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Is School Tuition a "Student Loan" and non-dischargeable?


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3/19/2012
Tobias Licker, Esq.
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Can a school withhold school transcripts until tuition is paid?
A common scenario: our bankruptcy client owes school tuition and need a transcript from the school. The school was listed on the bankruptcy petition, but is withholding the transcript because of the outstanding balance. Can they do this? Do you have to pay in order to get the transcript?
The school tuition might be considered an educational loan made under a program funded in whole or in part by a nonprofit institution pursuant to 11 U.S.C. §523(a)(8). Even though the tuition might be non-dischargeable, withholding the transcript would constitute a collection effort and violate the automatic stay. In our district, the Eastern District of Missouri (St. Louis area), the court decided this issue in the decision In re Carson, 150 B.R. 228 (Bankr. E.D.Mo., 1993). Logan College of Chiropractic told the student that he could not obtain a transcript of his records and that he would be prohibited from attending the graduation ceremony unless payments were made for the payment of tuition. The court held that the action by the College to withhold confirming a degree and to withhold delivery of transcripts is an act to collect a pre-petition debt. This act is stayed by the operation of Section 362.
But be aware, this decision is old and the judge is not at the court anymore. Such a case might be decided differently today. In the above case, the judge made the school provide the transcript with the argument withholding violated the automatic stay.
However, if the tuition is non-dischargeable, the court is more likely to allow the school to withhold the transcript.
So when is tuition dischargeable?
It depends on the school. §523(a)(8)(B) talks about an educational loan. Many people think that tuition is not a loan and think §523(a)(8)(A)ii is applicable which talks about “funds received”. But the applicable section is (B) which refers to a qualified educational loan which is defined as a “qualified higher education expense”. So we get away from the word loan and are now looking at an expense which is the cost of attendance an “eligible educational institution”.

The question is what is an eligible educational institution (20U.S.C. 1088). Primary school is not “higher education”, that means K through 12 grade, sorry, tuition is discharged and transcript must be released.

What about trucking school, beauty school, and we even had the question whether helicopter school tuition is dischargeable?
These schools might be qualified educational institutions. A school can meet the requirements with just 15 weeks of instruction or 10 weeks if an associate degree is required for admission.



Category: Bankruptcy


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