Supreme Court tackles disputes on student loans, looted artwork
WASHINGTON -- The Supreme Court yesterday took on a case of major 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.
The justices, announcing the first round of new cases for the term that formally opens Monday, agreed to hear an appeal by Tennessee claiming that states cannot be required under the Constitution to defend in bankruptcy court their right to collect student loans they have guaranteed.
The appeal, backed by 48 other states, including Massachusetts, threatens a special legal option that Congress gave to students who become so burdened by debt that they have to file for bankruptcy.
The outcome of the case also could have an impact beyond college student loan cases, because states are frequently being sued in bankruptcy court to block state claims for repayment of debts by individuals and companies.
State agencies across the nation guarantee student loans made by banks, credit unions, and colleges under the Federal Family Education Loan Program, and sometimes insure education loans made by a special federal corporation, Sallie Mae.
The nationwide rate of defaults on student loans has dropped to a low of 5.4 percent, according to the US Department of Education, but that still means that about one out of every 20 students is unable to repay, even with the benefit of sharply declining interest rates.
The new case that the justices will hear and decide by next spring involves a young woman in Tennessee, Pamela L. Hood, who took out college loans from Sallie Mae that were guaranteed by a state agency, the Tennessee Student Assistance Corp.
She filed for bankruptcy in 1999, saying she had no assets to cover any of her debts, including $4,169 in student loans still due.
Under a federal law enacted in 1976, Hood could not seek forgiveness of that debt in a regular bankruptcy case. But Congress did allow students to seek relief from state-guaranteed loans in cases of "undue hardship" by filing a separate lawsuit against the state agency that backed the loan.
The Tennessee agency countered Hood's suit by arguing that the Eleventh Amendment, which immunizes states to private lawsuits in federal courts without their consent, bars any such claim by a student in default.
In recent years, the Supreme Court has moved in a growing list of cases to strengthen state "sovereignty" by applying the Eleventh Amendment to block claims against states under federal law. In a number of cases, states have been attempting to gain that protection when they are sued in bankruptcy court.
Five federal appeals courts have ruled that this immunity extends to states when loan forgiveness claims are filed in bankruptcy court. In the Tennessee case, however, a federal appeals court disagreed, ruling that Congress has explicitly taken away the states' immunity to those claims, and has the power under the Constitution to do so.
The Supreme Court stepped in to resolve that conflict when it decides the case.
In another significant case put on the docket yesterday, the justices agreed to decide in a California murder case whether criminal suspects who are under 18 must get special consideration and receive "Miranda warnings" about their rights before police question them about crime.
The court also voted to rule on an appeal by the government of Austria, seeking to block a lawsuit demanding recovery of six paintings now in the national art gallery in that country that were confiscated by the Nazis before World War II.
The paintings, by the artist Gustav Klimt, had belonged to a wealthy Viennese family. One of the heirs of that family, Maria V. Altmann, who fled her native Austria to California to avoid the Holocaust, has sued in federal court asserting ownership of the paintings.
Austria claims that, as a sovereign nation, it is not subject to a lawsuit in an American court.
