Transcript Withholding and Debt Collection: Colleges and Universities Are Losing Some Leverage Due to Trending State Laws | Husch Blackwell LLP


Update: On September 29, 2022, the Consumer Financial Protection Bureau released the special edition of Supervisory Highlights Student Loan Servicing, finding that general college and university policies of withholding student transcripts in connection with an extension of credit are abusive under the Consumer Financial Protection Act. Institutional lenders have been ordered to stop this practice.

In the past, it was common for a higher education institution to withhold a student’s transcript when the student had an outstanding debt to the school. Bankruptcy and various loan collection laws have long placed certain parameters around schools’ ability to do so. A growing number of new state laws take the restrictions one step further, often limiting or stopping the practice.

California was the frontrunner, passing its law in October 2019. New York, Illinois, Colorado, Ohio, Oregon, Washington, Louisiana and Minnesota followed suit. Legislation is pending in several other jurisdictions, including Massachusetts, Virginia, New Jersey, Rhode Island and Connecticut. Many of these laws impose other restrictions on schools, such as the additional limitation on credit reports that appears in Illinois law.

The Consumer Financial Protection Bureau (CFPB) challenged the transcript withholding in an April 2022 blog post. Education in March 2022.) The CFPB has announced that it will begin reviewing college and university institutional loan programs. The CFPB commented: “Particularly because schools have not always been subject to the same service oversight as other lenders and service agents, the CFPB is concerned about students’ experience with institutional loans and unique debt collection actions that only schools can take against their students. ”

Lawmakers and the CFPB have suggested that these evolving rules are primarily aimed at supporting students as they attempt to complete their education or find employment, efforts that often require access to transcripts.

What this means for you

As lawmakers and regulators remove mechanisms like withholding transcripts from school toolkits, colleges and universities can take other steps to support payment. These include initiatives such as the use of financial accountability agreements and formal institutional student loans (which are protected from bankruptcy discharge in certain circumstances). Regardless of the approach, colleges and universities must comply with all relevant federal and state laws and ensure that they provide students with clear and accurate information about their accounts, debts, obligations and the consequences of non-payment.

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