U.S. colleges and universities are engaging in an “abusive act” if they offer loans to students directly, also known as institutional loans, and later refuse to release official college transcripts until students repay those loans, the Consumer Financial Protection Bureau (CFPB) announced last week.
According to The Hechinger Report, hundreds of thousands of students have taken institutional loans offered by for-profit, nonprofit, and public universities to pay for classes. However, some institutions have withheld official transcripts from students if they are delinquent or in default on their loans. In some cases, schools have refused to release transcripts to students even if they are currently enrolled in a payment plan and are making regular payments.
After newly examining institutional lenders, which have previously not been subjected to the same oversight or protections as traditional lenders, the bureau found that withholding transcripts as a blanket policy to collect debts is in violation of the Consumer Financial Protection Act. If the CFPB finds institutions in violation of the law, the agency can sue for restitution on behalf of the students and impose financial penalties.
‘Access to all that opportunity’
Without official transcripts, students cannot take their credits with them if they transfer to a four-year institution after earning a two-year degree or use them to get jobs that would allow them to pay their debts even after graduation. “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,” the agency explains, “consumers may be coerced into making payments on debts that are inaccurately calculated, improperly assessed, or otherwise problematic.”
The decision may have far-reaching consequences as legislators begin evaluating other debt-collecting tools, experts say. It also will have a significant impact on students who have struggled to repay their institutional loans and were unable to get jobs or transfer to other colleges without their transcripts, Mike Pierce, executive director of the Student Borrower Protection Center and a former assistant deputy director at the CFPB, tells The Hechinger Report. “Everybody who was stuck behind an improperly withheld transcript is suddenly going to have access to all that opportunity.”