Watchdog Agency Says Colleges Can’t Withhold Transcripts for Loan Payments

• Withholding transcripts when students have outstanding debt is "an abusive practice" that violates federal law, according to the Consumer Financial Protection Bureau (CFPB).
• Many colleges that offer loans directly to students withhold transcripts when students have outstanding debt, according to the CFPB.
• The CFPB also said some federal loan servicers illegally blocked borrowers' applications for debt cancellation via the Teacher Loan Forgiveness and Public Service Loan Forgiveness programs.
• Loan servicers "illegally misrepresented borrowers' eligibility dates and the number of payments the borrower needed to make to qualify for relief," according to the CFPB.

Many colleges that offer loans directly to students later refuse to give out transcripts if those borrowers have outstanding debt, according to the Consumer Financial Protection Bureau (CFPB) — a practice the agency says violates federal law.

Withholding transcripts due to a borrower's debt is "an abusive practice under the Consumer Financial Protection Act," the CFPB said in a release. The practice is meant to "coerce" borrowers into making payments, according to the CFPB.

The CFPB also found that some student borrowers are denied their transcripts even after entering into a payment agreement with their school. Without transcripts, students face barriers to getting jobs, taking certification exams, or going back to school, according to The Hechinger Report.

"Americans must exercise their right to their educational data to obtain a job or transfer schools," CFPB Director Rohit Chopra said in the release. "Our examinations of lenders found that blanket policies to withhold transcripts can run afoul of the law."

Students at some for-profit schools, including the now-shuttered ITT Technical Institute, have faced pressure to take out private student loans. The CFPB sued ITT Tech over that practice in 2014 and has since canceled billions in federal student loans for the for-profit school's former students.

The CFPB launched its investigation of colleges that operate their own lending operations earlier this year. The investigation turned up more than just issues around transcript withholding — investigators also found students were sometimes unlawfully blocked from accessing loan forgiveness programs.

“Withholding transcripts due to a borrower's debt is "an abusive practice under the Consumer Financial Protection Act," the CFPB said in a release. The practice is meant to "coerce" borrowers into making payments, according to the CFPB.”

Loan servicers "illegally misrepresented borrowers' eligibility dates and the number of payments the borrower needed to make to qualify for relief" from the Teacher Loan Forgiveness and Public Service Loan Forgiveness programs, according to the CFPB.

The CFPB report found that pandemic-related federal student loan pauses "brought meaningful relief" to borrowers, but it noted that loans from private entities are estimated to total $128 billion nationwide.

The watchdog agency "expects institutions to incorporate measures to avoid these violations and similar consumer risks into internal monitoring and audit practices," according to the report.

The CFPB has moved to more stringently regulate for-profit colleges and universities in recent years, and consumer advocacy groups earlier this year called on the agency to examine income share agreements, which allow students to pay for school via a fixed percentage of their post-graduation monthly income.

Those agreements aren't currently classified as loans, BestColleges previously reported, but consumer advocacy groups are calling for them to be regulated as such.