New federal policy aims to protect student borrowers, ban most transcript withholding

On Tuesday, the U.S. Department of Education announced new rule changes that strengthen its oversight of higher education institutions, shield students from financially unstable colleges, and protect them from being misled by financial aid awards, according to Inside Higher Ed and Higher Ed Dive. Most notable among the new regulations is a stipulation that colleges stop withholding transcripts for credits paid for with Title IV financial aid, which includes federal Pell Grants and student loans. 

For years, many U.S. colleges and universities have had a policy of withholding transcripts and degrees from students who have outstanding balances, but the approach is facing growing resistance. The new rule comes a year after the Consumer Financial Protection Bureau’s announcement that blanket policies that pressure students to make loan payments—specifically, on loans made directly by a college or university—in order to access transcripts are an “abusive practice.” Advocates say transcript withholding prevents students, particularly those from underserved communities, from transferring to other institutions, completing their degrees, and getting jobs. 

Higher education institutions have been working to forgive outstanding debt so students can access their transcripts, while state legislatures have restricted or prohibited colleges from engaging in the practice. Research from the education consultant group Ithaka S+R finds that about 6.6 million students have stranded credits due to transcript withholding. Many students cannot access their transcripts due to small unpaid balances.

“This change will ensure that students receive credit for the education that they have completed and help them with transfer and finding a job,” Education Under Secretary James Kvaal said Tuesday, Inside Higher Ed reports.

Additional protections for students

In addition to the transcript withholding provision, the new regulations state that in order to receive and administer federal student aid funds, higher education institutions must send financial aid award letters that clearly communicate to students and their families the true cost of attendance. The letters must also clarify the types of aid students are eligible for so they understand the difference between loans and grants. According to a November 2022 report from the Government Accountability Office, 91% of colleges understate or do not include net price in their financial aid offers, and 63% of colleges follow five or fewer of the Education Department’s 10 best practices for financial aid offers.

Related:Over 360 colleges pledge to give students clearer, more accurate financial aid offers >

New regulations also give the Education Department more authority to act swiftly if institutions show signs of financial instability. Abrupt school closures can disrupt students’ education, leaving them with minimal options to continue their programs, especially if they’re unsure how they can transfer to other institutions. According to the new rules, colleges at risk of closure would be required to send to the department a letter of credit and other proof of financial protection. Institutions must also provide teach-out plans, providing current students with pathways to complete their education if the institutions close.

Topics in this story

Next Up

Putting college within reach for rural students

Students from rural communities face multiple barriers to higher education, including long commutes, financial strain, and a lack of academic support. New programs are finding ways to shrink those obstacles.