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.