TICAS: Institutions Should Rethink Federal Loan Policies, Outstanding Balance Penalties

By Joelle Fredman, NASFAA Staff Reporter

Institutional policies—such as denying students the ability to take out federal loans and non-negotiable penalties for outstanding balances—may unintentionally derail students who are already struggling to finance their higher education, according to a new issue brief from The Institute for College Access and Success (TICAS). Reconsidering these practices, TICAS wrote, has the ability to increase access to postsecondary education and college completion.

In the issue brief released Thursday, TICAS wrote that while policymakers and schools have been taking steps recently to mitigate lesser-known barriers to higher education—such as by providing on-campus food banks, affordable childcare, and emergency grant aid—they also need to “address existing practices that may themselves exacerbate their students’ financial insecurity and create barriers to completion.”

“While postsecondary education can be a powerful driver of economic mobility, too many students navigate a range of unique, often changing financial circumstances that can exacerbate economic hardship and create barriers to college success at the same time as they confront total college costs that persistently exceed available resources,” according to TICAS.

TICAS wrote that schools that do not offer their students access to federal loans are also denying those who need to fill the gap between the cost of college and their available resources the ability to succeed in higher education. Specifically, TICAS wrote that federal loans allow students to enroll in more courses and increase the likelihood of transfer to a four-year college and degree completion, while promising fixed interest rates, deferments for economic hardship, and more flexible repayment options than private lenders offer.

Despite these benefits, around 1 million community college students cannot access federal loans because their schools do not offer them. TICAS wrote that while many colleges cite the fear of being penalized for high loan defaults as a reason for not participating in the federal loan program, “colleges can and do use a range of strategies to reduce default while continuing to offer federal student loans.” For example, TICAS wrote that schools can offer early academic advising for needy students, and target at-risk students with financial aid counseling.   

In addition to denying students federal loans, TICAS also wrote that institutional policies that place registration and transcript holds on students due to outstanding student balances—such as unpaid parking tickets—can “lock students out of higher education,” shut them out of employment opportunities, and harm their credit scores just as they enter the labor market.  

“A seemingly small past due amount can create an insurmountable financial challenge for a student already struggling to cover basic needs like food, housing, and transportation,” TICAS wrote. “The stacking of late fees and other penalties on top of small fines can turn a relatively small fine or fee into a significant balance, including through the use of external debt collections agencies charging fees as high as 30 percent. Collection can also negatively impact a student’s credit, generating significant consumer costs and additional longer term financial insecurity.”

TICAS wrote that while some holds may be necessary, schools need to “ensure that students have a viable way to make good on their past due balances,” which may involve working with legislators to rewrite state laws. For example, TICAS wrote, New York mandates that “no person shall receive credit or other official recognition for work completed satisfactorily, or be allowed to re-register, until all tuition, fees and all other charges authorized by state university have been paid or university student loan obligations have been satisfied.”

“[P]ractices such as denying students access to federal student loans, and imposing non-negotiable and disproportionate penalties for students with outstanding balances undercut otherwise well-meaning and thoughtful efforts to increase student success,” TICAS wrote. “... As a first step to developing holistic financial and academic supports that better serve financially vulnerable students, schools should reconsider their existing policies.”


Publication Date: 3/1/2019

James C | 3/4/2019 4:6:03 PM

You simply can't have students be able to register for future semesters if they have a current balance. The outstanding balances would double. I do think some schools are becoming unreasonable with late fees however.

Geoff M | 3/1/2019 11:17:17 AM

A related issue that can cause students a challenge in their final semester of enrollment when it is less than an academic year in length is the requirement that we pro-rate sub and unsub for students in that situation. Being able to access full annual eligibility could in some cases provide the final funding that some students need to finish their degree.

This is an archaic rule that both limits some students in their ability to finish their degree and adds many hours of additional administrative work for schools. It would be great if this could be addressed by Congress even outside of reauthorization.

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