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Withholding college transcripts for loan payment is ‘abusive’, federal agency says

In March 2021, Meredith Kolodner and Sarah Butrymowicz first reported on how direct student loans were being used by for-profit colleges to bolster their business models while trapping students in practices that prevented them from get a job or transfer to other colleges. . We continue to investigate these hidden debt practices; you can find the stories here.

Colleges that lend directly to their students cannot later refuse to release student transcripts in order to force them to make payments, the Consumer Financial Protection Bureau announcement Thursday, calling the practice “abusive” and a violation of federal law.

Loans made directly by a college, rather than a traditional lender, are used to pay for tuition, but they don’t have the same protections as federal student loans. Hundreds of thousands of students at for-profit colleges have taken out these loans, called institutional loans, and some public and non-profit institutions also offer them.

The consumer affairs office’s decision was aimed at preventing colleges from withholding the transcripts of students who failed to repay debt. Some colleges refuse to release a student’s transcript until the full amount has been refunded, even when students have entered into a payment plan and are making regular payments.

Withholding transcripts can make it difficult for students to get jobs even if they graduate, because they can’t prove to potential employers that they have a degree. In some cases, graduates cannot take a professional certification exam without a transcript, which prevents them from working in the field in which they went to school to study.

Hidden debt trap

There’s a whole world of student debt that nobody talks about. In fact, most people don’t even realize it exists. Millions of students have racked up billions of dollars in debt that they owe directly to their own colleges and universities.

We are investigating this hidden debt.

Without a transcript, students also cannot transfer their credits to another college if they wish to pursue a different career or if they have completed a two-year degree and wish to obtain a bachelor’s degree.

The bureau said blanket policies that use the withholding of transcripts as a means to collect such debts are “designed to leverage borrowers and compel them to make payments.”

“Faced with the choice between paying a specific debt and the unknown loss associated with the long-term career opportunities of a new job or further education, consumers may be forced to pay debts that are miscalculated, misvalued or otherwise problematic, “the office wrote.

If it finds that a college is violating the law, the office can sue for restitution on behalf of the students, as it did with the for-profit chain Corinthian Colleges, and may impose additional financial penalties.

“Anyone who was stuck behind an unduly withheld transcript is suddenly going to have access to all of these opportunities.” Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group focused on student debt, and former deputy deputy director of the CFPB.

“This is a huge deal for anyone who took out a student loan from their school and struggled to pay it back,” said Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. nonprofit focused on student debt, and a former assistant deputy director at the CFPB. “Anyone who was stuck behind an unduly withheld transcript is suddenly going to have access to all of these opportunities.”

Career colleges and universities, which represent for-profit colleges, criticized the decision.

“The Consumer Financial Protection Bureau continues to exceed its statutory authority with its directive on the retention of transcripts,” Jason Altmire, group president and chief executive, said in a statement. “Instead of working with stakeholders through the normal notice and comment process, the CFPB is once again overstepping its authority without any accountability to the public by issuing non-binding guidelines.

Related: Colleges withholding transcripts and diplomas worth millions for unpaid bills

In general, institutional loans are accompanied by far less protection than federal loans. They can have double-digit interest rates and colleges can demand payment while a student is still in class. Monitoring is also minimal; the vast majority of states do not track information on these direct school-to-student loans.

The bureau did not examine the practice of universities withholding transcripts for overdue tuition and fees, which has been banned in several states, but a bureau official did not rule out the possibility. that the practice at large may violate the law. There are millions of students across the country who cannot access their transcripts due to debts as small as $25 that they owe to their colleges.

Pierce said he thinks the decision could have wider implications.

“It raises some really important questions. What would the office think of a school that acts as a collection agent? Is this also an abusive practice? he said. “As transcript retention becomes a hotter issue in state legislatures and state attorneys general start asking questions, they all turn to the CFPB to see what they think is the law, and often you see that state policy is developed as a result of these findings. ”

This article on transcript retention was produced by The Hechinger Reportan independent, non-profit news organization focused on inequality and innovation in education.

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