16 Dec When is Unpaid Tuition a Nondischargeable Student Loan?
As many know, student loans are not dischargeable in bankruptcy unless a debtor proves “undue hardship.” This showing is rare and usually requires medical evidence of a present and future inability to work in any field. The question, however, sometimes arises: is unpaid tuition a student loan.
Many courts have addressed the question, include the First Circuit In re DePasquale, 225 B.R. 830 (1st Cir.1998), which found that, under the facts of the case, that the unpaid tuition was the equivalent of a student loan and therefore nondischargeable. However, the DePasquale case involved one of the two circumstances that tends to lead to a finding that unpaid tuition is nondischargeable. The debtor in DePasquale had executed a promissory note directly with the school to repay the tuition. The court determined that this converted the forbearance in collecting tuition into a loan. The other circumstance where this is usually the same result is when the school actually advances funds to the student. In circumstances other than the two I have described the student usually fares better.
In re Mehta, 310 F.3d 308 (3rd Cir. 2002) is a case in point. In Mehta, the school simply allowed the student to attend school while he was behind in tuition payments. It then sought to collect the balance due. The court held that the policies in the student guidebook were not sufficient to convert the university’s forbearance into a loan and discharged the tuition bill. Unpaid tuition cases are fact-specific but generally adhere these principles.
In both cases discussed here, the school was my law school alma mater, Boston University.
Nicholas Ortiz, Boston Bankruptcy Attorney
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