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| Creditors' Rights and Bankruptcy, Education: Recent Developments |
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School Tuition Policies and the Impact of Bankruptcy
A Brief Overview for School Administrators |
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3/15/2004
Authors: Kathryn Kelley Hoskins
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The general rule, outside of the context of bankruptcy, is that a school may take reasonable steps to recover unpaid tuition, including: sending reminder letters to parents; suspending students from class; not sending home report cards; declining to forward education records to a transfer school or other third party; and, referring the matter to a collection agency.
The School's specific tuition collection practices should be described in a student/parent handbook or other written document and should be followed in a consistent, non-discriminatory manner. Schools should bear in mind that, notwithstanding the general right to withhold records for nonpayment of tuition:- Records must be produced in response to a subpoena or court order; and
- Parents always have the right (under the Family Educational Rights and Privacy Act) to inspect their child's education records, even if they owe money to the School.
Special rules apply if the School becomes aware that a person has filed for bankruptcy. In that case, the School must immediately cease any efforts to collect any money that is owed to the School by that individual. By filing for bankruptcy, the debtor obtains legal protection (pursuant to a legal concept in bankruptcy called the "automatic stay") from all of his or her creditors, including the School. It is unlawful for a school to violate the automatic stay by attempting to collect the debt. (The School can be listed as a creditor in the bankruptcy proceeding and may recover a portion of the money owed in this way.)
How can Schools protect themselves from the prospect of being unable to recover unpaid tuition in the event of a bankruptcy? First, do not allow tuition debt to accumulate in the first place. Begin discussions early with parents regarding the possibility of tuition assistance or an extended payment plan if there are extenuating circumstances. Begin debt collection practices early and follow up consistently, especially if the parent is not making good faith attempts to meet his or her obligations.
Second, if a family has not met tuition obligations in a timely way throughout the year, the School may decline re-registration or insist on full payment, in advance, prior to re-enrollment.
Even where an individual has filed for bankruptcy, the automatic stay does not prevent the School from refusing to perform future services (e.g., denying re-registration) or placing conditions on future services (e.g., requiring payment in advance for the future service). In situations where the family is on a tuition payment plan, however, the most prudent approach is to consider the entire year's tuition as a pre-bankruptcy debt, even if some of the payments are not yet due at the time the bankruptcy petition is filed.
In summary:- A School may not attempt to collect on a financial obligation that existed prior to the filing of a bankruptcy petition.
- Once a bankruptcy petition has been filed, a School may decline to provide future services or may require special payment arrangements with regard to the provision of future services.
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