The Consumer Financial Protection Bureau yesterday issued a warning about tuition payment plans that may be taking advantage of consumers while also noting that withholding transcripts from students as a debt collection tool is a potentially illegal practice.
A copy of the report can be accessed by clicking here.
Some schools have withheld students’ transcripts if they have outstanding debts for tuition, books, etc. The CFPB has found this practice to be illegal and abusive, it noted. Preventing students from being able to get a job because they can’t provide a copy of their transcript stops them from being able to earn the income they need to be able to pay off their debts, the CFPB noted. About one-third of schools currently use this method of debt collection, the CFPB reported. Schools also have been known to remove students from meal plans or housing due to late payments. “In September 2022, the CFPB published a special edition of Supervisory Highlights detailing examiners’ findings that servicers’ blanket transcript withholding policies violated the prohibition on abusive acts and practices with respect to institutional loans,” the CFPB wrote.
With respect to tuition repayment programs, nearly 98% of colleges and universities offer some form of the product, according to the report. Nearly 4 million borrowers use some form of tuition repayment program every term.
Issues that the Bureau found with the programs are:
- Snowballing fees and interest: In some cases, tuition payment plans may impose hundreds of dollars in fees if a single payment is missed, due to the stacking of late and returned payment fees. The CFPB also found terms in some contracts that allow institutions to convert no-interest payment plans into interest-bearing loans when payments are missed.
- Borrowers forced to sign away their legal rights: Some payment plan contracts and agreements include terms and conditions that appear to waive borrowers’ legal protections, limit how consumers can enforce their rights, or misrepresent the rights or protections available to consumers under existing law. The CFPB found terms and conditions in contracts that included forced arbitration provisions, waivers of the borrowers’ right to seek discharge and retain their own legal counsel, and misrepresentations of borrowers’ legal right to discharge private student loans in bankruptcy.
- Confusing and inconsistent disclosures: Unlike private education loans, which are subject to a common set of disclosure requirements, tuition payment plan terms and conditions vary based on the structure of the loan, particularly with regard to the duration of the contract, the number of payments required, and the school’s determination of what disclosures are legally required. This often leads to inconsistency in how these loans are marketed on school websites, making it difficult to find a complete set of terms for the product being offered.
