Question

We can all agree that we never want to go through a bankruptcy. However, it is in all of our best interests to truly understand the bankruptcy law and process. For this assignment, I would like you to read the following case and answer the questions presented. This may require that you do some research on bankruptcy. Remember, any sources you use must be cited and I do not want you to copy answers from the internet. Think about the situation and apply your knowledge, gained from your readings, to the questions. One to two paragraphs for each question.

Jane Doe, a teacher, obtained a master’s degree at Somewhere University (names have been changed). But when Doe asked for a transcript—which was required to receive an increase in salary from her school district—the university refused because she owed more than $6,000 in tuition. Doe offered to pay the nominal transcript fee, but not the tuition. She then filed a petition in a federal bankruptcy court, listing the university as her only creditor, and while the case was pending, again asked for a transcript. The university again refused unless she paid the tuition. Doe complained to the court, which ordered the university to provide a transcript. A federal district court affirmed the order. The university appealed.

The U.S. Court of Appeals for the Seventh Circuit affirmed. Doe had a right to a copy of her transcript, and the university’s refusal to honor that right until she paid her tuition was an act to collect a debt, in violation of the automatic stay. Property interests are created and defined by the law. Nothing in the Bankruptcy Code or other federal law creates or affects property rights in grades or the right to a transcript. No state statute applies either, but under the state’s common law, property rights may arise from custom. In the state, universities have consistently provided certified transcripts at or around cost. This indicates that providing a transcript is an implied part of the “educational contract,” covered by the tuition and other fees. Because a transcript is part of the package of goods and services that a college offers in exchange for tuition, a student has a property right to a certified copy. In this case, Doe was willing to pay the cost. The university’s only reason for refusing to provide the transcript was to induce Doe to pay her unpaid tuition. But the automatic stay prohibits a creditor from acting to collect a claim against a debtor that arose before the filing of a bankruptcy petition.

1. What actions might a college take to collect unpaid tuition that would not violate the Bankruptcy Code?

2. Does the longstanding existence of a custom—in this case, the nominal amount of the fee charged by a college for a transcript—mean that it cannot change?

3. To avoid conflicts such as the one in this case, could a college charge a student a high fee for a transcript—for example, one that would equal the amount of any unpaid tuition?
   
4. Suppose that instead of offering to pay for a transcript, Doe had tried to obtain one on credit. Would the university’s refusal to provide one on that basis have led to the same result? Why or why not?
   
5. Some might say that higher education institutions should be able to use all methods possible to collect unpaid tuition, including withholding certified grade transcripts. What ethical issues would this approach raise?

Answer 1

1) What actions might a college take to collect an unpaid tuition that does not violate the Bankruptcy Code?

A college may try to collect unpaid tuition by requiring that the financial obligation be reported on the academic transcript. It should allow students a single unofficial copy of the academic transcript, indicating whether and how unofficial transcripts may be marked with the words "UNOFFICIAL" or note unpaid financial obligations to the college (“Withholding Academic Transcripts and Diplomas”).

Also, universities could alleviate this problem by not distributing a grade unless expenses have been paid. Not allowing the student to continue to take courses before debts are paid in full would be another way of assuring colleges that debts will be paid.

2) Does the longstanding existence of a “custom,” in this case, the nominal amount of the fee charged by a college for a transcript, mean that it cannot change?

      No, a longstanding custom or practice does not prevent change. A good analogy

is when airlines used to check baggage for free. No person, including the Supreme Court of Wisconsin, would conclude that United Airlines is depriving passengers of their property when it now charges for checked bags. Cardinal Stritch University could announce to future students that transcript fees would reflect the value of the education. But the University did not say any such thing to Kuehn when she enrolled, or even when she graduated, and it cannot change the terms of a contract after the fact-even when those terms are implied rather than expressed (“FindLaw's United States Seventh Circuit Case and Opinions”).

3) To avoid conflicts such as the one in this case, could a college or university charge a student a high fee for a transcript, e.g., a fee that equals the amount of any unpaid tuition.

No, the university cannot charge Kuehn extra if the fee for instruction cover transcripts too. The University's refusal to certify a transcript of Kuehn's grades would be an act to collect the discharged debt and would violate both the automatic stay and the discharge injunction(“FindLaw's United States Seventh Circuit Case and Opinions”).  

4) Suppose that instead of offering to pay for a transcript, Ms. Doe had tried to obtain a transcript on credit. Would the university’s refusal to provide a transcript on that basis have led to the same result? Why or why not?

No, if Ms. Doe had tried to obtain a transcript on credit, the university would refuse because of the bank. The bank with which the school conducts loans would already know that Ms. Doe has a poor credit rating. This is different because not getting another loan and not getting transcripts are two different things (“FindLaw's United States Seventh Circuit Case and Opinions”).  

5) Some might say that higher education institutions should be able to use all methods possible to collect unpaid tuition, including withholding certified grade transcripts. What ethical issues would this approach raise?

    The ethical issue that is raised when higher educational institutions use all methods to collect unpaid tuition is that in a bankruptcy, an automatic stay requires that creditors are prohibited from continuing collection until the debtor has time to regroup (Sheils). The former student in this case may not be able to get a particular job and that would make it impossible for the former student to regroup.

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