Amicus Brief: Tuition Claw Back Case Mark G. DeGiacomo v. Sacred Heart University, Inc.

July 27, 2017 Advisory

Wiggin and Dana attorneys Aaron Bayer and Benjamin Daniels recently filed an amicus brief in the U.S. Court of Appeals for the First Circuit on behalf of the American Council on Education, as well as a number of other national associations of colleges, universities and other representatives and supporters of higher education in the United States and state associations of private colleges and universities. The case involves an issue of growing concern to colleges and universities across the country -- whether a bankruptcy trustee can "claw back" tuition payments made by parents who subsequently file for bankruptcy protection.

Bankruptcy trustees have increasingly brought these fraudulent transfer claims against colleges and universities. They are not seeking to recover the payments of tuition and other education expenses from the students, who received the education, but from the colleges and universities that provided that education in good faith. Trustees seek to "claw back" those payments on the theory that they are fraudulent transfers, contending that the parents were insolvent at the time and that they received less than "reasonably equivalent value" for the payments, because the child received the education, not the parents.

The amicus brief argues that trustees have ignored the very real value that parents receive when they pay for their child's college education, including the long-term security of having a college-educated child who is far more likely to become financially self-sufficient. They also disregard longstanding policies of the federal government that expect and encourage parents to contribute to the cost of their children's college education. Indeed, the entire federal financial aid system is structured on the premise that parents must contribute to those costs for a student to receive financial aid. Finally, the trustees do not recognize the broad ramifications of tuition claw backs on institutions of higher education, which have no realistic way of anticipating the parents' potential insolvency at the time the institution receives tuition payments from them, and cannot effectively absorb the loss of clawed-back tuition payments for the education they have already provided. Nor is it realistic to expect institutions to be able to recover those lost funds from the affected student, who likely have other debts and few resources, leaving many institutions with no option but to raise tuition or reduce services to the rest of the student body.

This case, which involves Sacred Heart University from Connecticut, is the first tuition claw-back case to reach a federal court of appeals.

To read the full Amicus Brief, please click the Printable PDF link at the top or bottom of this page.