I attained a student loan to cover two classes at an accredited university. I received approximately $10,000 from the US Dept of Education. Approximately $2,000 was applied to my tuition and the remainder, approx $8,000, was credited to my student account in cash.
I subsequently dropped both classes. Because I did not fulfill my requirements to receive financial aid, the university had to give the full $10,000 back to the Dept of Education.
Now as a result, I owe the $10,000 to the university, not the US Dept of Education.
My question is, since I owe the money for tuition and overage to the university... Is that debt now dischargeable in bankruptcy?
You raise a very interesting question. Student loan debt is considered non dischargeable unsecured debt. However, if the debt you owe is not for a government backed student loan, and rather is simply due as tuition to a college, I would conclude that it is simply unsecured as any other contract for services would be held.
I agree with Attorney Goldstein. Tuition is dischargeable debt, student loans are not dischargeable. The facts, as you relay them, are not clear. You received a loan - but the loan was returned. Therefore, I would argue, the $2000.00 remaining is a tuition debt to the school.
Schools often refuse to provide transcripts to students who have past-due balances. Several courts have held this to be a violation of the discharge order. Because they have no reason to withhold the transcripts except to force payment of a discharged debt.
I hope this helps.
Steven A. Leahy
Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.
4 lawyers agree
Patent Application Attorney
I disagree with my esteemed colleagues. I think you'll need to really look at this more closely. The debt doesn't have to be to the feds in order for it to be nondischargeable. See an attorney and bring the paperwork.
I've copied a synopsis from Lexis below. Having copied that down, I will say that you could always try it, and hope that the university doesn't complain. You might get away with it. On the other hand, it's $10k. You're going to pay close to $2k to file the bankruptcy. Best to make an agreement with the university to pay it. That is, unless you have a bunch of credit card debt you need to take care of as well. Good luck!
McKay v. Ingleson, 558 F.3d 888 - The debtor argued that the university's graduate and professional student account and deferment agreement was not a "loan" within the meaning of 11 U.S.C.S. § 523(a)(8) and that it was, therefore, dischargeable. In concluding that the agreement constituted a "loan" under § 523(a)(8), the court looked at the ordinary meaning of the term. Applying the definitions to the facts, the court found that the debtor's promise to remit the cost of tuition to the university in exchange for the opportunity to attend classes created a debtor/creditor relationship. The debtor signed a promissory note to evidence her debt. By allowing the debtor to attend classes without prepayment, the university was, in effect, advancing funds or credits to the debtor's student account. The debtor drew upon the advances through immediate class attendance. It was immaterial that no money actually changed hands. The court found no features of the agreement that were inconsistent with its being a "loan." Because the debtor's student loan was exempt from discharge under § 523(a)(8), the university could not have violated the discharge injunction by attempting to collect the loan.
I'm not your attorney; my answer to your question includes assumptions. If you want me to be your attorney, I'm easy to find.