Case Summary:
The Debtor is a graduate of the University of Wisconsin Law School who began her study of law at Marquette University School of Law (“Marquette”). In her application for admission to the Wisconsin bar, she was required to present a transcript from Marquette. Marquette conditioned its delivery of a transcript upon Debtor’s payment of past due student loans. Debtor had yet to pay Marquette or to receive her Marquette transcript and brought a motion to hold Marquette in violation of her bankruptcy discharge injunction.

As part of her student loan package at Marquette, Debtor signed a promissory note under which Marquette disbursed funds toward tuition costs, and to the Debtor directly. After receiving the loan funds and prior to the “drop deadline,” Debtor withdrew from Marquette. Marquette reversed the tuition charge leaving Debtor owing the amount paid to her directly. Marquette received one nominal payment from the Debtor in April 1999. After receiving no further payments, the account was turned over to a collection agency.

Debtor filed a Chapter 7 petition in September 2000. She included the debt to Marquette on her schedules designating it as “tuition.” The collection agency ceased its collection efforts. In January 2001 Debtor received her discharge.

Debtor contends that her debt to Marquette was not a student loan and that it had been discharged. She argued that Marquette was violating the permanent injunction provision of 11 U.S.C. § 524(a). She is incorrect. Marquette is subrogated to the government entities which it reimbursed for Debtor’s student loans, and its methods of collecting from Debtor are unexceptionable as a matter of bankruptcy law.

It was determined that Marquette complied with the requirements established by the U.S. Department of Education with respect to the loans made to Debtor. As a subrogee, Marquette was entitled to all of the U.S. Department of Education’s rights against the Debtor, including the right to collect the non-dischargeable loan. Marquette was not required to release the transcripts to Debtor. Debtor’s arguments based upon Marquette’s subsequent characterization of the funds owed to it by Debtor are of no merit. The true nature of the obligation, not how it was described after it became past due, governs how the obligation is viewed in bankruptcy.

Statute/Rule References:
11 U.S.C. § 523(a)(8) -- Nondischargeability - Student Loans
11 U.S.C. § 524(a)
34 CFR § 668.22(g) and (g)(2) -- Treatment of Title IV Funds when a Student Withdraws
34 CFR § 685.300 -- Agreements Between an Eligible School and the Secretary for Participation in the Direct Loan Program
34 CFR § 685.306 -- Payment of a Refund or Return of Title IV, HEA Program Funds to the Secretary

Key Terms:
Academic Transcript
Administrative Expenses
Discharge
Equitable Subordination
Student Loans