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A college’s decision to allow a student to continue taking classes after failing to pay tuition does not constitute an educational loan or benefit within the meaning of the Bankruptcy Code, the 2nd U.S. Circuit Court of Appeals has ruled. In a matter of first impression in the circuit, a three-judge panel found in Cazenovia College v. Renshaw, 99-5018 and The College of Saint Rose v. Regner, 99-5019, that two students who were billed after being allowed to stay in school are shielded by the code. Certain educational benefits are deemed an exception from discharge in bankruptcy under 11 U.S.C. �523(a)(8). And the colleges argued that both Kevin Renshaw and David W. Regner fell under that exception, and should pay for the classes, even though both declared bankruptcy in 1997. Cazenovia College, in Cazenovia, N.Y., had allowed Renshaw to live in college housing, eat meals and attend classes for the summer and fall sessions in 1992, although he failed to pay tuition. The college obtained a default judgment in December 1996 against Renshaw for $9,999. Two months later, he filed for bankruptcy under Chapter 7. The bankruptcy court for the Northern District of New York denied the college’s motion for summary judgment and dismissed its adversary proceeding — a decision upheld by the 2nd U.S. Circuit Bankruptcy Appellate Panel. In Regner’s case, he had paid tuition through financial aid until he enrolled at The College of Saint Rose, in Albany, for the 1993 fall semester. Regner failed to process the paperwork for financial aid, but was allowed to continue taking classes. The college started an adversary proceeding in the bankruptcy court for the Northern District, but the court granted summary judgment for Regner. The decision was upheld by a Northern District judge. On appeal to the Second Circuit, where the cases were heard together, both colleges insisted that, for all practical purposes, they had extended “loans” to the two students within the meaning of the code. Writing for the Second Circuit, Senior Judge Richard J. Cardamone said that “while the details of Section 523(a)(8) have evolved over time, the problem it addresses remains the same; because student loans are generally unsecured and recent graduates often have few or no assets, these debtors have an incentive to try and discharge their educational loans in bankruptcy.” Congress, he said, enacted the section because of “increasing abuse of the bankruptcy process,” and “recognized that this is an instance where a creditor’s interest in receiving full payment of the debt outweighs the debtor’s interest in a fresh start.” TREATED AS ‘PAST DUE’ In this case, Judge Cardamone said, there was support for the students’ contention “that whatever services or goods the college gave them did not constitute a ‘loan’ within the meaning of the statute.” “Neither college entered into an agreement to extend credit to its student or to permit the student to attend classes in return for a payment of tuition at a future date,” he said. “Rather, both Renshaw and Regner unilaterally decided not to pay tuition when it came due. The colleges, which could have forbidden them to attend classes, chose not to do so.” In Regner’s case, Judge Cardamone said, the district court, “correctly concluded that the proof showed neither an exchange of funds nor an agreement between St. Rose and Regner for any extension of credit.” When Regner’s “tuition fell due and was not paid like Renshaw’s, it simple became a past due account,” he said. Judge Cardamone added that other courts outside the circuit that have considered the issue have reached the same conclusion that nonpayment of tuition can qualify as an educational loan under the statute “in only two classes of cases”: where funds have actually changed hands or where “there is an agreement between the college and the student whereby the college extends credit to the student, permitting him to attend classes without paying tuition, in return for his agreement to pay tuition at a future date.” Senior Judge James L. Oakes and Judge Jose A. Cabranes joined in the opinion. David D. MacKnight and Stephen M. O’Neill, of Lacy, Katzen, Ryen & Mittleman, represented Cazenovia College. Rudolph J. Meola, of Richard J. Miller Associates, represented The College of Saint Rose. Robert H. Lawler represented Renshaw. Daniel J. Gallagher, of Newell & Toomey, represented Regner.

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