The U.S. Supreme Court will decide on a case next year that could significantly affect the way the University handles student loans.
In Tennessee Student Assistance Corporation v. Pamela Hood, the Court will determine whether state agencies can claim immunity from lawsuits.
Pamela Hood, a former student in Tennessee, filed for bankruptcy in 1999, and a Tennessee bankruptcy court discharged Hood's debts, except for more than $4,000 in student loans to the Tennessee Student Assistance Corporation, a state agency. Hood then filed another lawsuit, claiming that paying her student loans would put "undue hardship" on her.
Ordinarily state agencies are not subject to lawsuits, but the 6th Circuit Court of Appeals ruled that Tennessee Student Assistance was subject to the same rules as nongovernmental loan agencies.
"You can declare bankruptcy and wipe out your debts to the bank and to credit card companies, but you can't wipe out debt to the federal government," said UT Student Financial Services Director Lawrence Burt. "The reason why student loans are under these provisions is that it's very easy to delay repaying them, so they can't effectively be used as part of the reason for going bankrupt."
Texas has no one state agency responsible for student loans. Instead, governmental loans at the University are handled by individual campuses.
Traci Cotton, bankruptcy counsel for the UT System, said taking away the immunity of state agencies will hurt the System.
"If we lose immunity, any bankruptcy court across the U.S. could call us to argue 'undue hardship,'" Cotton said. "It will be extremely expensive and time consuming, and if they prevail, the debt goes away and we lose the money."
Doug Ray, outside counsel for the Texas Guaranteed Student Loan Corporation, said even more than being an issue of student loans, this is an issue of states' rights.
"This will not only impact loan organizations but other state agencies as well," Ray said. "If this goes through, state agencies will no longer have immunity to lawsuits."
