Educational Institutions Withhold Transcripts from Former Students in Debt

Inside Subprime: April 30, 2019

By Aubrey Sitler

Across the country, universities and colleges are withholding students’ transcripts as ‘collateral’ when students owe money until all debts are paid.  These debts could be anything from an unpaid library or parking fine to outstanding federal financial aid—including grants—that the student owes back after having withdrawn from a school or program at the wrong time.

While it may seem reasonable for these institutions to find and use leverage to ensure payments owed, in many cases, it causes irreparable harm to the students who need their transcripts. In fact, many adult students struggle to return to their educations after having put them on hold because the institution they previously attended refuses to release their transcript. This results in a vicious cycle in which students cannot afford to pay off their educational debt to get their transcripts, nor can they pursue further education that would increase their earning potential without their transcripts.

Educational institutions’ abilities to do this is steeped in an obscure federal financial aid rule, known as Return to Title IV. Under this regulation, any student who drops out of school before completing 60% of that term is required to return to the government any portion of the federal financial aid they’d been granted but hadn’t “earned”—even for things like Pell grants, which are targeted to low-income college students. Educational institutions then have free reign to hold students liable for all of these funds. Some even send the bills to collections, adding fines, fees, and interest to already-insurmountable debts owed.

The Student Borrower Protection Center, the student loan borrower advocacy organization founded by former CFPB student loan ombudsman Seth Frotman, recently published research that contextualizes some of these debts and the hardship they impose on students. According to the article, written by Cleveland attorney and SBPC fellow Rebecca Maurer, there are nearly 400,000 open collection accounts tied to balances students owe just in the state of Ohio‘s public universities. But does this prevalence of open collection accounts mean that the same number of transcripts are being withheld? Maurer says it most likely does: “ I made a public records request to every public university in Ohio, and each one that replied had a policy saying that transcripts would be withheld for any past-due balanced owed directly to the school. In other words, each of those 400,000 accounts likely represents a withheld transcript. That is an immense amount of economic potential locked up by past-due school fees.”

While Maurer’s analysis focuses solely on the state of Ohio, Frotman noted that during his tenure at the CFPB, the issue of students being trapped by debts owed to educational institutions was a complaint he heard frequently, indicating that this issue is widespread well beyond Ohio.

“When we talk about the student debt crisis we always talk about it in terms of the $1.5 trillion in student loans, but in many ways that is even underselling and under-appreciating the true scope of the harm,” Frotman has said, according to MarketWatch. “As policymakers at the federal and state level think about how they can stand up for student loan borrowers, reforms to these policies ought to be on the table.”

For more information on scams, predatory lenders, payday loans, cash advances and more, see our city and state financial guides including states and cities like California, Florida, Illinois and more.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIn