtors and the Health Resources and
Services Administration, a division of the then Department of
Health, Education, and Welfare.4 The Debtors do not dispute that
they received this amount, nor is there any suggestion that the
funds were not paid to the NHSC.
II.
It is likewise undisputed that by April 29, 1992, the
date upon which Drs. Crowe and Segal filed a petition for
bankruptcy relief under Chapter 7, they had repaid only $5,000 to
Santa Fe.
Santa Fe filed a Complaint to Determine
Dischargeability in the United States Bankruptcy Court for the
3
. Although the promissory note indicates that the amount owed
was $200,000, it is undisputed that the actual amount of the debt
was $182,619.17.
4
. The Department of Health, Education and Welfare was
redesignated the Department of Health and Human Services in 1979.
Pub. L. 96-88, Title V, § 509(b), Oct. 17, 1979, 93 Stat. 695.
Eastern District of Pennsylvania seeking a declaration that the
loan it made to Dr. Crowe and Dr. Segal in 1989 was non-
dischargeable under section 523(a)(8). After discovery was
completed, the Debtors filed a motion for summary judgment
requesting a dismissal of the adversary action with respect to
Dr. Segal because (1) he was not the student-debtor and had,
therefore, received no educational benefits and (2) the loan
itself was not the type of loan covered by section 523(a)(8).
Upon the court's suggestion that a determination of the second
issue in the Debtors' favor, i.e., that the loan was not an
educational loan, would resolve the claim against Dr. Crowe as
well, the motion was amended and brought on behalf of both
debtors. Prior to the court's ruling on the motion and Santa
Fe's cross-motion which followed, we decided In re Pelkowski, 990
F.2d 737 (3d Cir. 1993), wherein we definitively resolved the
issue whether a non-student co-obligor may discharge a debt under
section 523(a)(8), without proving one of the statutory
exceptions, in favor of the creditor.5
5
. There are two statutory exceptions to the non-
dischargeability of a student loan which remain available to both
the student and non-student debtor, i.e., that the loan came due
more than seven years before the bankruptcy filing, 11 U.S.C.
§ 523(a)(8)(A), or that non-discharge of the debt would create
"undue hardship," 11 U.S.C § 523(a)(8)(B). In re Pelkowski, 990
F.2d 737, 742 (3d Cir. 1993). The Debtors, however, do not
assert the applicability of either exception in this proceeding.
The bankruptcy court found the debt dischargeable.6
Santa Fe appealed and the United States District Court for the
Eastern District of Pennsylvania affirmed. This appeal followed.
We have jurisdiction pursuant to 28 U.S.C. § 1291 and 28 U.S.C.
§ 158(d).
Our review of the district court's decision
"effectively amounts to review of the bankruptcy court's opinion
in the first instance." In re Roth American, Inc., 975 F.2d 949,
952 (3d Cir. 1992), quoting In re Sharon Steel Corp., 871 F.2d
1217, 1222 (3d Cir. 1989). Insofar as this case turns on the
interpretation of a provision of the Bankruptcy Code, our review
is plenary. Pelkowski, 990 F.2d at 739. We review de novo the
bankruptcy court's order granting summary judgment. In re
Pilcher, 149 B.R. 595 (9th BAP 1993).
III.
The question before us is one of statutory
construction. Accordingly, we begin with the familiar canon that
the starting point for interpreting a statute is its plain
language, Mansell v. Mansell, 490 U.S. 581, 588 (1989), although
6
. The bankruptcy court elected not to determine the
dischargeability of the debt as to Dr. Segal because its
determination that the Santa Fe loan did not represent an
educational debt within in the meaning of section 523(a)(8)
proved to be dispositive. Appellees argue that the circumstances
of this case, i.e., the nature of the loan and the timing of Dr.
Segal's co-execution, distinguish it from Pelkowski and that a
remand for further argument on the issue of dischargeability with
respect to Dr. Segal as co-obligor would be proper in the event
we decide section 523(a)(8) does not apply to the loan. Because
we will affirm the district court's determination that the loan
is dischargeable under section 523(a)(8), this issue is moot.
we hasten to note that in certain instances "plain language" can
be an oxymoron. We have previously determined that where "the
terms of a statute [are] unambiguous, judicial inquiry is
complete except in rare circumstances." Taylor v. Freeland &
Kronz, 938 F.2d 420, 424 (3d Cir. 1991), aff'd, 503 U.S. 638
(1992), quoting Demarest v. Manspeaker, 498 U.S. 184, 190 (1991).
Such circumstances are present only in the "rare" case where the
"literal application of the statute will produce a result
demonstrably at odds with the intentions of its drafters[,]" id.,
quoting United States v. Ron Pair Enterprises, Inc., 489 U.S.
235, 242 (1989), or where the result would be "so bizarre that
Congress 'could not have intended' it." Id., quoting Demarest,
498 U.S. at 191.
Title 11 of the United States Code, at section
523(a)(8), provides:
(a) A discharge under section 727, 1141 or
1128(a), 1228(b), or 1328(b) of this title
does not discharge an individual debtor from
any debt --
* * * *
(8) 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
educational benefit, scholarship or stipend
. . .
11 U.S.C. § 523(a)(8) (1990).
Despite our recent conclusion that the language of
section 523(a)(8) was unambiguous and that resort to legislative
history was, therefore, unnecessary, see Pelkowski, 990 F.2d at
741-42, an analysis of the issues presented in this case cannot
avoid some discussion of the evolution of section 523(a)(8).
IV.
The Bankruptcy Code was drafted to provide a discharge
procedure that enables insolvent Debtors to reorder their affairs
and enjoy "a new opportunity in life with a clear field for
future effort, unhampered by the pressure and discouragement of
preexisting debt." Grogan v. Garner, 498 U.S. 279, 286 (1991),
quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). But
Congress elected to exclude certain obligations from the general
policy of discharge where the public policy at issue outweighs
the debtors need for a fresh start. See Pelkowski, 990 F.2d at
744-45; In re Merchant, 958 F.2d 738, 740 (6th Cir. 1992). Among
the exceptions, which are to be narrowly construed against the
creditor and in favor of the debtor, Pelkowski, 990 F.2d at 744,
is the proviso in section 523(a)(8) that educational loans be
non-dischargeable.
When originally enacted in 1978, section 523(a)(8)
referred only to obligations "to a governmental unit, or a
nonprofit institution of higher education for an educational
loan." Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,
92 Stat. 2549 (1978). Clearly under that version of the statute,
the debt to Santa Fe would be dischargeable, regardless of its
classification as an educational loan. Santa Fe is neither a
governmental unit nor a nonprofit institution of higher
education.
The subsection was amended in 1979 to include
"educational loan[s] made, insured or guaranteed by a
governmental unit, or made under any program funded in whole or
in part by a governmental unit, or a nonprofit institution of
higher education." Act of August 14, 1979, Pub. L. No. 96-56,
§ 3(1), 93 Stat. 387 (1979) (amending 11 U.S.C. § 523(a)(8)
(Supp. 1979)). The debt at issue in this case still would have
been dischargeable, as the loan by Santa Fe was not made, insured
or guaranteed by a governmental entity.
Section 523(a)(8) was again expanded by section
454(a)(2) of the Bankruptcy Amendment Act of 1984, wherein the
clause "of higher education" was deleted to eliminate the
inference that the section applied only to nonprofit institutions
associated with higher education. Bankruptcy Amendments and
Federal Judgeship Act of 1984, Pub. L. No. 98-353, Title III,
§ 454(a)(2), 98 Stat. 333 (Supp. 1984) (amending 11 U.S.C.
§ 523(a)(8) (1982)). As a result of the 1979 and 1984
amendments, educational loans made by commercial, for-profit
institutions were non-dischargeable if they were insured or
guaranteed by a governmental entity, or if the loans were made
pursuant to an educational lending program involving a nonprofit
institution. See In re Merchant, 958 F.2d 738 (6th Cir. 1992)
(loan made by commercial bank was assigned to a nonprofit
university pursuant to an agreement by the university to purchase
all defaulted student loans); In re Pilcher, 149 B.R. 595 (9th
B.A.P. 1993) (nonprofit entities, while not involved in the
debtor's particular loan, were involved in the program by which
the loan was made). Likewise, educational loans made by
nonprofit institutions became dischargeable if they were made as
part of an educational loan program. In re Roberts, 149 B.R. 547
(C.D. Ill. 1993) (educational loan by a nonprofit credit union
pursuant to an established educational loan program held to be
non-dischargeable).
Subsection 523(a)(8) was yet again expanded by the
Crime Control Act of 1990.7 The revised statute made
non-dischargeable educational benefits and overpayments as well
as educational loans, and increased from five to seven years the
time interval in section 523(a)(8). Most relevant to this case,
however, was the addition of language which prohibited the
discharge of "an obligation to repay funds received as an
educational benefit, scholarship, or stipend." Crime Control Act
of 1990, Pub. L. No. 101-647, § 3631(a), 104 Stat. 4865 (1990)
(amending 11 U.S.C. § 523(a)(8) (1984)). As discussed below,
Santa Fe suggests that the debt here represents such an
obligation.
7
. The effective date of these amendments was 180 days from
November 29, 1990, the date of enactment. Crime Control Act of
1990, Pub. L. No. 101-647, §§ 3621, 3631, 104 Stat. 4789,
4964-4965, 4966 (1990). Because this case was filed in April
1992, the amendments are applicable.
V.
Santa Fe raises two contentions in its effort to
persuade us that the Debtors' loan obligation is non-
dischargeable under section 523(a)(8).
A.
Santa Fe initially claims that the obligation
represents a debt for an "educational benefit overpayment or loan
. . . made under any program funded in whole or in part by a
governmental unit or nonprofit institution," focussing almost
exclusively on whether the loan to Dr. Crowe in 1989 was made
"under any program."
For this argument to prevail, Santa Fe would first have
to establish that the loan to Dr. Crowe was for "educational
purposes." In re Shipman, 33 B.R. 80 (Bankr. W.D. Mo. 1983).
But even if we were to assume, as the bankruptcy court did, that
the loan from Santa Fe to Dr. Crowe was an educational loan, our
analysis would not end there. Under both the former and present
versions of section 523(a)(8), it is insufficient for purposes of
establishing non-dischargeability that a nonprofit institution
make an educational loan; instead, the loan must also have been
made pursuant to some program. See Pub. L. Nos. 96-56, § 3(1),
93 Stat. 387 (1979); 98-353, § 454(a)(2), 98 Stat. 333 (Supp.
1984); and 101-647, § 3631(a), 104 Stat. 4865 (1990). Although
Santa Fe now claims that it and the Debtors created a program
that was carefully outlined in the Employment Contract and the
promissory note, that is not enough, for the record is devoid of
evidence that the loan was made under any program funded in whole
or in part by either Santa Fe (a nonprofit institution) or a
governmental entity. Santa Fe did not make a practice of buying
out student debt to obtain employees, nor did it have procedures
in place for making such arrangements. As far as we can tell,
this was a unique, unprecedented arrangement created specifically
to facilitate the acquisition of Dr. Crowe as a staff physician.
Santa Fe argues alternatively that educational benefits
and loans need not be made pursuant to a program to be non-
dischargeable under section 523(a)(8). In support of its
argument, Santa Fe relies upon In re Najafi, 154 B.R. 185 (Bankr.
E.D. Pa. 1993), wherein the court concluded that an obligation
for an educational benefit, although not made pursuant to a
program was, "at least to some extent," within the scope of
section 523(a)(8) because the debtor received an "educational
benefit" which he failed to pay for. Najafi, 154 B.R. at 190.
The Najafi court held non-dischargeable a former student's
obligation to Cabrini College in Radnor, Pennsylvania, despite
the fact that the college "was not adhering to its normal
policies" when it allowed the debtor to register and attend
classes without first paying his tuition in full. The court
determined that it was "fair . . . to decide the debtor's
liability to Cabrini on an equitable basis rather than by
strictly applying the policies set forth in Cabrini's catalogue."
Id. at 191.
In Najafi, however, the court first determined that the
advance of credit constituted an "educational loan." Although
the court later noted that the college deviated from its normal
practice in admitting Najafi without advance payment, the
question was not raised whether the loan constituted a part of
the school's overall financial aid program. In the present case,
there clearly was no educational loan "program"; rather there was
the single loan made to Dr. Crowe. To the extent that Najafi
could be interpreted as not requiring a "program," we reject its
reasoning as inconsistent with the statute.
B.
Santa Fe's principal contention focusses on the 1990
amendment to section 523(a)(8), which rendered non-dischargeable
an "obligation to repay funds received as an educational benefit,
scholarship, or stipend." Implicit in Santa Fe's argument is the
assumption that any lender -- commercial or nonprofit -- which
provides funds which, in turn, are used to repay an educational
loan obligation, a fortiori, has provided "funds received as an
educational benefit . . . ." This argument must fail, however,
because as we have already noted, the only educational benefits
or stipends provided to Dr. Crowe were provided by the NHSC and
not by Santa Fe.
Moreover, as the bankruptcy court correctly noted,
Santa Fe's interpretation of section 523(a)(8) is overly broad.
Under its interpretation, if Dr. Crowe had repaid the NHSC from a
combination of her savings and a personal or unsecured commercial
loan (e.g., a credit card cash advance), the personal or
commercial loan would be non-dischargeable under the 1990
amendment. But the language of the subsection simply does not
support the proffered construction. Santa Fe might stand on
firmer ground if, for instance, section 523(a)(8) referred to "an
obligation to repay funds received as or used to repay an
educational benefit, scholarship, or stipend." Clearly, though,
Congress did not enact such a provision, and neither the plain
language of the 1990 amendment nor the policies which underlie
the subsection support such an interpretation.
VI.
Although limited, the legislative history of
section 523(a)(8) teaches that the exclusion of educational loans
from the discharge provisions was designed 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, and to safeguard the financial
integrity of educational loan programs. See, e.g., 124 Cong.
Rec. 1791-98 (1978); Pelkowski, 990 F.2d at 743. By enacting
section 523(a)(8), Congress sought principally to protect
government entities and nonprofit institutions of higher
education -- places which lend money or guarantee loans to
individuals for educational purposes -- from bankruptcy
discharge. Because such loans are not based upon a borrower's
proven credit-worthiness, and because they serve a purpose which
Congress sought to encourage, section 523(a)(8) protects the
lender when a borrower, who often would not qualify under
traditional underwriting standards, files a chapter 7 bankruptcy.
See In re Merchant, 958 F.2d at 740.
In its continuing effort to prevent such abuses and to
protect the solvency of educational loan programs, Congress
passed a series of amendments to section 523(a)(8) which extended
its reach from educational loans to educational benefits. The
amendments also extended the protection afforded under section
523(a)(8) to any lender, in certain limited circumstances.
Metaphorically speaking, the modification process not only
expanded subsection (8) to catch more fish in its non-
dischargeability net, but has also narrowed the subsection to
keep them from escaping. Epstein, Nickles & White, BANKRUPTCY:
PRACTITIONER TREATISE SERIES, Vol. 2, § 7-33. at 395 (West 1992).
Despite the expansive amendments, however, section 523(a)(8)
still does not reach the particular type of loan at issue in this
case.
Santa Fe urges us to consider the purpose of the funds
received instead of the purpose of the parties in determining the
type of the loan it made to Dr. Crowe. It cites In re Ealy, 78
B.R. 897 (Bankr. C.D. Ill. 1987) for the proposition 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.'"
Ealy, 78 B.R. at 897, quoting In re Vretis, 56 B.R. 156, 157
(Bankr. M.D. Fla. 1985). But we ask ourselves: how far can the
term "educational purposes" be stretched? Santa Fe did not
provide to Dr. Crowe a means to obtain an education in exchange
for the loan. The "purpose" here was not to facilitate Dr.
Crowe's education, which had long since been completed; instead,
and this is undisputed, the purpose of the funds was to induce
Dr. Crowe to accept employment with Santa Fe by providing her
with a means to repay her obligation to the NHSC, an obligation
which arose as a result of a scholarship. That said, however,
Santa Fe asks us to go further. It contends that in addition to
determining the purpose of the loan, we must determine the nature
and character of the debt. Here, Santa Fe relies on Pelkowski,
wherein we noted that "the focus of section 523(a)(8) is on the
nature and character of the loan, not how the recipient actually
spent the money." Pelkowski, 990 F.2d at 741, quoting In re
Roberts, 149 B.R. 547 (C.D. Ill. 1993).
We believe the record amply supports the bankruptcy
court's finding that the loan made by Santa Fe to Dr. Crowe had
the nature and character of a buyout. It was made solely for the
purpose of securing her services and, as such, cannot be fairly
characterized as an educational loan or benefit.8
8
. This case does not involve loan consolidations, which
courts routinely have viewed as "educational loans," within the
meaning of 11 U.S.C. § 523(a)(8). There is even a federal
statute permitting such educational loan consolidations. See 20
U.S.C. § 1078-3. Several courts have determined that
consolidation loans meet the § 523(a)(8) definition and that the
date of the consolidation loan starts the running of the
seven-year limit of § 523(a)(8)(A). See Hiatt v. Indiana State
Student Assistance Comm'n, 36 F.3d 21, 25 (7th Cir. 1994) ("We
conclude that, in cases in which a debtor has consolidated her
educational loans pursuant to 20 U.S.C. § 1078-3, the plain
language of section 523(a)(8)(A) requires that the
nondischargeability period commences on the date on which the
consolidation loan first became due."), cert. denied, 115 S. Ct.
1109 (1995); Martin v. Great Lakes Higher Educ. Assoc., 137 B.R.
770, 772 (Bankr. W.D. Mo. 1992) ("[T]he court finds the
consolidation loan is an educational loan covered by 11 U.S.C.
§ 523(a)(8)(A) . . . . The consolidated loan is nondischargeable
because it first became due less than five years before the
bankruptcy filing."); see also In re Roberts, No. 91-7241, 1933
WL 192816, at *3 (D. Kan. May 19, 1993) ("The court . . . agrees
with the majority of courts deciding this issue and concludes
that the date the debtor's consolidated loan first became due is
the date for determining dischargeability under § 523(a)(8)(A).".
Furthermore, we do not find the loan "similar in nature
to [a] student loan." See Appellant's Br. at 19, quoting 136
Cong. Rec. H13288. Although the loan was made by a nonprofit
institution, was unsecured and was used to repay an obligation
incurred in return for an educational benefit, nothing in the
express language or the legislative history of section 523(a)(8)
convinces us that Congress intended for loans such as the one at
issue here to be non-dischargeable in a chapter 7 bankruptcy.
Moreover, in light of what we have determined to be the
intended purpose of section 523(a)(8), it is also significant
that whether or not Santa Fe is ultimately repaid by the Debtors,
neither the federal treasury, the solvency of the NHSC nor the
public service obligation of Dr. Crowe will be affected. The
debt to the educational lending program has been repaid and the
service obligation has been deemed fully satisfied. See
Appellant's App. at 230a-31a. Furthermore, we agree with the
bankruptcy court's observation that to the extent this decision
might be interpreted as discouraging the refinancing of
educational debt (a position advanced by Santa Fe which we
consider to be of dubious merit), the purposes of section
523(a)(8) will not be frustrated.
VII.
For the reasons set forth above, we conclude that the
loans made pursuant to the terms of an employment contract which
are used, in turn, to repay educational debt are not, themselves,
non-dischargeable educational loans within the meaning of
11 U.S.C. § 523(a)(8). Accordingly, we will affirm the judgment
of the district court.
_________________________