Proposed Rules Would Limit Transcript Withholding by Colleges

• Transcript withholding is seen as unfairly penalizing low-income students.
• The practice has fallen out of favor in many states during the past few years.
• Still, millions of students are estimated to have stranded credits thanks to the practice.

The Biden administration is taking on colleges that withhold transcripts from students with unpaid debts.

Last week, the Department of Education (ED) convened a group of negotiators from various institutional and student interest groups to craft new regulations through a process called negotiated rulemaking. In addition to working on new gainful employment rules and closing a loophole allowing for-profit colleges to skirt federal funding rules, ED proposed regulations curbing the practice of transcript withholding in higher education for the first time.

Transcript withholding refers to the debt collection practice used by some colleges and universities wherein students who want to transfer or graduate are denied access to their transcripts if they have unpaid balances.

The scope of the department's proposal to curb transcript withholding was limited, disappointing student advocates who say the practice unfairly penalizes low-income students. The proposed rules mainly address when the department can refuse to enter into an agreement with a school in order for its students to receive financial aid.

"[Transcript withholding] is a large problem, so with large problems you have to put forward good, substantial solutions," Amanda Martinez, who represented civil rights organizations, said during negotiations. "This is not that."

According to ED's proposed language, schools would not be allowed to withhold transcripts if the balance owed by the student resulted from an error from the school's financial aid administrator.

Steve Finley, a representative from ED's office of general counsel, said some schools that overestimate a student's financial aid will then charge that student for any excess funds awarded. This language is meant to protect students in these situations.

Additionally, colleges and universities deemed by the department to be in any of the following statuses must release all student transcripts:

• At risk of closure
• Is closing
• Not financially responsible
• Not administratively capable

While some negotiators applauded the department for making its first attempt to tackle the issue, most expressed disappointment that the proposed regulations won't do much to address the wider issue of transcript withholding.

Johnson Tyler, a New York City-based attorney who represented legal assistance organizations serving students and borrowers, went so far as to say ED's proposal could harm state-level campaigns to ban transcript withholding.

Tyler argued that by regulating the practice only when a school commits an error, ED gives institutions the grounds to take these state laws to court because they conflict with federal regulations.

"I'm worried that's going to discourage the efforts in my state and other states to ban transcript withholding," he said.

Tyler added that he would rather this proposal be struck altogether than handled in this limited scope.

He encouraged the department to schedule a separate negotiated rulemaking discussion to focus solely on this topic. The conversation around transcript withholding was lumped into larger proposed regulations concerning certification procedures that included a litany of other issues.

Representatives from ED, including Finley, said they don't believe they have the statutory ability to widen the scope of these rules.

Yael Shavit, representing state attorneys general, said that assertion isn't consistent with past statements from ED. She told BestColleges that the department argued in the case CAPPS vs. the Secretary of Education that ED has the latitude to bar institutional practices if they interfere with a student's ability to access federal financial aid.

The courts agreed in a January 2020 decision.

Ultimately, six of 14 negotiators voted down the issue paper that contained the transcript withholding language on Friday. Only three of those who voted against consensus explicitly listed the transcript withholding issue as a reason for their vote.