College students graduated with an average debt of thirty thousand dollars in student loans in and that's just the average. As Senator Bernie Sanders made clear during the presidential campaign. Here at a rally in New Hampshire, we have a young lady here a hundred and eighty three thousand dollars in debt. Now, is that a result of going to Las Vegas and losing on the casino? No, that's because
she wanted to get a decent education. But what about the debt of parents who are struggling financially but helped their children pay for the rising cost of college. A bankruptcy trustee can sue to take back tuition money paid to a college in the years before bankruptcy, but courts
are split on the fundamental question. A bankruptcy judge in Atlanta rule this month that a Georgia woman did not have a legal duty to pay her daughter's college tuition, writing that he disagreed with the opposite decision reached by a Boston judge six months ago. Our guest is Heather
Joe Harvist. She's a student loan expert. How to explained the legal issue in these tuition claw back lawsuits, Well, the question is whether the bankruptcy trustee can reclaim funds that were paid to a college and put them back
in the estate of the debtor. So, in the recent Georgia case, the mother in that case had paid some college tuition for her daughter's education and the college UM wanted to retain those tuition payments, but the trustee wanted to recoup the value of that transferred fund for the
bankruptcy estate. So the court considered whether the debtor was able to receive what they call a reasonably equivalent value in exchange for the money she had transferred to the university, and in that analysis, the court determined that UM she did not receive such value UM because finding that she did not have a duty to pay for her daughter's education. Heather is looking at whether somebody is has a duty or is really obligated to pay their child's tuition the
way that courts should be looking at this question. I mean, people have felt for a long time, or at least a lot of people have, that they feel they have some obligation towards their kids to help them get educated, or a lot of people feel that way. Is it is duty as a legal matter really the right way to look at this question. Well, and I think that that's really the right way to think about it, because
it is a question about which there are different opinions. UM. Parents certainly do UM in many cases express a feeling of that they have such a duty UM. Certainly, it's it's customary in our culture if parents are able to assist with their children's college education, it's typically expected UM. But in the recent Georgia case, Judge Hoffman looked at some conflicting guidance from prior decisions UH and determined that UM.
In his view, there there was although there was a societal expectation that parents pay for college, that there was not in fact any corresponding legal duty UM, and that such a such a duty UM didn't did not UM exist even though the debtor may have felt such a
moral obligation to pay for the college education. And in that decision, the judge talked about Judge Hoffman, the Massachusetts judge who had decided that it was right for the parents to pay, and in his decision, Judge Hoffman said the emphasis should be unreasonably in reasonably equivalent value often apparent won't know at the time she pays a bill, whether for herself or her for her child, if the medical procedure, the music lesson, or the college fee will
turn out to have been worth it. But there's a reasonable equivalency, he says. And isn't it the same as if you know, someone gets joy one parent gets joy out of buying a sports car, and another parent gets joy out of paying for their child's college education. Should the college suffer? Well, you know, I think that it's an interesting series of questions because certainly, UM, we received various amounts of joy from spending our money on things,
potentially including on education for our children. UM. But the court looks to whether the debtor in this case received any economic benefit UM as opposed to UM any you
know less less tangible benefit as you describe. Well, Heather, One of the things it's interesting thing about this is the judge seems to have made a distinction between money that was paid out of a UH five nine college savings account and money that was paid separately, you know, going a separate from that just cash that I guess that the parent had on hand. Why is there a
distinction there? Well, there there was some dispute over the source of the funds that were transferred to the university because they had been transmitted through the debtor's checking account. UM and the question, you know, there was some question about whether the funds that initially come from a five nine savings account UM and those accounts are special in that the funds are designated specifically for the purpose of
UM education and qualifying tuition expenses. So the tracing of the funds was UH certainly a large part of the analysis in the case. Had there are the courts the place to settle this? In New York, Congressman introduced a ban on tuition clawbacks in bankruptcy in Congress. It didn't go very far, but I'm wondering if Congress is a
better place to decide this. Well, certainly, it does seem that with some you know, dispute at the court level, with some different findings from different judges, that additional guidance would be appropriate. UM and and certainly UM bankruptcy reform with regard to education costs and UH student own discharges
UM is UH. Do well, do you think there's any chance, you know, colleges are gonna start needing to probe into parents finances to make sure that they're not going to have a claw back, because if they're getting tuition, you know, when they can get money from people and not have to give aid necessary earlier, it's a big deal for
them financially certainly. I mean, I think colleges have been and may redouble their effort to be UM confident in the source of the funds they're receiving, because just as you say, UM, having those funds um taken back is not going to sit well with their business model. And according to the Wall Street Journal, most colleges have been settling with a return of more than two hundred and seventy thousand intuition. Since thanks so much for being with
us here on Bloomberg Law. That's Heather Jarvis. She is a student loan expert. That's it for this edition of Bloomberg Law. We'll be back tomorrow at one pm Wall Street Time. Please join us then, thanks to our technical director Reginald Basil and our producer David Suckerman. Bloomberg Markets with Carol Master and Corey Johnson starts right now on Bloomberg Radio. Good afternoon, Carol, Hi, June, Hi, Michael, Hi. Everybody. We've got the snap road show. We're gonna talk about
already hitting some roadblocks. Also, chicken and burger is apparently the perfect recipe for M and a uh. And then we're gonna talk about Japanese drone that's a dog and I put it out on Twitter. Perfect recipe for a lot of other things too. Chicken and burgers. That's it for this edition of Bloomberg Law. Coming up Bloomberg Markets with Carol Master and Corey Johnson. This is Bloomberg