The Cost of Attendance (“COA”) can be a tricky concept. But at the end of the day, the COA represents the total amount of money a student is eligible to borrow in a given year for qualified education expenses. Qualified education expenses are in turn what make up a qualified education loan, which is a presumptively non-dischargeable debt in bankruptcy. The COA is defined in federal law as expenses for tuition, room, board, books, and fees, but the actual number is an individual figure determined by the school.
Because the COA is determined by the school, it varies depending on the location and status of the school (public v private, rural v. urban, etc.) and the status of the student (in-state v. out-of-state, on-campus housing v. off-campus housing, etc.). So it’s important to ask your client what their status was during the time they borrowed the loan to be sure you are checking the correct figure on the IPEDS website.
Let’s take George as an example. George attends State University. During the 2005-2006 academic year, State University reported to the Department of Education that its COA for a student living on-campus was approximately $22,000. That means that George is eligible to borrow $22,000 in “qualified education loans” to finance his education. Some of that might come from federal loans, some in grants or scholarships, and some in private loans. But once George reaches that magic number of $22,000, no amount of money he borrows from a private bank is “qualified” anymore. It’s not even really a “student loan” anymore. It’s really more of a “consumer loan” made to a student.
Now, the actual number may vary slightly from the average. For example, if George was pre-med, he may have been eligible for some additional lab costs. Or if he was a photography major, he might have been given an allowance for a special camera. But these variances generally don’t amount to more than a few hundred dollars. For all intents and purposes, and when dealing with clients with tens of thousands of dollars in private student loan debt, the average COA is sufficient to establish whether your client was above or below the published COA.
Now, another issue that can arise is the timing of the sources of financing. If your client borrowed more than the COA, it’s generally best to use a “first in, first out” accounting system. So, start by tallying up all your clients funding from all sources (federal loans, scholarships, grants, etc.) in a timeline by origination date. Once your client reaches the COA, all private loans that came in after that date are not for qualified education expenses. Note that this is not done on a pro-rata basis. In order for a debt to be a “qualified education loan,” it must be made solely for qualified education expenses. Thus, if your client had $5,000 eligibility remaining for qualified education expenses in a given year, but borrowed $10,000 from a private bank, the entirety of the loan is non-qualified, and can be discharged without proving undue hardship.
 In re LeBlanc, 404 B.R. 793, 797 (Bankr. M.D.Pa. 2009) (“The term ‘qualified education loan’ means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses.”). See also IRS, 26 C.F.R. 1, REG-116826-97 (“Student I signs a promissory note for a loan which is secured by I’s personal residence. Part of the loan proceeds will be used to pay for certain improvements to I’s residence and part of the loan proceeds will be used to pay qualified higher education expenses of I’s spouse. Because the loan is not incurred by I solely to pay qualified higher education expenses, the loan is not a qualified education loan.”).