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In March, 2021, Meredith Kolodner and Sarah Butrymowicz first reported on the way that direct-to-student loans were used by for-profit colleges to bolster their business models while ensnaring students in practices that blocked them from getting jobs or transferring 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 students’ transcripts as a way of forcing them to make payments, the Consumer Financial Protection Bureau announced on Thursday, calling the practice “abusive” and a violation of federal law.

The loans made directly by a college, rather than a traditional lender, are used to pay for classes, but they don’t come with the same protections as federal student loans do. Hundreds of thousands of students at for-profit colleges have taken these loans, known as institutional loans, and some public and nonprofit institutions also offer them.

The consumer bureau’s ruling was aimed at stopping the colleges from withholding transcripts from students who haven’t repaid the debt. Some colleges refuse to release a student’s transcript until the full amount has been repaid, even when even when students had entered into a payment plan and is making regular payments.

Transcript withholding can make it difficult for students to get jobs even if they graduate, since they can’t prove to prospective employers that they have a degree. In some cases, graduates can’t take a job certification exam without a transcript, effectively barring them from employment in the field they went to school to study.

Hidden Debt Trap

There’s a whole world of student debt that no one is talking about. In fact, most people don’t even realize it exists. Millions of students have racked up billions of dollars in debt owed directly to their own colleges and universities. 

We’re investigating this hidden debt.

Without a transcript, students also can’t transfer their credits to another college if they want to pursue a different career or if they’ve finished a two-year degree and want to earn a bachelor’s degree.

The bureau said that blanket policies that use transcript withholding as a way to collect these debts are “designed to gain leverage over borrowers and coerce them into making payments.” 

“Faced with the choice between paying a specific debt and the unknown loss associated with long-term career opportunities of a new job or further education, consumers may be coerced into making payments on debts that are inaccurately calculated, improperly assessed, or otherwise problematic,” the bureau wrote.

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

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

“This is a huge deal for everyone that took out a student loan from their school and has struggled to repay it,” said Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group focused on student debt, and a former assistant deputy director at the CFPB. “Everybody who was stuck behind an improperly withheld transcript is suddenly going to have access to all that opportunity.”

The Career Education Colleges and Universities, which represents for-profit colleges, criticized the move.

“The Consumer Financial Protection Bureau continues to overstep its statutory authority with its transcript withholding directive,” Jason Altmire, the group’s president and CEO, said in a statement. “Instead of working with stakeholders through the normal notice-and-comment process, CFPB once again exceeds its authority without any accountability to the public by issuing non-binding guidance.

Related: Colleges are withholding transcripts and degrees from millions over unpaid bills

In general, institutional loans come with far fewer protections than federal loans. They can have double-digit interest rates, and colleges can demand payment while a student is still taking classes. Oversight is also minimal; the vast majority of states don’t track information about these direct school-to-student loans.

The bureau did not examine the practice of transcript withholding by universities for overdue tuition and fees, which has been outlawed in several states, but a bureau official did not rule out the possibility that the practice writ large could run afoul of the law. There are millions of students around the country who can’t access their transcripts because of debts as little as $25 that they owe to their colleges.

Pierce said he thought the ruling could have wider implications.

“It raises really important questions. What would the Bureau think of a school that is acting as a debt collector? Is that also an abusive practice?” he said. “As transcript withholding becomes a hotter issue in state legislatures and as state attorneys general start asking questions, they all look to CFPB to see what it thinks the law is, and often you see that state policy is made in the aftermath of these findings.”

 This article about transcript withholding was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

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  1. I have a daughter whom finished her last semester early at Montclair State university in NJ and has a job lined up but cannot start because Montclair will not release her transcripts over a $798 balance she owes.

  2. I was a student at Arizona State University when I had a stroke. I had not attended any of the classes I enrolled in for the semester in question, when they offered me a program called Compassionate Withdrawal. This was supposed to make it so I could go back to school without paying for the semester I was unable to attend. Instead it cranked up the interest rate on the loan and left me owing $3700 immediately, rather than my original loan amount of $1700. If you think these institutions aren’t predatory–they are.

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