Stranded Credits Prevent Students From Earning Degrees

• Many students with unpaid balances can't register for classes or get transcripts.
• These students, therefore, cannot progress toward degrees, transfer, or apply for jobs.
• Several states have passed legislation banning colleges from using these holds as leverage.
• A pilot program in Ohio presents a workable solution to the problem of stranded credits.

Millions of Americans are stuck in educational limbo. They're unable to complete a degree and progress in their career. Why? Because colleges won't let them.

It seems most colleges don't allow students to register for classes or access their transcripts if they have unpaid balances — even minuscule amounts. Recently, this long-standing practice has come under fire in numerous states and at the federal level.

As a result, many colleges are changing their policies and letting students access these "stranded credits," but it remains a pervasive problem.

What Are Stranded Credits?

Colleges place a "hold" on student accounts for various reasons. Students might have an outstanding balance from unpaid tuition, room and board, library fees, or parking fines. A hold also can occur for nonmonetary reasons, such as conduct violations or unreturned equipment.

When students are enrolled, this hold might prevent them from registering for the next term and continuing their studies. Colleges can withhold the transcripts of current or former students wishing to transfer to another institution or apply for an internship or a job. Either way, whatever credits these students have earned are left "stranded" at the institution until they rectify the situation.

Just how widespread is this problem?

In a 2020 report, the research group Ithaka S+R, which coined the term "stranded credits," estimates about 6.6 million current and former students, many of them adults who stopped out, owed as much as $15 billion as of 2018. The average unpaid balance was $2,300.

The report cites a 2016 survey from the National Association of College and University Business Officers revealing that 98% of colleges admitted to withholding transcripts as a debt collection tactic.

But it's not just business offices implementing these holds, and students often don't know where to turn for guidance.

6.6 million current and former students, many of them adults who stopped out, owed as much as $15 billion as of 2018. The average unpaid balance was $2,300.

"We found that there are many different offices across any given campus that can impose a hold on student transcripts for a debt," Ithaka's Martin Kurzweil, director of the Educational Transformation Program, told BestColleges. "So it's this very distributed, uncoordinated function."

Last year, the American Association of Collegiate Registrars and Admissions Officers (AACRAO) issued a similar report with the clever title "Stop! Do Not Pass Go! Institutional Practices Impeding Undergraduate Student Advancement." It shows that 95% of colleges withhold transcripts, with 64% placing a hold for balances of less than $25. Within their sample group, 42% of holds preventing access to a transcript were for debts under $1,000.

"The environment is changing," said Terry Hartle, senior vice president of government relations and public affairs at the American Council on Education (ACE), "and policymakers are increasingly asking themselves if it's fair that institutions are withholding transcripts and academic credentials when the amount of money involved is de minimis."

Low-Income Students Are Impacted the Most

If the amounts owed are indeed rather small in many cases, why can't students simply pay their bills and move on? It's certainly in their best interest to do so. Colleges can turn the matter over to a collection agency, which can result in wage garnishment, damage credit scores, and make future loans, including mortgages, harder to acquire.

But settling debt isn't so simple for many of these students. Ithaka's 2021 follow-up report titled "Stranded Credits: A Matter of Equity" claims this problem disproportionately affects students of color and those from low socioeconomic backgrounds.

In fact, public colleges enrolling more than 40% Pell-eligible students are more likely to withhold transcripts for an outstanding balance. The problem is most prevalent at community colleges, which Ithaka estimates could have as many as 3 million former students with stranded credits.

"The practice of holding transcripts, degrees, and the ability to enroll into classes has flourished as a means to create revenue," the report states, "and this inevitably affects the disenfranchised who need higher education the most. ... For students, especially students of color, first generation, and/or those from low-income backgrounds, stranded credits are the difference between dropping out and earning a degree and securing a better future."

Kurzweil concluded that "the burden of stranded credits is highly inequitably distributed, as are a lot of the burdens in higher education."

To be fair, institutions often do attempt to work with students to address debt.

The AACRAO report notes that among its study participants, 66% have a debt-elimination program, and 29% offer debt-forgiveness, such as Wayne State University's Warrior Way Back program. Two-thirds have used funding from the CARES Act to forgive outstanding student debt during the COVID-19 pandemic.

The irony, of course, is that preventing registration and withholding transcripts are counterproductive strategies for colleges. Students who earn degrees and get jobs are far more likely to be in a financial position to settle their debt. Meanwhile, without access to transcripts, they can't even apply for scholarships that could help ease their burden.

"You just have this terrible situation for everyone," Kurzweil said, "and it's kind of a deadlock."

Several States Ban Transcript Holds

As ACE's Hartle suggested, legislators have begun to take notice. It's not a matter of politics but rather one of fairness and propriety.

"We know Congressional staff in a bipartisan manner have concerns about this practice," said Jonathan Fansmith, ACE's assistant vice president for government relations.

Last December, U.S. Education Secretary Miguel Cardona weighed in on the issue.

"To emerge from the pandemic even stronger," he said, "institutional leaders must embrace long-term change. That means evaluating long-standing institutional policies that block retention and completion for our most underserved students, such as enrollment and transcript holds for students with unpaid balances."

At the state level, California in 2019 became the first state to ban transcript holds at public and private colleges.

Curiously, the U.S. Department of Education issued a "Dear Colleague" letter in 1998 encouraging colleges to withhold transcripts in cases involving loan defaults, and it has yet to officially reversed its stance on that matter, Secretary Cardona's comments notwithstanding.

More recently, the Consumer Financial Protection Bureau announced plans to examine practices related to college-issued loans, including the tactic of withholding transcripts.

At the state level, California in 2019 became the first state to ban transcript holds at public and private colleges. Washington state enacted a similar law allowing students with balances to access transcripts, as did Louisiana in 2020, although Louisiana's law pertains only to public colleges.

State-level dominoes continue to fall nationwide. A 2021 Massachusetts bill proposed granting students access to academic transcripts. This January, Maine introduced a measure to ban transcript holds for students at four-year colleges owing $2,500 or less and for those at two-year colleges owing less than $500. The University of Maine system estimates roughly 11,000 people owe more than $38 million.

In New York, Gov. Kathy Hochul announced in January that the State University of New York (SUNY) ended the practice of withholding transcripts.

"While I am proud that SUNY students will no longer have their transcripts held hostage, all students deserve the same protections," Hochul said. "We must pass legislation to end this unjust practice for all New York students once and for all."

The announcement came on the heels of a similar move at the City University of New York (CUNY) system, which in 2021 banned transcript holds because of pandemic concerns. Some 74,000 students benefiting from this decision were allowed to register with outstanding balances.

A Pilot Program in Ohio Offers a Workable Solution

Policy advocates in Ohio have weighed in on their state's stranded credits quagmire, which a pilot program Ithaka is launching this spring promises to address.

The firm is working with eight universities in Northeast Ohio to create a "compact" enabling students with outstanding debt to transfer among those colleges. When a student returns to their prior institution after stopping out, the college can work with that individual to settle outstanding debt. But nationwide, noted Kurzweil, only 38% of students re-enroll. Most seek to transfer elsewhere, and that's when stranded credits become problematic.

Under this Ohio program, a student with debt can transfer to one of the participating colleges, and the original institution will forgive their debt and release their transcript. In return, the college the student is transferring to will owe a small fee to compensate the initial institution for its loss. On average, Kurzweil said, colleges collect only 7% of outstanding debt. This fee will exceed what the initial college might have realized.

Using concrete figures, let's say a student owes $2,500, an average amount in Ohio. If a college collected 7% of that, it would net $175. If the second college offers a fee of $250, the initial institution will realize more than it would have otherwise. That's the incentive for releasing the transcript.

So the student gets to continue their education, the second institution gets a new student, and the initial college receives fair compensation.

"It's one of these rare situations where you can create a win-win-win for all participants," Kurzweil said.

The concept holds promise for state university systems nationwide, though imagining that kind of formal reciprocity outside state boundaries and among private colleges is difficult.

Meanwhile, if colleges can no longer withhold transcripts, Kurzweil believes they'll employ even more aggressive tactics for collecting outstanding debt.

"If an institution doesn't have a way of settling the debt in a way that feels compensatory," he said, "they are going to find some other way to gain leverage over the students."