Tuition in BK counts as student loan??

[goodygoody]

Hi all...

Just waiting on our discharge in April, but have a question...hoping someone here will be able to answer. If not, I'll ask my lawyer, but afraid he'll bill me if he has to answer...lol...    I owed a private college about $1800 in tuition that wasn't covered by a federal or private loan. My lawyer said since it wasn't a student loan, I shouldn't have a problem including it in our bankruptcy (Ch 7). He said I should contact the school about their policy on whether students who discharge debt can attend courses again there, or if I'll have to transfer somewhere else. I emailed someone at the school, and received a message back from their Senior Collections Specialist saying that because I signed a financial obligation agreement (which all students have to sign) agreeing that tuition balances are loans made by the school, they wouldn't be discharged in bankruptcy. Here is a copy of the part he is referencing:

I understand that once I am registered for course(s) and/or participating in the Cooperative Education Program at XXX University, I become solely responsible for payment of the resulting tuition, fees and any other balances pursuant to the Student Financial Obligations and Tuition Repayment Agreement. Regardless of any expected reliance on any third-party resource, including but not limited to financial aid, family gifts, employer reimbursement, or any other external resource, I remain personally responsible for paying any and all outstanding balances. This Agreement shall constitute a Promissory Note, obligating me to pay all outstanding balances due XXX University. I understand that these balances are considered a Loan for Educational Purposes which is being made by XXX University. 

Anyone know if they can really do this? It doesn't seem kosher for a college to claim that tuition owed is really a loan so they can get around bankruptcy law. Or that agreeing to be financially responsible constitutes a promissory note. This is a major university though, so I'm sure they have a team of lawyers who wrote this. Just seems like BS to me. Anyone?

[CH-7-Mission-Accomplished]

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@goodygoody wrote:

Hi all...

Just waiting on our discharge in April, but have a question...hoping someone here will be able to answer. If not, I'll ask my lawyer, but afraid he'll bill me if he has to answer...lol...    I owed a private college about $1800 in tuition that wasn't covered by a federal or private loan. My lawyer said since it wasn't a student loan, I shouldn't have a problem including it in our bankruptcy (Ch 7). He said I should contact the school about their policy on whether students who discharge debt can attend courses again there, or if I'll have to transfer somewhere else. I emailed someone at the school, and received a message back from their Senior Collections Specialist saying that because I signed a financial obligation agreement (which all students have to sign) agreeing that tuition balances are loans made by the school, they wouldn't be discharged in bankruptcy. Here is a copy of the part he is referencing:

I understand that once I am registered for course(s) and/or participating in the Cooperative Education Program at XXX University, I become solely responsible for payment of the resulting tuition, fees and any other balances pursuant to the Student Financial Obligations and Tuition Repayment Agreement. Regardless of any expected reliance on any third-party resource, including but not limited to financial aid, family gifts, employer reimbursement, or any other external resource, I remain personally responsible for paying any and all outstanding balances. This Agreement shall constitute a Promissory Note, obligating me to pay all outstanding balances due XXX University. I understand that these balances are considered a Loan for Educational Purposes which is being made by XXX University. 

Anyone know if they can really do this? It doesn't seem kosher for a college to claim that tuition owed is really a loan so they can get around bankruptcy law. Or that agreeing to be financially responsible constitutes a promissory note. This is a major university though, so I'm sure they have a team of lawyers who wrote this. Just seems like BS to me. Anyone?

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I can see how it would be considered a promissory note ... they did advance you the money and they wouldn't do it without a promise to pay it back, but whether it qualifies as a nondischargable student loan sounds a little bit suspect.

There is no harm in listing them on your matrix and if they want to come back and dispute, let them.  The worst that can happen is it won't get discharged.  If you don't list them, for sure it will get discharged.

[goodygoody]

To clarify, I didn't actually borrow money from them. What happened was I registered for some courses online, which were covered by federal loans. I decided I wanted to drop out of the courses, so I contacted the financial aid department to make sure doing so wouldn't affect my financial aid. They said it wouldn't, so I went ahead and withdrew for the semester. A couple months later, the billing department was basically like, "oops, financial aid screwed up, and you actually owe us $1800." I talked to multiple people at the school about the situation, showed them communications from financial aid telling me I could withdraw, etc, but they don't care. So when we filed bankruptcy, I decided to just include it in that. So that's why I say, it seems shady to me for them to say this is a student loan. It's really just tuition they say I owe. So frustrating, especially because this is one debt I am totally not even at fault on. 

[holmesnmanny]

There's a lot of things that don't make sense here. If you withdrew from the class then there shouldn't be any tuition owed. If they refunded you money that was paid with student loan funds then you still owe the lender not the school. That money would be undischarged since you can't discharge student loans unless you filed and won an adversary hearing. I'm assuming you didn't. If they really say you owe money because you attempted to take the class and attended a few classes but didn't show up then obviously that money is discharged. Only the borrowing of money from a lender would be undischargeable not tuition itself. It's like they seem to want you to have to pay both the school and the lender for the same debt. 

However, it really sounds like you're leaving something out, albeit accidentally or perhaps you are not aware of something. 

[goodygoody]

Nope, I'm not leaving anything out, and I don't understand why they're doing this anymore than you do. What they're telling me is that when I withdrew, they had to return my loan money to the federal government (this is for grad school, so no idea if that makes a diff). So for the 2 weeks of class I completed before withdrawing, they're saying the tuition cost is $1800, which they say I now owe since they gave the federal government my entire loan back. They've even admitted repeatedly that their financial aid department made a mistake in telling me I wouldn't owe anything but the $300 refund I got, but they say that since I signed their financial agreement, I am ultimately responsible. 

I sent the info to my lawyer, and he says that it's quite possible that if they contest the discharge, I'll have to pay them since they made me sign that document saying all tuition charges are a loan for educational purposes. But even the lawyer said, it certainly doesn't seem fair that they can get around bankruptcy law by forcing all students to sign this document. But not much I can do about it, I guess. What makes me angriest, like I said, is that this whole situation is their fault, they admit it's their fault, and they just don't care. I even asked if I could pay them monthly for the charge but still take courses, and they said I cannot take additional courses until I pay this off. 

Anyway, if anyone has deeper understanding of this kind of stuff, I'd love to hear it.

[Anonymous]

I would contact the Department of Education and explain this situation to them and ask what are your options. You could also find out if this school has a record of doing this.

It sounds a bit shady to me, most schools allow a certain time frame for a student to withdraw and get either a full refund or a prorated refund and not owe the school any tuition. I would look at their policies regarding withdrawals and student aid/tuition.  It should be in writing what their policies are.  The policies may slightly differ based on undergraduate and graduate student. 

It sounds like they made the mistake of asking for a full refund rather than a prorated refund from your student aid. 

Unfortunately, many students fall into the trap of bad advice from advisors, counselors and etc.  The best protection is to read your school's catalog/manual regarding current policies.  Very rarely are schools held accountable for bad advice unless it is egressious and a large number of students are affected.