WEBVTT - Judges Clash Over Parents’ Role in Student Debt (Audio)

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<v Speaker 1>College students graduated with an average debt of thirty thousand

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<v Speaker 1>dollars in student loans in and that's just the average.

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<v Speaker 1>As Senator Bernie Sanders made clear during the presidential campaign.

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<v Speaker 1>Here at a rally in New Hampshire, we have a

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<v Speaker 1>young lady here a hundred and eighty three thousand dollars

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<v Speaker 1>in debt. Now, is that a result of going to

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<v Speaker 1>Las Vegas and losing on the casino? No, that's because

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<v Speaker 1>she wanted to get a decent education. But what about

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<v Speaker 1>the debt of parents who are struggling financially but helped

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<v Speaker 1>their children pay for the rising cost of college. A

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<v Speaker 1>bankruptcy trustee can sue to take back tuition money paid

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<v Speaker 1>to a college in the years before bankruptcy, but courts

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<v Speaker 1>are split on the fundamental question. A bankruptcy judge in

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<v Speaker 1>Atlanta rule this month that a Georgia woman did not

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<v Speaker 1>have a legal duty to pay her daughter's college tuition,

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<v Speaker 1>writing that he disagreed with the opposite decision reached by

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<v Speaker 1>a Boston judge six months ago. Our guest is Heather

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<v Speaker 1>Joe Harvist. She's a student loan expert. How to explained

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<v Speaker 1>the legal issue in these tuition claw back lawsuits, Well,

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<v Speaker 1>the question is whether the bankruptcy trustee can reclaim funds

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<v Speaker 1>that were paid to a college and put them back

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<v Speaker 1>in the estate of the debtor. So, in the recent

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<v Speaker 1>Georgia case, the mother in that case had paid some

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<v Speaker 1>college tuition for her daughter's education and the college UM

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<v Speaker 1>wanted to retain those tuition payments, but the trustee wanted

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<v Speaker 1>to recoup the value of that transferred fund for the

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<v Speaker 1>bankruptcy estate. So the court considered whether the debtor was

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<v Speaker 1>able to receive what they call a reasonably equivalent value

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<v Speaker 1>in exchange for the money she had transferred to the university,

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<v Speaker 1>and in that analysis, the court determined that UM she

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<v Speaker 1>did not receive such value UM because finding that she

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<v Speaker 1>did not have a duty to pay for her daughter's education.

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<v Speaker 1>Heather is looking at whether somebody is has a duty

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<v Speaker 1>or is really obligated to pay their child's tuition the

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<v Speaker 1>way that courts should be looking at this question. I mean,

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<v Speaker 1>people have felt for a long time, or at least

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<v Speaker 1>a lot of people have, that they feel they have

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<v Speaker 1>some obligation towards their kids to help them get educated,

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<v Speaker 1>or a lot of people feel that way. Is it

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<v Speaker 1>is duty as a legal matter really the right way

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<v Speaker 1>to look at this question. Well, and I think that

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<v Speaker 1>that's really the right way to think about it, because

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<v Speaker 1>it is a question about which there are different opinions. UM.

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<v Speaker 1>Parents certainly do UM in many cases express a feeling

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<v Speaker 1>of that they have such a duty UM. Certainly, it's

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<v Speaker 1>it's customary in our culture if parents are able to

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<v Speaker 1>assist with their children's college education, it's typically expected UM.

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<v Speaker 1>But in the recent Georgia case, Judge Hoffman looked at

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<v Speaker 1>some conflicting guidance from prior decisions UH and determined that UM.

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<v Speaker 1>In his view, there there was although there was a

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<v Speaker 1>societal expectation that parents pay for college, that there was

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<v Speaker 1>not in fact any corresponding legal duty UM, and that

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<v Speaker 1>such a such a duty UM didn't did not UM

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<v Speaker 1>exist even though the debtor may have felt such a

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<v Speaker 1>moral obligation to pay for the college education. And in

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<v Speaker 1>that decision, the judge talked about Judge Hoffman, the Massachusetts

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<v Speaker 1>judge who had decided that it was right for the

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<v Speaker 1>parents to pay, and in his decision, Judge Hoffman said

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<v Speaker 1>the emphasis should be unreasonably in reasonably equivalent value often

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<v Speaker 1>apparent won't know at the time she pays a bill,

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<v Speaker 1>whether for herself or her for her child, if the

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<v Speaker 1>medical procedure, the music lesson, or the college fee will

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<v Speaker 1>turn out to have been worth it. But there's a

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<v Speaker 1>reasonable equivalency, he says. And isn't it the same as

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<v Speaker 1>if you know, someone gets joy one parent gets joy

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<v Speaker 1>out of buying a sports car, and another parent gets

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<v Speaker 1>joy out of paying for their child's college education. Should

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<v Speaker 1>the college suffer? Well, you know, I think that it's

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<v Speaker 1>an interesting series of questions because certainly, UM, we received

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<v Speaker 1>various amounts of joy from spending our money on things,

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<v Speaker 1>potentially including on education for our children. UM. But the

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<v Speaker 1>court looks to whether the debtor in this case received

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<v Speaker 1>any economic benefit UM as opposed to UM any you

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<v Speaker 1>know less less tangible benefit as you describe. Well, Heather,

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<v Speaker 1>One of the things it's interesting thing about this is

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<v Speaker 1>the judge seems to have made a distinction between money

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<v Speaker 1>that was paid out of a UH five nine college

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<v Speaker 1>savings account and money that was paid separately, you know,

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<v Speaker 1>going a separate from that just cash that I guess

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<v Speaker 1>that the parent had on hand. Why is there a

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<v Speaker 1>distinction there? Well, there there was some dispute over the

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<v Speaker 1>source of the funds that were transferred to the university

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<v Speaker 1>because they had been transmitted through the debtor's checking account.

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<v Speaker 1>UM and the question, you know, there was some question

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<v Speaker 1>about whether the funds that initially come from a five

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<v Speaker 1>nine savings account UM and those accounts are special in

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<v Speaker 1>that the funds are designated specifically for the purpose of

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<v Speaker 1>UM education and qualifying tuition expenses. So the tracing of

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<v Speaker 1>the funds was UH certainly a large part of the

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<v Speaker 1>analysis in the case. Had there are the courts the

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<v Speaker 1>place to settle this? In New York, Congressman introduced a

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<v Speaker 1>ban on tuition clawbacks in bankruptcy in Congress. It didn't

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<v Speaker 1>go very far, but I'm wondering if Congress is a

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<v Speaker 1>better place to decide this. Well, certainly, it does seem

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<v Speaker 1>that with some you know, dispute at the court level,

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<v Speaker 1>with some different findings from different judges, that additional guidance

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<v Speaker 1>would be appropriate. UM and and certainly UM bankruptcy reform

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<v Speaker 1>with regard to education costs and UH student own discharges

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<v Speaker 1>UM is UH. Do well, do you think there's any chance,

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<v Speaker 1>you know, colleges are gonna start needing to probe into

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<v Speaker 1>parents finances to make sure that they're not going to

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<v Speaker 1>have a claw back, because if they're getting tuition, you know,

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<v Speaker 1>when they can get money from people and not have

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<v Speaker 1>to give aid necessary earlier, it's a big deal for

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<v Speaker 1>them financially certainly. I mean, I think colleges have been

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<v Speaker 1>and may redouble their effort to be UM confident in

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<v Speaker 1>the source of the funds they're receiving, because just as

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<v Speaker 1>you say, UM, having those funds um taken back is

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<v Speaker 1>not going to sit well with their business model. And

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<v Speaker 1>according to the Wall Street Journal, most colleges have been

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<v Speaker 1>settling with a return of more than two hundred and

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<v Speaker 1>seventy thousand intuition. Since thanks so much for being with

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<v Speaker 1>us here on Bloomberg Law. That's Heather Jarvis. She is

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<v Speaker 1>a student loan expert. That's it for this edition of

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<v Speaker 1>Bloomberg Law. We'll be back tomorrow at one pm Wall

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<v Speaker 1>Street Time. Please join us then, thanks to our technical

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<v Speaker 1>director Reginald Basil and our producer David Suckerman. Bloomberg Markets

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<v Speaker 1>with Carol Master and Corey Johnson starts right now on

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<v Speaker 1>Bloomberg Radio. Good afternoon, Carol, Hi, June, Hi, Michael, Hi. Everybody.

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<v Speaker 1>We've got the snap road show. We're gonna talk about

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<v Speaker 1>already hitting some roadblocks. Also, chicken and burger is apparently

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<v Speaker 1>the perfect recipe for M and a uh. And then

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<v Speaker 1>we're gonna talk about Japanese drone that's a dog and

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<v Speaker 1>I put it out on Twitter. Perfect recipe for a

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<v Speaker 1>lot of other things too. Chicken and burgers. That's it

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<v Speaker 1>for this edition of Bloomberg Law. Coming up Bloomberg Markets

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<v Speaker 1>with Carol Master and Corey Johnson. This is Bloomberg