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Should unpaid debts to their colleges stop students from getting jobs or continuing their educations?

Some government officials don’t think so, and they are targeting transcript withholding, in which colleges and universities prevent former students from receiving academic transcripts they need for employment or enrollment at a new institution.

This is a tiny piece of the $1.7 trillion student debt problem in American higher education, but more than most, it is in the control of colleges and universities. That’s part of the reason why Education Secretary Miguel Cardona and the Consumer Financial Protection Bureau have identified transcript withholding as a possibly unfair debt collection practice.

A recent episode of The Key, Inside Higher Ed’s news and analysis podcast, explored transcript withholding in the larger context of the debt students owe to their institutions and how colleges go about collecting it.

Guests included Martin Kurzweil, director of the institutional transformation program at Ithaka S+R, and Melanie Gottlieb, executive director of the American Association of Collegiate Registrars and Admissions Officers, or AACRAO. Kurzweil discussed Ithaka’s research on what he calls “stranded credits,” which colleges sometimes hold hostage from their former students, and a promising experiment that could offer a way out for colleges and students alike.

Gottlieb explained why higher ed officials think it would be a bad idea for the federal government to ban transcript holds or take other aggressive regulatory action, while acknowledging the need for colleges to limit the kinds of debt they try to collect from students. Her association joined others in issuing guidance on the practice this spring.

An edited transcript of the conversation follows.

Inside Higher Ed: The Consumer Financial Protection Bureau announced plans to examine this issue of transcript holds for students. Why is that significant and what does it say about the current landscape we’re in?

Kurzweil: The CFPB announcement largely explained the reasons why they’re focusing on this issue: because it is a major problem for a lot of former students. This is not just about the practice of transcript withholding in general; it’s about transcript withholding as leverage for collecting debt owed to institutions. The institutional debt itself is highly problematic for the former students affected. With all of the appropriate attention paid to student loan debt, it has gone under the radar.

Like other kinds of personal debt, institutional debt is a serious financial burden. The students affected are assessed fees or interest, they are often hounded by collectors, it affects their credit rating. Transcript withholding is a tool that institutions use to motivate students to pay down the debt. And it’s nearly ubiquitous, and I would say it’s pernicious as a form of debt collection.

What makes it so troubling is that former students need access to an official transcript to continue their education. They often need it as a condition of employment or to gain an occupational license. The hold on the transcript prevents them from doing some of the very things that may enable them to earn enough to be able to pay off the debt.

Why is this suddenly the focus of attention by Secretary Cardona and the CFPB? Thanks to the research of a lot of folks, we finally have a sense of the scale of this problem, which was hidden for many years. By Ithaka’s research, we estimate that over 6.5 million individuals in the U.S. have their transcript held for unpaid balances. The face value of the debt is about $15.5 billion. That’s small by comparison to the trillions of dollars in outstanding student loan debt, but a huge number of people are affected. And these stranded credits exacerbate inequities: the institutions that serve the highest shares of lower-income, Black, Hispanic and Indigenous students have the most former students with stranded credits.

Inside Higher Ed: I assume these debts are real costs that students have accrued. Is the problem that students are being held accountable for stuff that they shouldn’t have been charged for in the first place? Or is it just that it’s in the past, and we should let it go?

Kurzweil: It’s a mix. Many students accumulate balances because they have tuition and fees and they are unable to pay the full balance, and they leave school with it unpaid. In some cases, that balance includes fees assessed by a variety of offices across the campus. You may question whether all of those are the kinds of fees that the institution should be charging. But it is real money, balances the student has been charged by their institution and hasn’t paid.

Inside Higher Ed: Melanie, how does it look from AACRAO’s perspective and that of institutions?

Gottlieb: Holds are something institutions use to cause a student to take an action, and they use all kinds of holds, not just transcript holds. Looking at transcript holds, those tend to be about debt. It’s one of the few tools in their toolbox to try to hang on to a student. It’s the last thing, because usually a debt hold means that the student has separated from the institution, and [the institution doesn’t] know where else to go. We recognize that debt collection is problematic. Holding a transcript can be really counterproductive to actually being able to collect the debt, because you’re stopping the student from progressing to the point where they could be earning more money to pay back the debt.

Institutions employ all sorts of ways to try to keep a student from getting to that place. That’s where the other kinds of holds often come into play. If a student hasn’t yet paid their tuition bill, they might add a registration hold, which would trigger the student to go and see someone. They have to go to the bursar’s office to figure out what they owe, or to financial aid, maybe they have paperwork that they haven’t signed. The goal is to not allow the student to rack up a giant bill and then not be able to pay it and depart the institution.

The intentions are good in terms of trying to do that. But if an institution doesn’t have strong enough practices to stop a student from accumulating large amounts of debt before they leave the institution, they’ve got this other problem that is really just counterproductive.

Inside Higher Ed: I’m trying to square the good intentions you just talked about with practices that seem punitive and, to use Martin’s term, “pernicious.” Can you give us examples of how institutions use holds in ways that actually benefit students?

Gottlieb: One example I alluded to would be unpaid tuition bill. At the beginning of every semester, tuition bills go out, financial aid gets applied. There’s a series of things a student has to do in order to ensure that all of the funds are collectible. One hold might be that you’ve got to go to the financial aid office, talk to your financial aid adviser and sign the promissory note. That hold says, “OK, you are eligible for this federal award, it’s going to cover your tuition bill, you actually have something you have to do to get it.” Go take care of that, then you can register for the semester. To try not to provide barriers to access, institutions will often choose to have levels of debt. If a student owes X amount, if it’s $500 or less, or $1,000 or less, or $1,500 or less, they’re attempting to provide access and allow a student to catch up. Those policies sometimes work, but sometimes in the end the student can’t pay the bill, which results in a transcript hold. Some of the other debt that we talked about, like fines and parking tickets and added fees, can be a little more problematic when you consider the amount of tuition that is paid.

Inside Higher Ed: Martin, do you think this is well-intentioned or reasonable stuff that has played out badly, or are there fundamental problems in the whole structure?

Kurzweil: It is important to be nuanced about it. I completely agree with Melanie that there are a lot of good uses of registration holds for currently enrolled students to try to avoid getting into a bad situation. If you think about the stops, the students who have accumulated debt and are separated and have transcript holds, and then the flow, students passing through the institution who may be on their way to separating with debt, there are a lot of good reasons to employ holds proactively to try to avoid that separation.

We’ve studied institutions that have used registration holds very effectively in the context of proactive advising to not only help students avoid those kinds of financial calamities, but to help them make decisions about their academic programming that will get them to completion faster. But once a student has separated and their transcript is being held, I don’t see a lot of positives to that. We went over why it’s bad for the student.

But one of the other problems with that form of debt collection is that it doesn’t appear to be all that effective. It needs to be studied more. But the collection rate for these kinds of institutional debts is very, very low. Some of the best evidence I’ve seen is out of the state of Ohio, where institutional debts are collected centrally by the Office of the Attorney General. After about a year, the long-term collection rate is only about 7 cents on the dollar. Not a very effective collection tool.

The institutions aren’t really getting much from it; the students are being harmed by it. There’s this prisoner’s dilemma or collective action problem, where everyone’s just kind of stuck and can’t get out of this situation. It’s very hard for students to negotiate on their own with an institution.

Inside Higher Ed: What are some institutional strategies to address this set of problems?

Kurzweil: There are a number of solutions out there ranging in scope and scale. One that has increased in popularity at the institutional level is a comeback program. If a former student with a debt re-enrolls, the institution forgives the debt or a portion of it and the transcript hold is released accordingly. That is a complete solution, in the sense that it deals with the debt and the transcript hold. Those programs tend to be small-scale, because the majority of returning adult learners don’t return to the same institution they previously attended. They’ve moved, they want a different program, maybe they had a bad experience.

We’ve also seen microlending programs, often facilitated by a not-for-profit. It’s not a profit-making lending program. It provides the students with a bridge loan to cover the outstanding debt so they can continue their education or get the new job or whatever it is they want to do with the transcript. It deals with the debt and therefore the transcript hold. I do have questions about encouraging students who have an existing debt to take on more debt to deal with that [original] debt, and the programs do tend to be very small-scale.


Holding a transcript can be really counterproductive to actually being able to collect the debt, because you’re stopping the student from progressing to the point where they could be earning more money to pay back the debt.


At the other end of the spectrum, the big-scope solutions are bans on transcript withholding, which California pioneered and a number of other states, including Washington, Louisiana and recently Colorado have instituted. Those are what I think of as incomplete solutions, because although they eliminate or reduce the practice of transcript withholding, they do nothing for the debt.

I have some concerns that there may be unintended consequences with those kinds of policy solutions, because as long as the debt is still on the books, the institutions have some incentive to collect on it or deal with it in some way.

Inside Higher Ed: Melanie, what’s your sense of what institutions are doing, should be doing to deal with the holds issue and the larger debt issues?

Gottlieb: The first thing AACRAO would say is that institutions shouldn’t be [imposing holds] for trivial amounts of debt when a learner separates from the institution. Examine the debt that is there. What’s real education debt, and what are additive things that could be easily forgiven? No one would argue that an institution doesn’t have a right to try to recoup the cost of services rendered. But let’s keep it narrowly focused there.

Another thing to think about is allowing learners access to transcripts, even if it’s just an unofficial transcript. If they have debt and need a transcript for further employment for licensing, maybe for further enrollment, an unofficial transcript, plus a verification of enrollment … might get the student what they need to progress. I agree with Martin around bans on transcript withholding. While those are having some impact, they don’t really solve the problem, and some of the unintended consequences are that we’ve seen some evidence of institutions coming up with creative solutions. You can’t hold the transcript, but maybe you could suppress the grades for the semester that’s not paid for. That really doesn’t solve the problem. It just pushes it a little further down the road. None of these policies really solve the core issue, which is why does it cost so much to educate a student? And why are students burdened with this level of debt as they depart education?

Inside Higher Ed: Turning to the CFPB announcement and the recent comments from Secretary Cardona, I’m not entirely clear yet what the feds have in mind, what the CFPB examining the issue means. Is there a regulatory opportunity for them to punish an institution? I’m curious what the federal scrutiny may be likely to lead to and whether you think it’s a potentially good and helpful thing.

Kurzweil: More focused attention on the issue is a good thing. I don’t have inside information about what the federal agencies are planning. There’s potential for a federal regulation that introduces a prohibition of some sort on the practice. I don’t see much value to transcript withholding, and I see it harming students as a debt collection practice. But I worry about the unintended consequences and the possibility of a “mission accomplished” moment, like, “Well, we got rid of the transcript withholding, we’ve done our job,” and meanwhile the debt’s still there.

There are two areas of federal policy where I believe some action is required. On the other side of a ban on transcript withholding, there’s a recommendation to withhold transcripts—that’s actually what’s on the books right now for the Department of Education. There was a Dear Colleague letter in 1998 recommending transcript withholding as a debt collection practice for federal student loans where payment was outstanding. So right now the federal government’s official guidance is that institutions should withhold transcripts. It would be nice to see that changed.

The second area is a bit more technical but has the potential to be quite important: Return to Title IV. This policy introduced in the ’90s says that if a student doesn’t make it all the way through a term, the institution has to pay back proportionally the financial aid the student received and paid to the institution. If that happens in a way where the student has outlay that is beyond the amount of federal aid they can continue to apply, the institution treats that as a balance owed by the student to the institution.

We’ve heard that is a frequent source of the unpaid balance leading to stranded credits. There’s a mismatch between the federal requirement there, the way students are paying for things with federal aid on the ground, and the institutions that may be causing these gaps. I’d really want the Education Department to try to reconcile that so it’s not leaving students on the hook.

Inside Higher Ed: Melanie, higher education institutions are usually loath to have the federal government jump into things. What’s your sense of what the feds have in mind here and what might they do that would be helpful and what could they do that would not be desirable from the institutional standpoint?

Gottlieb: The withholding of transcripts did come up in the latest federal negotiated rule making, but it was brought up in a really narrow lane, in the context of institutional errors in the application and awarding of aid. The institution can’t withhold the transcript for debt that has been incurred because it made some error on the financial aid calculation. That seems fair to me. An institution ought to be held accountable if they make a mistake. If we make a mistake, we ought to be accountable for that mistake.

Now shifting to the CFPB. Their mission is to protect consumers from unfair and deceptive and abusive practices and take action against that. I think they do have the authority to ensure that an institution has clear and transparent practices and that they’re acting in good faith in their tuition and billing practices. And thinking about Return to Title IV, perhaps there should be some alignment of institutional withdrawal calculations and Return to Title IV in a way that will not leave the student on the hook.

That’s really where the big tuition bills happen, when a student withdraws unexpectedly. When I was institution based, you’d see a lot of students who maybe have a mental health issue or a medical issue and they’ve got to withdraw. Or they’ve had some other big social or life experience that’s causing them to tank for the semester, and they just choose to withdraw, and we return their money, and then they’re left with a big bill.

That’s where the really big tuition bills come in. It’s not in [an institution’s] best interest to let a student rack up a bill and keep accumulating. Nobody wants to have to chase that. There’s definitely some improvement that can be done there. I would stop short of saying the department should step in and do that. I think institutions could do that work perhaps better within their institutional contexts. But I’m not averse to having the department issue some guidance suggesting we do that.

We tend not to believe the department should get down in the weeds about how an institution should collect for services they’ve rendered. There are 4,600 institutions in the U.S., of all shapes and sizes. They all have their own processes and methods, and they’re independent entities. That level of detail is probably best left to an institution. But I think that AACRAO, NACUBO, NASFAA, we could talk about these practices together. And issue guidance like the statement that AACRAO and NACUBO recently issued around the withholding of transcripts.

Inside Higher Ed: It’s not uncommon for higher education to either need or benefit from a kick in the ass, which is certainly something else the feds might do. Martin, do you think a federal policy mandate would be a good thing here? You talked about the way you think it might not actually address the problem. But do you have confidence that the institutions are likely to address this themselves? Or do we need more pressure?

Kurzweil: Individual institutions can only do so much, especially because of some of the issues raised before. Students are often not trying to return to the same institution, so it’s not just that institution’s problem, it’s another institution’s problem. I would also note that the federal government has some presence in this policy space, but not that much; states have more. There’s actually more potential for coordination and possibly legislation or regulation at the state level, especially in regards to public institutions, where most of the students are and most of the stranded credits are.

Community colleges, in particular, have a lot of students with these institutional debts. That’s a good segue to what we’re trying to do at the cross-institutional level, with support and cooperation from some state agencies in Ohio: a pilot over the next year to create a regional compact involving four public universities, four public community colleges, all in the northeast part of the state.

They have all agreed that if a former student of any of them with a debt and a held transcript seeks to re-enroll at any of the eight institutions, the original institution will settle the debt up to a maximum and release the transcript if the student meets the qualifying criteria.

As a part of that, because we’re coordinating among this group of institutions—it’s all in a region—we’re doing some centralized and a lot of coordinated outreach to the eligible students and offering them the opportunity to get pre-enrollment counseling to help them make a decision about whether and where to enroll and take advantage of this opportunity.

The third really important component of this pilot is a feature that we think has the potential to make this sustainable and scalable. We are acting as a sort of clearinghouse for periodic transactions among the participating institutions that basically compensate an institution that is settling the debt for a student who enrolls at one of the other institutions.

It’s paying them a fraction of the face value of the debt to make them whole, in a sense, for not getting the new tuition revenue of the returning student. But what makes that work is, the institutions are only expecting to collect something like 7 cents on the dollar long term from these debts.

Meanwhile, the receiving institution, the new institution, is getting new tuition and fee revenue that is worth way more than that. The way we’ve worked it out there, they’re going to end up paying about 10 cents on the dollar back to the original institution. The original institution’s better off, the new institution’s better off, they’re getting a new student with tuition revenue who otherwise would not have been able to enroll anywhere.

It’s one of those rare situations where you’re going from kind of a lose-lose—the student loses, the original institution’s not collecting, the region suffers because students aren’t able to continue their education—to a win-win. Everybody’s better off.

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