Colleges that lend directly to their students cannot later refuse to release a student’s transcript as a way of forcing them to make loan payments, the Consumer Financial Protection Board said 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, which are known as institutional loans, and they’re also offered at some public and nonprofit institutions.
The consumer bureau’s ruling was aimed at stopping the colleges from withholding transcripts from students who haven’t repaid the debt. One college that the bureau examined refused to release transcripts to students in default until the full amount had been repaid, even when students had entered into a payment plan.
Transcript withholding can make it difficult for students to apply for jobs even if they’ve graduated, 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 studied.
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 in its examination of the practice.
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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 college chain Corinthian Colleges, and can impose additional financial penalties.
“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 consumer bureau. “Everybody who was stuck behind an improperly withheld transcript is suddenly going to have access to all that opportunity.”
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 chief executives, said in a statement.
In general, institutional loans come with far fewer protections than federal loans. They can carry 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.
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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.
Mr. Pierce, of the Student Borrower Protection Center, said he thought the ruling could have wider implications.
“As transcript withholding becomes a hotter issue in state legislatures and as state attorneys general start asking questions, they all look to C.F.P.B. to see what it thinks the law is, and often you see that state policy is made in the aftermath of these findings,” he said.
This article was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.