Perkins Loan

In May of 1987, a student attending Temple University borrowed $750.00 through the University’s Federal Perkins Loan/National Direct Student Loan Program. The debtor ceased attending Temple in June of 1988.

Under the terms of the Perkins Note, the debtor was required to begin quarterly repayment on the Note at 5% simple interest beginning in December, 1988. The debtor failed to make any of the scheduled payments.

As with many independent institutions, Temple University had in place a policy wherein Temple would withhold the academic records of students who did not fulfill their financial obligations to the University. Consistent with that policy, Temple placed a hold on the debtor’s academic records. Consistent with its policy regarding late student loan payments, the University attempted to collect on the note. Failing in its efforts, the University then assigned the Note to a collection agency and then a collections law firm, all to no avail.

In July, 1994, the debtor filed for bankruptcy under chapter 7. Her petition for bankruptcy was approved in July, 1997. Of course, her student loan was non-dischargeable and therefore was not discharged as part of her chapter 7 action.
In July, 2000, the debtor filed for bankruptcy under chapter 13 and her plan was approved. After failing to make payments, debtor’s case was dismissed on October 23, 2001. Around the same time, the debtor requested that a copy of her transcript be sent to St. Francis College, where she hoped to resume her studies. Temple refused to release the transcript to debtor relying on the loan discharge ability as determined when the debtor filed for chapter 7 bankruptcy. On November 8, 2001 debtor, pursuant to a second chapter 13 petition, filed a motion requesting that the Court compel Temple University to release the debtor’s transcript. In said Motion, the debtor argued that Temples refusal to release her transcript was a violation of the automatic stay provisions of the Bankruptcy Code wherein, upon filing, a debtor may rely on a stay of any act to collect, assess, or recover a claim against the debtor that arose before the commencement of a case under this title 11 U.S.C.§ 362(a)(6).

The Court, breaking with precedence that t he withholding of a transcript of a debtor in Chapter 13 bankruptcy by a College or University was a violation of the automatic stay, ruled that Temple University, following recent revisions to the Bankruptcy Code and recent case law, could legally withhold the debtor’s transcript and not violate the automatic stay. The Court reasoned that the relationship between a College and student was contractual in nature. Therefore Temple University’s refusal to release the debtor’s transcript was contractually justified upon the debtor’s breach of her contract with the University when she failed to repay her student loan.

The reader should note that this decision may not be upheld in the Third Circuit and may be contrary to precedent in other Circuits and jurisdictions. Actual resolution of legal issues is fact based and legal results may differ based on variations of fact and state and federal law. This article, then, is not intended to provide legal advice on specific subjects.