                     United States Bankruptcy Appellate Panel
                               FOR THE EIGHTH CIRCUIT



                                     No. 97-6097EM


In re:      LeeAnna Johnson,                                     *
                                               *
              Debtor.                          *
                                               *
                                               *
LeeAnna Johnson,                                        *
                                               *      Appeal from the United
States
              Appellant,                                  *      Bankruptcy Court
for the
                                               *      Eastern District of
Missouri
     v.                                        *
                                               *
Missouri Baptist College,                                        *
                                               *
              Appellee.                                   *



                        Submitted: February 18, 1998
                            Filed: March 26, 1998


Before KOGER, Chief Judge, KRESSEL and DREHER, Bankruptcy
Judges.


KRESSEL, Bankruptcy Judge.

     The appellant, LeeAnna Johnson, appeals from a judgment of
the bankruptcy court1

       1
         The Honorable Barry S. Schermer, United States Bankruptcy Judge for the Eastern
District of Missouri.

                                              1
determining her debt to the appellee, Missouri Baptist College,
to be nondischargeable under 11 U.S.C. § 523(a)(8). We affirm.

                                         BACKGROUND

     Johnson is a former student at Missouri Baptist College.
In the fall of 1989, the College extended credit to Johnson in
the amount of $5,892.49 for tuition, books and other expenses.
On August 28, 1989, the debtor executed a promissory note in
this amount, with the balance due on December 15, 1989.
Johnson defaulted on the note and filed her Chapter 13
bankruptcy petition on November 1, 1996.

     On June 6, 1997, the College filed a complaint to
determine the dischargeability of Johnson’s debt.2 By an order
dated December 3, 1997, and entered on December 8, 1997, the
bankruptcy court determined that Johnson’s debt to the College
was a nondischargeable student loan under 11 U.S.C. §
523(a)(8).    Johnson appeals.      Since we agree with the
bankruptcy court that Johnson’s debt to the College is a loan
as that word is used in 11 U.S.C. § 523(a)(8), we affirm.

                                         DISCUSSION

     On appeal, Johnson argues that the bankruptcy court erred
when it concluded that her debt to the College qualified as a
student loan under 11 U.S.C. § 523(a)(8).       In particular,
Johnson alleges that the College’s extension of credit cannot
constitute a loan for § 523(a)(8) purposes because she never
received money from the College.     We review the bankruptcy
court’s legal conclusions de novo. First Nat’l Bank of Olathe


       2
        At the time of its complaint, the outstanding principal balance on the note was $4,915.96.
Pursuant to the provisions of the promissory note, the College added $737.40 in attorney’s fees
and $1,524.00 in accrued interest to its debt.

                                                2
v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997); Chamberlain v.
Kula (In re Kula), 213 B.R. 729, 735 (B.A.P. 8th Cir. 1997).




                             3
     11 U.S.C. § 523(a)(8) excepts from discharge a debt “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 any obligation to repay funds received as
an educational benefit, scholarship or stipend. . . .” Since
the parties stipulate that the College is a non-profit
institution and that the credit was extended for educational
purposes under a program, the only issue presently on appeal
is whether the College’s extension of credit was a loan.

                      History of 11 U.S.C. § 523(a)(8)

                          The Debate
     The student loan exception to discharge has a fairly
short, but interesting, history. Congress first established
the Guaranteed Student Loan Program under the auspices of the
Higher Education Act of 1965.        Designed to meet “[t]he
challenge of keeping the college door open to all students of
ability. . . .”, the Program guaranteed federally-backed, low-
interest loans to qualifying students.     S. Rep. No. 89-673
(1965), reprinted in 1965 U.S.C.C.A.N. 4027, 4055.

       Reports of students discharging their educational
obligations first emerged in the early 70's.     Neither the
Bankruptcy Act nor the provisions governing the student loan
programs specifically prohibited the discharge of student
loans.3   Stories proliferated of students discharging their
educational obligations on the eve of lucrative careers.


       3
        Section 430 of the Act provided: "Upon default by the student borrower on any loan
covered by Federal loan insurance . . . the insurance beneficiary shall promptly notify the
Commissioner, and the Commissioner shall . . . pay to the beneficiary the amount of the loss
sustained by the insured. . . .” Higher Education Act of 1965, Pub. L. No. 89-329, § 430(a), 79
Stat. 1219, 1260 (1965).

                                                4
Notwithstanding the isolated and inflammatory nature of these
incidents, the popular portrayal of the “deadbeat” student
debtor proved both compelling and enduring.4




       4
        The legislative record is replete with incendiary accounts of “solvent” students filing
bankruptcy to discharge their educational obligations. Robert P. Zeigler, Executive Director,
Oklahoma State Regents for Higher Education, provided the following account of a psychology
student who declared bankruptcy in order to discharge $4,100 in student loans:

       The girl (sic) graduated from a state university in March, 1972 and she owed
       $4,100 (principal) on four loans. She subsequently married, the son of a “wealthy”
       New York businessman and petitioned for bankruptcy on August 9, 1973 under
       her married name. . . . She went to work and prior to her petition, had enough
       money in a second bank to pay off her student loans. She used the entire sum to
       make a downpayment on a house in her husband’s name, and then she blew the
       student loan debt which constituted her only debt. In August, 1973 she informed
       the original bank that she had no intention of repaying the loans. . . . Then, she hit
       the second bank in July, 1975 for a $1,400 student loan for graduate study before
       we could close the circuit. . . . She also received G.I. Benefits and can safely look
       out the window of her house and thumb her nose at the U.S. Congress and the
       taxpayers, as she reads the latest profound thoughts about psychology.

Letter from Robert P. Zeigler, Executive Director, Oklahoma State Regents for Higher Education
to Hon. Edwin D. Eshleman (October 16, 1975).
         Tales of professional students discharging their educational obligations through
bankruptcy provoked special public attention and animus. One story repeatedly referred to in the
legislative history involved a lawyer who, along with his wife, sought to discharge some $18,000
in joint student loans upon graduating. At the time of their filing, the husband was employed with
a legal aid bureau and his wife was a state employee. The parties’ filing and discharge headlined
local papers and occasioned much criticism, including the withdrawal of contributions to the legal
aid bureau. The husband was subsequently indicted for bankruptcy fraud.

Letter from Student Loan Guarantee Foundation of Arkansas to M. Adams (October 15, 1975).

                                                 5
     In 1970, Congress created the Commission on the Bankruptcy
Laws of the United States to propose changes to then-existing
bankruptcy laws.     Among other items on its agenda, the
Commission addressed the treatment of educational loans under
the Bankruptcy Act. In 1973, recognizing the “threat to the
continuance of educational loan programs,” the Commission
issued    a   report    recommending    limitations   on    the
dischargeability of student loans.    Report of the Commission
on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-
137, 93d Cong., 1st Sess., pts. 1 & 11 (1973).              The
Commission’s proposal prohibited any discharge of educational
obligations during the first five years of repayment unless the
debtor demonstrated hardship: “The Commission . . . recommends
that, in the absence of




                               6
hardship, educational loans be nondischargeable unless the
first payment falls due more than five years prior to the
petition.” Id.

               Educational Amendments of 1976
     Three years later, Congress visited the dischargeability
issue. Congressional testimony emphasized the role of federal
funding in facilitating postsecondary education:

    The Committee recognizes the massive contribution to
    financing postsecondary educational opportunity made
    in the ten years of operation of the GSLP. No other
    program of the Federal Government has been as
    successful in expanding financial resources to
    support educational expenses of our citizens.     As
    roughly one in every fifty American citizens has
    benefited from this program, its massive success in
    serving its purposes should not be diminished.
    However, such high levels of participation and the
    need to expand educational opportunity have created
    both program growth and opportunity for abuse which
    have threatened to destroy this fine record of
    success.

S. Rep. No. 94-882, at      19    (1976),   reprinted   in   1976
U.S.C.C.A.N. 4713, 4731.

     Unlike the house and Commission proposals which
incorporated a hardship provision for students seeking to
discharge their educational obligations inside the five-year
period, the Senate advocated absolute nondischargeability
during the first five years of repayment:

    The Committee bill seeks to eliminate the defense of
    bankruptcy for a five-year period, to avoid the
    situation where a student, upon graduation, files for
    a discharge of his loan obligation in bankruptcy,
    then enters upon his working career free of the debt
    he rightfully owes.    After a five-year period, an


                              7
    individual who has been faithfully repaying his loan
    may really become bankrupt. He should not be denied
    this right. . . .

S. Rep. No. 94-882, at      32   (1976),   reprinted   in   1976
U.S.C.C.A.N. 4713, 4744.

     The Senate eventually receded from its position and
Congress adopted the Commission’s recommendations in section
439A of the Education Amendments of 1976. Section 439A (a)
provided that:




                             8
    A debt which is a loan insured or guaranteed under
    the authority of this part may be released by a
    discharge in bankruptcy under the Bankruptcy Act only
    if such discharge is granted after the five-year
    period (exclusive of any applicable suspension of the
    repayment   period)   beginning   on   the  date   of
    commencement of the repayment period of such loan,
    except that prior to the expiration of that five-year
    period, such loan may be released only if the court
    in which the proceeding is pending determines that
    payment from future income or other wealth will
    impose an undue hardship on the debtor or his
    dependents.

Education Amendments of 1976, Pub. L. No. 94-482, § 439A(a),
90 Stat. 2081, 2141 (codified at 20 U.S.C. § 1087-3 (1976)
(repealed 1978)).

                 Bankruptcy Reform Act of 1978
     Congress   was   again   called  upon   to   address   the
dischargeability of student loans when it passed the Bankruptcy
Reform Act of 1978. The Act fostered considerable debate and
even produced a bicameral split. Although the original Senate
bill codified the Commission’s recommendation limiting the
dischargeability of student loans, the House bill advocated
dischargeability. In endorsing the equal treatment of student
loans, the House noted the exaggerated and anecdotal evidence
on which the Commission’s original proposal was based:

    The rate of educational loans discharged in
    bankruptcy has risen dramatically in recent years.
    However, the rise appears not to be disproportionate
    to the rise in the amount of loans becoming due or to
    the default rate generally on educational loans. The
    rise has been slightly higher than the rise in the
    bankruptcy rate overall.      The sentiment for an
    exception to discharge for educational [loans] does
    not derive solely from the increase in the number of
    bankruptcies. Instead, a few serious abuses of the
    bankruptcy laws by debtors with large amounts of

                               9
    educational loans, few other debts, and well-paying
    jobs, who have filed bankruptcy shortly after leaving
    school and before any loans became due, have
    generated the movement for an exception to discharge.

H.R. Rep. No. 95-595, at    133   (1978),   reprinted   in   1978
U.S.C.C.A.N. 5963, 6094.




                             10
     Notwithstanding the controversy, Congress adopted the
Senate bill, enacting
Public Law 95-598 and creating a new Title 11 of the United
States Code. Under the new
provision, debtors were not discharged from any debt:

      (8) to a governmental unit, or a nonprofit institution of
higher education, for an       educational loan, unless--
          (A) such loan first became due before five years
before the date of the filing                of the petition; or
          (B) excepting such debt from discharge . . . will
impose an undue hardship on              the debtor and the
debtor’s dependents. . . .

11 U.S.C. § 523(a)(8) (1978).

                         1979 Stop-Gap
     The repeal of § 439A and its replacement by 11 U.S.C. §
523(a)(8) created a gap in the student loan exception to
discharge. Although § 439A was repealed on November 6, 1978,
11U.S.C. § 523(a)(8) did not take effect until October 1, 1979,
creating nearly an eleven-month period during which student
loans were, at least in theory, dischargeable. On August 14,
1979, Congress enacted Public Law 96-56 to fill the gap.
Public Law 96-56 effectively resurrected 439A by amending § 17a
of the Bankruptcy Act and applying its provisions “to any
proceeding commenced under the Bankruptcy Act during the period
beginning on the date of enactment of this Act and ending
October 1, 1979.” Act of Aug. 14, 1979, Pub. L. No. 96-56, 93
Stat. 387.     As amended, § 17a provided an exception to
discharge for:

    a loan insured or guaranteed under the authority of
    part B of title IV of the Higher Education Act of
    1965 (20 U.S.C. 1071 et seq.) unless (a) the
    discharge is granted after the five-year period
    (exclusive of any applicable suspension of the
    repayment  period)   beginning  on   the  date   of

                                11
commencement of the repayment period of such loan, or
(b) the discharge is granted prior to the expiration
of such five-year period and the court determines
that payment from future income or wealth will impose
an undue hardship on the bankrupt or his dependents.




                         12
11 U.S.C. § 35(a)(9) (repealed Oct. 1, 1979). The committee
report accompanying the bill emphasized Congress’ continuing
commitment to impose limitations on the dischargeability of
student loans:

    Section 1 of the bill closes the inadvertent “gap”
    created when the applicable section of the Higher
    Education Act of 1965 prohibiting discharge of
    student loans was repealed as of November 6, 1978,
    and its replacement section in title 11 was not made
    effective until October 1, 1979. Congress obviously
    did not mean to create a gap and at all times held to
    the principle of nondischargeability of student loans
    as was found in section 439A of the Higher Education
    Act of 1965.

S. Rep. No. 96-230, at 3 (1979), reprinted in 1979 U.S.C.C.A.N.
936, 938.

             Amendments to 11 U.S.C. § 523(a)(8)

     In the years following its enactment, amendments to 11
U.S.C. § 523(a)(8) have clearly reflected a congressional
design to further limit the dischargeability of educational
obligations.

                        1979 Amendment
     In addition to closing the gap created by the early repeal
of § 439A, in 1979 Congress also expanded the types of loans
protected from dischargeability under 11 U.S.C. § 523(a)(8).
Pub. L. No. 96-56, § 3(1) (1979).      In particular, the new
amendment corrected the different treatment of profit-making
and nonprofit institutions of higher education under §
523(a)(8):

         Because new 11 U.S.C. 523(a)(8) applies only to
         debts for educational loans owing to a
         governmental unit or to a nonprofit institution

                              13
of higher education, it has a very uneven effect
upon the student loan programs administered by
the Department of Health, Education, and
Welfare. For example, National Direct Student
Loan (NDSL) funds are administered by both
nonprofit and profit-making institutions of
higher education. Under the new law, a student
who obtained an NDSL loan from a profit-making
institution of higher education would be free to
have that loan discharged in bankruptcy.      In
contrast, a




                    14
student who obtained an NDSL loan from a nonprofit institution
of higher education would be subject to the prohibitions
contained in the new law.

S. Rep. No. 96-230, at                     1-2    (1979),       reprinted        in    1979
U.S.C.C.A.N. 936, 936-37.

     Furthermore, the 1979 amendment excluded deferment periods
from calculation of the repayment period. Pub. L. No. 96-56,
§ 3(2) (1979). Congress enacted the amendment primarily to
prohibit    debtors   from    deferring   payments    for   the
nondischargeability period:

       Loan programs typically provide periods of deferment
       during which a borrower’s obligation to repay his
       loan is suspended. Using the Guaranteed Student Loan
       Program as an example, a student may defer repayment
       for an unlimited time if the student resumes study,
       for up to three years if the student serves in the
       Armed Forces, the Peace Corps or VISTA, and for up to
       one year if the student is unemployed. Therefore, it
       is possible for the first five years of the repayment
       period on a student’s loan to run without the student
       having an actual repayment obligation during all of
       that period.

S. Rep. No. 96-230, at 3 (1979), reprinted in 1979 U.S.C.C.A.N.
936, 938.

                       1984 Amendments
     In 1984, Congress again expanded the scope of 11 U.S.C. §
523(a)(8) by deleting language limiting dischargeability
protections to loans issued by nonprofit institutions of higher
education. Bankruptcy Amendments and Federal Judgeship Act of
1984, Pub. L. No. 98-353, § 454 (a)(2), 98 Stat. 375.5

       5
        "Section 523(a) of title 11 of the United States Code is amended--
       (2) by striking out ‘of higher education’ in paragraph 8.” Bankruptcy Amendments and
Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 454(a)(2), 98 Stat. 375-76.

                                             15
                       1990 Amendments
     In 1990, Congress expanded the period of repayment from
five to seven years. Federal Debt Collection Procedures Act
of 1990, Pub. L. No. 101-647, § 3621(2), 104 Stat.




                             16
4933.6 Finally, the Student Loan Default Prevention Initiative
Act of 1990 applied § 523(a)(8) to Chapter 13 cases.7

                     The Debate Continues
     In 1994, Congress again created a commission to review
bankruptcy laws. In its October 20, 1997 report, the National
Bankruptcy Review Commission recommended to Congress that the
exception to discharge for student loans be eliminated:

       The Commission recommends that Congress eliminate
       section 523(a)(8) so that most student loans are
       treated like all other unsecured debts. In so doing,
       the dischargeability provisions would be consistent
       with federal policy to encourage educational
       endeavors. The Recommendation would also address the
       numerous application problems that have resulted from
       the current nondischargeability provision. No longer
       would Chapter 13 debtors who made diligent efforts to
       repay be penalized after completing a plan with
       thousands and thousands in compounded back due
       interest. Litigation over “undue hardship” would be
       eliminated, so that the discharge of student loans no
       longer would be denied to those who need it most.

Report of the National Bankruptcy Review Commission, § 1.4.5
(October 20, 1997).



       6
        "Section 523(a)(8) of title 11, United States Code, is amended--
        (2) by amending subparagraph (A) to read as follows:
               ‘(A) such loan, benefit, scholarship, or stipend overpayment first became due more
               than 7 years (exclusive of any applicable suspension of the repayment period)
               before the date of the filing of the petition. . . .”
Federal Debt Collection Procedures Act of 1990, Pub. L. No. 101-647, § 3621, 104 Stat. 4964-
65 (emphasis added).
       7
        "Section 1328(a)(2) of title 11, United States Code, is amended by striking ‘section
523(a)(5)’ and inserting ‘paragraph (5) or (8) of section 523(a).’” Student Loan Default
Prevention Initiative Act of 1990, Pub. L. No. 101-508, § 3007(b), 104 Stat. 1388-28 (emphasis
added).

                                               17
         Judicial Interpretations of the Word “Loan”

     One of the most oft-cited definitions of “loan” can be
found in the Second Circuit’s opinion in In re Grand Union Co.,
219 F. 353 (2d Cir. 1914).     In In re Grand Union Co., the
Second Circuit defined a loan as:

    [A] contract by which one delivers a sum of money to
    another and the latter agrees to return at a future
    time a sum equivalent to that which he borrows. ‘In
    order to constitute a loan there must be a contract
    whereby, in substance one party transfers to the
    other a sum of money which that other agrees to repay
    absolutely, together with such additional sums as may
    be agreed upon for its use. If such be the intent of
    the parties, the transaction will be considered a
    loan without regard to its form.’

Id. at 356 (citing 39 Cyc. 296).

     A number of courts, invoking the Second Circuit’s “sum of
money” language, hold that a loan does not arise unless and
until there is an actual advance of money to the debtor. For
example, in DePasquale v. Boston Univ. Sch. of Dentistry (In
re DePasquale), 211 B.R. 439 (Bankr. D. Mass. 1997), Boston
University allowed the debtor to attend classes without
prepaying her tuition bill. When the debtor filed bankruptcy,
the university sought to have the balance determined
nondischargeable under 11 U.S.C. § 523(a)(8).        The court
concluded that the university’s acquiescence in the debtor’s
continued attendance without prepayment did not satisfy the
definition of a loan since no money had changed hands: “A loan
involves more than an extension of credit.          It is the
furnishing of money or other property by a lender to a
borrower.” Id. at 441.




                              18
     Likewise, in New Mexico Inst. of Mining & Tech. v. Coole
(In re Coole), 202 B.R. 518 (Bankr. D.N.M. 1996), the court
concluded that a loan for § 523(a)(8) purposes had not arisen
when the debtor merely incurred expenses on his student
account: “The plain meaning of ‘loan’ is that a sum of money
must change hands.” Id. at 519; see also Dakota Wesleyan Univ.
v. Nelson (In re Nelson), 188 B.R. 32, 33 (D.S.D. 1995)
(holding that charges for




                              19
“tuition, room and board, and other services” incurred by
student debtor on an open account “cannot be categorized as an
‘educational benefit overpayment’ or as a ‘loan.’”).

     Some of these cases seem to turn on the absence of a
written agreement executed contemporaneously with the extension
of credit. See DePasquale, 211 B.R. at 442 (distinguishing
Merchant v. Andrews Univ. (In re Merchant), 958 F.2d 738 (6th
Cir. 1992), where “the debtor had signed forms evidencing the
amount of her indebtedness before she registered for classes,
much like one signs a promissory note before receiving an
advance of funds.”) (emphasis added); In re Nelson, 188 B.R.
at 33 (“[T]he University’s choice to allow [the debtor] to
continue to attend classes without signing a note or making
payment cannot amount to a loan. . . .”) (emphasis added);
Seton Hall Univ. v. Van Ess (In re Van Ess), 186 B.R. 375, 377
(Bankr. D.N.J. 1994) (“Nor does it appear that the Debtor and
[the university] entered into any written agreement which
provided terms for the payment of the . . . tuition.”)
(emphasis added).

     Many courts have rejected the more formulaic definition of
the word “loan” in favor of a flexible construct which
emphasizes the substance of the transaction and the underlying
intent of the parties. In United States Dep’t of Health and
Human Servs. v. Avila (In re Avila), 53 B.R. 933 (Bankr.
W.D.N.Y. 1985), the court adopted the following definition of
“loan”:

    Repeatedly, it has been observed that a loan may
    exist regardless of the form of a transaction. Loans
    have been found to exist in transactions that were
    arguably purchases, and in transactions that were
    arguably transfers in trust. Loans have been found,
    for the purpose of usury laws, when a bank advances
    money and the transaction is ‘in substance’ a loan.

                              20
    Loans, in substance, have been found when the issue
    is relevant to whether a corporation’s actions have
    been ultra vires, and when the issue is relevant to
    the duty of fair dealing of one who receives money.


Id. at 936 (citations omitted).

     The circuit courts which have addressed the issue have
also adopted a broad definition of the word “loan.”       For
example, in United States Dep’t of Health and Human Servs. v.




                             21
Smith, 807 F.2d 122 (8th Cir. 1986), the Eighth Circuit held
that funds received pursuant to the Physician Shortage Area
Scholarship Program satisfied the statutory definition of a
loan.    In Smith, the debtor sought to discharge benefits
received under the Program, which required him to practice in
physician shortage areas after graduation. Students who failed
to fulfill their practice obligations were required to repay
the funds.    Notwithstanding their conditional nature, the
Eighth Circuit held that the scholarships were loans:       “We
follow the weight of authority that ‘[a] loan is no less a loan
because its repayment is made contingent.’” Id. at 125 (quoting
Island Petroleum Co. v. Commissioner of Internal Revenue, 57
F.2d 992, 994 (4th Cir. 1932)).

     In Andrews Univ. v. Merchant (In re Merchant), 958 F.2d
738 (6th Cir. 1992), the Sixth Circuit ruled that a
university’s extensions of credit constituted a loan for §
523(a)(8) purposes.    In reaching its conclusion, the court
observed that the debtor had executed a promissory note prior
to matriculation:    “In this case [the debtor] signed forms
evidencing the amount of her indebtedness before she registered
for class. She received her education from the University by
agreeing to pay these sums of money owed for educational
expenses after graduation. The credit extensions were loans
for educational expenses.” Id. at 741.

     A number of courts have concluded that even short-term,
unmemorialized extensions of credit constitute loans for §
523(a)(8) purposes.    See Najafi v. Cabrini College (In re
Najafi), 154 B.R. 185 (Bankr. E.D. Pa. 1993) (holding that
student who was allowed to register and attend classes without
prepaying tuition received a nondischargeable loan); University
of New Hampshire v. Hill (In re Hill), 44 B.R. 645 (Bankr. D.
Mass. 1984) (holding that university’s provision of short-term


                              22
credit to student awaiting receipt of loan proceeds constituted
a loan under 11 U.S.C. § 523(a)(8)).

     In deciding whether a particular transaction qualifies as
a loan, courts also consider the intent of the parties. See
In re Merchant, 958 F.2d at 740 (“If such be the intent of the
parties, the transaction will be considered a loan without
regard to its form.”) (quoting In re Grand Union Co., 219 F.
at 356); In re Hill, 44 B.R. at 647 (noting that it was the
debtor’s “intention to pay the University the proceeds of his
Higher Education Loan when received.”); In re Avila, 53 B.R.
at 937 (noting that the “intent of both parties was to create
an obligation




                              23
which would require repayment.”); Midland Ins. Co. v.
Friedgood, 577 F.Supp. 1407, 1413 (S.D.N.Y. 1984) (“[A]
critical issue in the determination of whether a transaction
was a loan is whether the intent to make a loan was present.”).



              Dictionary Definitions of “loan”

     In the absence of a statutory ambiguity, courts are
required to apply the plain meaning of the term at issue. See
NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981) (“Where
Congress uses terms that have accumulated settled meaning under
. . . common law, a court must infer, unless the statute
otherwise dictates, that Congress meant to incorporate the
established meaning of these terms.”). Most of the courts that
require an actual advance of money rely on dictionary
definitions which define loans exclusively in these terms.
However, our review of a number of sources (admittedly not
exhaustive) has turned up a number of definitions which easily
encompass Johnson’s debt to the College.

     Black’s Law Dictionary defines a “loan” as “[a]nything
furnished for temporary use to a person at his request, on
condition that it shall be returned, or its equivalent in kind,
with or without compensation for its use.”         Black’s Law
Dictionary 936 (6th ed. 1990). Webster’s Third International
Dictionary defines a loan similarly, as “[s]omething lent for
the borrower’s temporary use on condition that it or its
equivalent be returned.” Webster’s Third New International
Dictionary 1326 (Philip Babcock Gove ed., 1993).

     Although the definitions imply money as the subject of the
loan transaction, they do not necessarily anticipate or even
require an actual exchange of funds between the lender and the
borrower. Notably, Black’s Law Dictionary also defines a loan

                              24
as    “[t]he creation of debt by the lender’s payment of or
agreement to pay money to the debtor or to a third party for
the account of the debtor. . . .” Black’s Law Dictionary 936
(6th ed. 1990) (emphasis added).       The definitions do not
require an exchange of funds at all. See id. (“‘Loan’ includes
. . . [t]he creation of debt by a credit to an account with the
lender upon which the debtor is entitled to draw immediately.
.   .    .”)  (emphasis   added);   see   also   West’s   Legal
Thesaurus/Dictionary 464 (William P. Statsky ed., 1986)
(including among its definitions of loan an “advance, credit,
accommodation [or] allowance. . . .”).




                              25
     Applying these definitions to the facts before us, we
conclude that the arrangement between Johnson and the College
constitutes a loan. Johnson’s promise to remit the cost of
tuition to the College in exchange for the opportunity to
attend classes created a debtor/creditor relationship. She
signed a promissory note to evidence her debt. By allowing
Johnson to attend classes without prepayment, the College was,
in effect, “advancing” funds or credits to Johnson’s student
account. Johnson drew upon these advances through immediate
class attendance.    It is immaterial that no money actually
changed hands.
                            Summary

     We conclude that the debtor’s definition controverts the
history and purpose behind the student loan programs. From
their inception in 1965, the federal student loan programs
sought to ensure educational opportunity regardless of economic
status.    Recognizing that the continued vitality of the
programs depended on the repayment of outstanding loans and to
avoid potential abuse, Congress created an exception to
discharge for educational obligations--obligations for which
debtors would not even have qualified absent the federal




                              26
guarantee.8   In the two decades that followed, Congress has
further restricted the




       8
         One justification for the nondischargeability of student loans focuses on the special status
of student borrowers. Since they lack the normal indicia of creditworthiness--income and
collateral--most students would not even qualify for a loan. "[E]ducational loans are different
from most loans. They are made without business considerations, without security, without
cosigners, and relying for repayment solely on the debtor’s future increased income resulting from
the education.” H.R. Rep. No. 95-595, at 133 (1978), reprinted in 1978 U.S.C.C.A.N. 5963,
6094.
        At least one commentator has argued for limitations on the dischargeability of student
loans because students, unlike other debtors, retain the subject matter of the loan transaction in
the form of an income-generating degree:

       The concept of bankruptcy is to give those who aren’t able to meet their
       obligations an opportunity to throw both their assets and liabilities into a legal
       proceeding wherein their creditors liquidate the bankrupt’s assets and share in the
       distribution of the revenues in proportion to the unpaid credit extended to the
       bankrupt. The bankrupt is intended to come out “whole” but not with the assets.
       In the case of student borrowers, the asset acquired by the credit extended is a
       college degree, a license to practice, increased learning, a capacity to perform
       specific tasks and often a more socially adjusted individual. When the bankrupt
       walks away with these assets, how can there be a true bankruptcy?

Letter from Kenneth R. Reeher, Commonwealth of Pennsylvania Higher Education Assistance
Agency to Hon. Don Edwards (January 28, 1976).

                                                 27
dischargeability of student loans through a series of
legislative expansions. Amendments have expanded the types of
institutions which qualify for § 523(a)(8) protection,
lengthened the repayment period from five to seven years and
applied dischargeability limitations to Chapter 13 cases.



     Finally, we note that the debtor’s definition of “loan”
overlooks the realities of most commercial transactions in
which money, in its most concrete manifestation, never actually
changes hands. Under the debtor’s definition, only the most
mechanical transactions will constitute a loan. Therefore, it
is in keeping with the words of the statute, Congressional
intent and commercial reality that we treat the transaction
between Johnson and the College as a loan.

                          CONCLUSION

     We conclude that the College’s extension of credit to
Johnson was a loan for purposes of 11 U.S.C. § 523(a)(8).
Therefore, we affirm the decision of the bankruptcy court
declaring Johnson’s debt to the College to be nondischargeable.

    A true copy.

         Attest:

              CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
              EIGHTH CIRCUIT.




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