Colleges that lend directly to their students can’t then refuse to release a student’s transcript as a way to force them to make loan payments, Consumer Financial Protection Board said Thursday, calling the practice “abusive” and a violation of federal law.
Loans made directly by a college, rather than a traditional lender, are used to pay for classes, but they don’t have the same protections as federal student loans.
These loans, known as institutional loans, have been taken out by hundreds of thousands of for-profit college students, and are also offered by some public and nonprofit institutions.
The ruling by the consumer office was intended to prevent universities from withholding the transcripts of students who have not paid the debt. One college the bureau examined refused to release transcripts to delinquent students until the full amount had been paid, even when the students had entered into a payment plan.
Transcript withholding can make it difficult for students to apply for jobs, even if they have graduated, since they cannot prove to potential employers that they have a degree. In some cases, graduates cannot take a labor certification exam without a transcript, effectively preventing them from working in the field they studied.
Without a transcript, students also cannot transfer their credits to another university if they want to pursue a different major or if they have completed a two-year degree and want to earn a bachelor’s degree.
The bureau transcript said blanket policies using garnishment as a way to collect these debts are “designed to gain leverage over borrowers and force them to make payments.”
“Faced with the choice between paying off a specific debt and the unknown loss associated with the long-term career opportunities of a new job or higher education, consumers may be forced to make debt payments that are incorrectly calculated, incorrectly assessed, or problematic. otherwise. “the Bureau wrote on your practice exam.
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If it determines that a college is violating the law, the office can sue for restitution on behalf of students, since made with the for-profit college chain Corinthian Colleges, and may impose additional financial penalties.
“This is a huge problem for everyone who took out a student loan from their school and has had trouble paying it back,” said Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group focused on student debt. , and former deputy deputy director in the consumer’s office. “Everyone who was stuck behind an incorrectly withheld transcript will suddenly have access to all of 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 retention policy,” Jason Altmire, the group’s president and CEO, said in a statement.
In general, institutional loans come with far fewer protections than federal loans. They can have double-digit interest rates and colleges can require payment while the student is still taking classes. Supervision is also minimal; the vast majority of states do not track information on these direct school-to-student loans.
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The office did not examine the practice of withholding transcripts by universities for delinquent tuition and fees, which has been outlaw in several states, but a bureau official did not rule out the possibility that the practice of writing large could break the law. There are millions of students across the country who cannot access them. transcripts due to debts as little as $25 owed to their colleges.
Mr Pierce of the Center for the Protection of Student Borrowers said he thought the ruling could have broader implications.
“As transcript withholding becomes a hotter issue in state legislatures and state attorneys general start asking questions, everyone looks to the CFPB to see what it thinks the law is, and it is often seen that state policy is created in the wake of these findings, he said.
This article was produced by The Hechinger Reportan independent nonprofit news organization focused on inequality and innovation in education.