ACE
filed an amicus brief this week on behalf of 19 other higher education
associations in the first federal appeals court review of whether a
bankruptcy trustee—charged to locate and collect an insolvent party’s
assets—should be able to force an institution that has received payments
from a parent for a child’s education to give that money back to the
insolvent parent’s bankruptcy trustee.
Sacred Heart University (CT) is the defendant in the action
instituted in federal bankruptcy court in Massachusetts, and now on
appeal to the United States Court of Appeals for the First Circuit in
Boston.
Last year, the federal bankruptcy court sided with Sacred Heart,
which opposed the bankruptcy trustee’s effort to collect and
redistribute (to creditors) tuition payments it had received. Of
particular concern to the higher education community, the trustee used
an increasingly common approach and contended that the parents were not
personally receiving “reasonably equivalent value” for those payments;
therefore, they were claimed as “fraudulent transfers.” (“Fraudulent
transfers” is a concept that exists in bankruptcy law to discourage an
insolvent party’s efforts to squirrel money away before filing for
bankruptcy.)
ACE’s brief contends that in making these arguments, the trustees
have ignored the very real value parents receive when they pay for their
child’s college education, including the long-term security of having a
college-educated child who is far more likely to become financially
self-sufficient.
The trustees also ignore the broad ramifications of their position on
higher education in the United States: Colleges and universities have
no realistic way of anticipating the parents’ potential insolvency or
absorbing the loss of clawed-back tuition payments. And as institutions
become increasingly tuition-dependent and their budgets tighten, these
problems grow worse.
To read the brief in full, click here (173 KB PDF).