Daily Egyptian
Fall '03 Edition
Supreme Court to take on bankruptcy case
Andy Horonzy
Pulse reporter
The U.S. Supreme Court announced this week that it would take up an issue of paramount interest to financially strapped college students a legal test of whether states can be sued by students seeking to wipe out state-guaranteed loans they cannot repay.
In announcing the first round of new cases for the 2003-'04 term that opens Monday, the justices agreed to hear an appeal by the state of Tennessee that claims states cannot be required under Constitutional law to defend in bankruptcy court their right to collect guaranteed student loans.
The appeal, backed by 48 other states including Illinois, threatens a legal option that Congress gives to students so hampered by debt that they have to file for bankruptcy. While the Constitution gives Congress the power to set up uniform bankruptcy legislation across the states, the issue is now over whether states have the power to opt out of federal bankruptcy proceedings at their discretion.
The case the court will hear involves a former Tennessee student who owed more than $4,000 in state-backed education loans and then proceeded to sue to get out of them. The state declared that it could not be sued and after a bankruptcy judge refused to dismiss the suit, the Tennessee Student Assistance Corp. appealed to the Supreme Court.
"In addition to subjecting states to the indignity of suits without their consent, the economic costs to states could be overwhelming," lawyers for Tennessee wrote in a legal brief urging the Supreme Court to take the case.
Shortly after the Tennessee agency appealed to the Supreme Court, 48 other states requested the case be heard also, as multiple states are typically involved in bankruptcy suits. But since the case, Tennessee Student Assistance Corp. v. Hood, is not expected to be heard until later this month, the case?s impact is left to speculation at this point.
Don Sevener, director of communications for the Illinois Board of Higher Education, said that while the case could significantly alter the current student loan landscape, there is no way to infer how much until a decision is rendered.
"Until something is decided there's really no way to tell how big of an impact this is going to have," Sevener said. "But it could change the way students approach taking out a loan."
Despite the uncertainty that now surrounds the case, Sevener said it could sway the decisions of the 43 percent of the state's public university students who currently receive loans. According to data compiled by the Illinois Student Assistance Commission, the average debt accumulated by a student who takes out a loan during their freshman year is $13,944.
SIUC's Financial Aid Director Dan Mann said that figure might be misleading due to the varying degrees of loans available to students. Of the 10,918 SIUC students who received a student loan for the 2001-2002 academic year, the average amount received was $5,465.
But loan limits imposed on students fluctuate with their year in school, Mann said, ranging from a $2,625 limit for dependent freshman to $8,500 for graduate and professional students.
"Each student chooses their own payment plan, so how a bankruptcy lawsuit would play out would probably have to be decided on a case by case basis," Mann said.
While Mann said he was not aware of the more intricate details of the case the Supreme Court will hear, he did say it might alter which students attempt to file bankruptcy to wipe away their debt.
"Right now, it all depends on the way the claim is filed and the court decision," Mann said. "Maybe this is a way of making a more uniform rule that will apply to everyone."
Reporter Andy Horonzy can be reached at ahoronzy@dailyegyptian.com
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Last update: Thursday, October 2, 2003 at 6:26:33 PM
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