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Business and Policy Areas
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Higher Education Associations File Brief in Bankruptcy "Claw Back" Case

August 11, 2017

Last month, NACUBO joined the American Council on Education and 18 other higher education associations in filing an amicus brief on bankruptcy “claw backs” in the U.S. Court of Appeals for the First Circuit. The brief was submitted to assist the court in “understanding the larger, practical implications of the trustee’s position on colleges and universities and their students.”

The case in question is examining if a bankruptcy trustee can claw back, or recover, payments made to an institution from a parent paying for his or her child’s education when the parent has filed for bankruptcy. Bankruptcy trustees argue that parents technically have no legal obligation to pay their children’s college tuition and receive no “reasonably equivalent value” for tuition payments, making them technically fraudulent and eligible for recovery in bankruptcy proceedings.

“In making these arguments, the trustees have ignored the very real direct and indirect value that parents receive when they pay for their child’s college education. Among other things, parents receive the long-term security of having a college-educated child who is far more likely to become financially self-sufficient,” the NACUBO-endorsed brief states, presenting the argument that parents do receive “reasonably equivalent value” when they help pay for their children’s college education. Further, institutions cannot anticipate a parent’s potential insolvency or absorb the loss of clawed-back tuition payments for the education they have already provided. 

Bankruptcy trustees are demanding the return of payments that institutions received from parents before those parents even filed for bankruptcy—in many cases, years before. The trustees argue that parents who make these payments are not legally obligated to pay (for children over 18) and do not receive the actual education.  The brief responds by illustrating that parental contributions are not only societally expected but that federal laws (student aid and tax incentives) are built upon a premise that parents will contribute to a child’s college education.

Additionally, the brief outlines the consequences of claw backs for colleges and universities, namely that institutions have few options to deal with these situations beyond passing along the loss to the affected student.

Contact

Bryan Dickson
Senior Policy Analyst
202.861.2505
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