Schools Look to Give Students Clean Slate by Using HEERF Money to Clear Unpaid Account Balances

By Owen Daugherty, NASFAA Staff Reporter

An increasing number of institutions of higher education are using the funds allocated in the latest federal coronavirus relief package to provide their students with debt relief as President Joe Biden further debates whether to issue widespread student debt cancellation.

While these institutional debts may pale in comparison to the federal or private student loans borrowers hold, even small debts owed to schools can hold students back from continuing college and completing their degree.

Across the country schools — from community colleges to Historically Black Colleges and Universities (HBCUs) — are using the funds allocated to them to wipe away millions in outstanding balances from thousands of students’ accounts.

The recent trend began after the Department of Education (ED) in May announced that colleges could use funds they received from the American Rescue Plan to cover institutional debt or funds students owe to their schools. The American Rescue Plan, the third major installment of federal coronavirus relief, was the first that explicitly allowed institutions to use funds to relieve student debt, which partially explains the influx of debt relief efforts this summer.

“This is a way that individual institutions can try to do something for students when it comes to affordability that is completely within their control,” said Dominique Baker, assistant professor of education policy at Southern Methodist University.

The money comes from the institutional portion of funds allocated by Congress that can be used to cover expenses experienced during the pandemic. In some instances schools have also used charitable donations to clear institutional debt.

Forgiving outstanding balances is just one of a myriad of ways in which schools utilized the infusion of money made available by Congress as institutions grappled with droves of students leaving school or opting not to re-enroll as unemployment skyrocketed and the economy lagged.

Ithaka S+R estimated in a report last year that former and current students owe a combined $15 billion total in debt to their schools. Further, the report found that more than 6.5 million students were unable to access their transcripts due to unpaid balances, a common tactic schools use to persuade students to pay off their balances. 

The Student Borrower Protection Agency in a report published earlier this year called on Congress and the Biden administration to require institutions of higher education to forgive all institutional debt as a condition of getting additional federal coronavirus relief funds.

While that has not come to fruition, several schools have taken the initiative to relieve the form of debt they have control over. Oftentimes, the institutional debt is due to things like unpaid tuition bills, parking or library fines, and institutions holding a student liable for federal financial aid funds the school had to send back to the government because of a student’s withdrawal.

Karen McCarthy, NASFAA’s director of policy analysis, said schools using funds from the American Rescue Plan is a win-win for these institutions and their students.

“It allows financially struggling students to stay enrolled, receive their diploma, or obtain their transcript for transfer to another school,” she said. “At the same time, it helps schools that may not have the institutional resources to wipe out outstanding debt to stay financially healthy.”

At Delaware State University, one of the first schools to announce it would use the federal funds to clear its students’ institutional debt, the move meant the average eligible student would see about $3,276 in debt relief. In total, the HBCU cleared $730,655 in debt.

“Too many graduates across the country will leave their schools burdened by debt, making it difficult for them to rent an apartment, cover moving costs, or otherwise prepare for their new careers or graduate school. While we know our efforts won’t help with all of their obligations, we all felt it was essential to do our part,” Antonio Boyle, vice president for strategic enrollment management at Delaware State, said in a statement accompanying the announcement.

While HBCUs like Delaware State started the trend that has since taken off, other HBCUs like Virginia State University and Norfolk State University in Virginia have followed suit, underscoring the importance of addressing the disproportionate impact student loan debt has on borrowers of color. Four years after graduation, Black college graduates on average owe $52,726, compared to $28,006 for white college graduates on average, according to research by Brookings. Further, several lawmakers have framed the need for widespread debt forgiveness as a targeted move to address racial inequity.

Wilberforce University in Ohio, Shaw University and Fayetteville State University in North Carolina are just a handful of the many HBCUs that have also moved to erase their students' account balances.

Hudson County Community College in New Jersey cleared more than $4.8 million in outstanding financial balances for roughly 4,800 students. The Community College of Philadelphia announced it would pay off more than $2.7 million in outstanding account balances for approximately 3,500 students.

Quinsigamond Community College (QCC) in Massachusetts announced earlier this summer that it would clear the unpaid balances of students enrolled during the pandemic with $2.5 million from coronavirus relief funds, noting its decision to do so was based on wanting students to return to school with a clean slate.

“By eliminating this debt, we are taking an equitable approach to higher education. We find that students with debt are less likely to enroll or stay in college. This eliminates that barrier,” said QCC President Luis Pedraja. “As we recover from the pandemic, we want to give our students in need a fresh start to a better life and a way to enter the workforce with the skills and knowledge they need.”

And the City University of New York, one of the largest public systems to use their allocated funds in such a way, announced at least 50,000 students will have up to $125 million in overdue bills forgiven in an effort to motivate students to return to school following the coronavirus pandemic.

In total, The Washington Post reports about 150 schools have cleared outstanding institutional balances students owe, and estimates there are probably many more schools that have done so. 

School leaders and student advocates say clearing balances is an effective way to provide relief without requiring students to complete an application for emergency aid or jump through hoops in order to receive help.

“The more targeted you want to make a policy, the more questions you have to ask, more forms that have to be filled out, et cetera,” Baker said. “Which is why I am a big fan of a lot of institutions, sort of saying, ‘if somebody has an overdue student account, we're going to take that’ to mean that they had economic hardship, so we're going to take care of that.”


Publication Date: 8/18/2021

Amy P | 8/20/2021 8:37:43 AM

Yet Another Perspective: This is removing a significant barrier to students completing degrees.

Institutional debt frequently blocks students from re-enrolling at the school or transferring to another school (due to holds on transcripts). Not to mention damaged credit, especially if the debt is sent to an outside agency for collection (at which point the debt is increased by "collection fees"). An education can be derailed, often for what can be trivial sums (less than <$1000).Yes, schools benefit, directly and indirectly, but I would argue the students benefit more.

Jeff A | 8/18/2021 10:29:36 AM

In other words, if you have a tranche of bad debt that is worth 20c on the dollar even before collection costs, and you are applying $1mm in HEERF funding to wipe out those balances, you should wipe out $5mm of balances, not $1mm! However, it is most likely the institutions are taking the $4mm windfall as a direct 'profit'.

Jeff A | 8/18/2021 10:5:58 AM

Another perspective: isn't this just laundering of mostly bad debt?
Awarding amounts based on what your institution is owed, regardless of federal debt and a need assessment. Is this equitable? If you paid your bill by working or using federal loans, you get nothing. Let's call it what it is: Institutions allowed to erase their bad debt with a 100% return. It isn't as noble as portrayed. Given the windfall escape from bad debt, I would hope institutions would extend this relief to the extent of the windfall.

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