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Colleges Can Be Forced to Return Tuition When Parents Go Bankrupt - ABI

Colleges can be forced to return tuition payments made for students whose parents can’t cover their own debts, according to a federal appeals court ruling that opens up higher education institutions to more litigation in bankruptcy courts, WSJ Pro Bankruptcy reported. An appeals court in Boston said on Tuesday that tuition payments can be recovered when a student’s parents later declare bankruptcy, the first appellate decision to address squarely whether such expenses can be taken back and redistributed. Lawsuits targeting tuition payments have become popular among bankruptcy trustees tasked with digging up funds after parents file for bankruptcy. The results have been mixed in the nation’s bankruptcy courts, with some judges shielding colleges and sometimes the students themselves from having to return tuition money. Many schools have opted to settle with trustees rather than test the controversial lawsuits in the courts. Tuesday’s ruling sided with a bankruptcy trustee who sued Sacred Heart University of Fairfield, Conn., to claw back tuition paid on behalf of a student whose parents were involved in a multimillion-dollar fraud that sent her father to prison. The decision said that because parents don’t benefit economically for sending adult children to college, the tuition they paid can be unwound. The tuition payments “furnished nothing of direct value” to creditors of the parents, said the U.S. Court of Appeals for the First Circuit. ABI

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