Colleges have returned more than $276,000 in tuition payments made for students whose parents later filed for bankruptcy. Villanova University, Ithaca College and the New York Institute of Technology are just a few of the schools that have been sued by bankruptcy trustees, according to a recent Wall Street Journal analysis.
The trustees, who are in charge of recovering money for the debts of the bankrupt parents, argue that financially struggling parents should have paid their own bills instead of their child’s college tuition. Most of the schools have opted to settle the cases and return the tuition money rather than go through an expensive court battle. However, two schools are moving forward with the lawsuits that could lead judges to clarify whether these controversial lawsuits are fair.
Some of the latest settlements include:
Villanova University agreed to pay $10,000 to settle a lawsuit for $12,543 in tuition payments that covered the cost of education for the son of a Durham, Conn., resident who filed for bankruptcy in September.
The University of Maryland agreed to pay $9,999 to settle a tuition lawsuit that demanded $61,595.33 in tuition.
St. Vincent’s College agreed to pay $5,270 to settle a tuition battle over payments of $10,641.45.
The amount of tuition that colleges have promised to return is expected to grow in the coming weeks. U.S. bankruptcy law allows trustees to sue to recover money that a bankrupt person spent but did not get “reasonably equivalent value” in return. These “tuition-recovery lawsuits” are a new phenomenon. Historically, tuition payments were so small that a court-appointed trustee would not waste time pursuing them. But as college costs rise and more parents are chipping in to help their kids, bankruptcy experts predict more of these lawsuits to come.
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