CFPB: Blanket Withholding of Transcripts to Pressure Institutional Loan Borrowers Is ‘Abusive’

By Maria Carrasco, NASFAA Staff Reporter

The Consumer Financial Protection Bureau (CFPB) on Thursday released a report that found some institutions had improper blanket policies of withholding transcripts to force students to make payments on institutional loans. 

The report comes after the watchdog agency announced earlier this year that it would examine the operations of colleges with institutional loan programs. Outlining its main findings, CFPB stated that institutional policies to withhold transcripts in connection with an extension of credit are “abusive” under the Consumer Financial Protection Act and “directed institutional lenders to cease this practice.” In the same report, the agency also found federal student loan servicers illegally hampered borrowers’ access to federal student loan payment relief and cancellation programs.

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

Giving examples of this abuse, CFPB notes that one institution refused to release official transcripts even after borrowers entered new payment agreements and would wait to release the transcripts until the borrowers paid their balance off in full. Other institutions collected payments for transcripts but did not deliver those transcripts if the borrower was delinquent on a debt owed to the institution.

CFPB notes that under the Consumer Financial Protection Act, Congress gave the CFPB “supervisory authority” over entities that originate private education loans. CFPB defines a private loan as one provided by a private educational lender and is not made, insured, or guaranteed under Title IV of the Higher Education Act and is issued for postsecondary educational expenses to a borrower, regardless of whether the loan is provided through the educational institution that the borrower attends or directly to the borrower from the private educational lender. 

A private loan does not include an extension of credit under an open-ended consumer credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling. Additionally, CFPB’s private loan definition has been updated to use the Truth in Lending Act’s (TILA) statutory definition of private education loan, which does not include Regulation Z’s exceptions for tuition payment plans or very short-term credit. 

CFPB defines “credit” as “the right granted by a person to a consumer to defer payment of a debt, incur a debt & defer its payment, or purchase property or services and defer payment for such purchase,” under the Consumer Financial Protection Act. That could include payment plans or other deferral of payments.

CFPB said institutions “engaged in abusive acts and practices,” such as withholding transcripts for borrowers that were delinquent or in default on institutional student loans. As a result, CFPB is directing institutions to cease this practice. 

The report defines an act or practice as abusive if it “takes unreasonable advantage of the inability of a consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.” CFPB stated that institutions took “unreasonable advantage” of the importance of transcripts and the institution’s relationship with borrowers. 

“Since many students will need official transcripts at some point to pursue employment or futurehigher education opportunities, the consequences of withheld transcripts are often disproportionate to the underlying debt amount,” CFPB wrote. “Additionally, faced with the choice between paying a specific debt and the unknown loss associated with long-term career opportunities of a new job or further education, consumers may be coerced into making payments on debts that are inaccurately calculated, improperly assessed, or otherwise problematic.”

This leaves borrowers with “little-to-no bargaining power” as their professional advancements lay in the hands of an institution, the report states. Additionally, some borrowers may leave higher education altogether because they can’t get their transcript.

CFPB stated that institutions that withhold transcripts don’t get “any intrinsic value” from withholding, since transcripts can’t be sold or auctioned off. Additionally, institutions hold a monopoly over students and former students since they can’t go to another institution to get another transcript, CFPB said. 

While CFPB’s focus on transcript withholding is limited to institutions’ extension of credit, the issue of transcript withholding for any debts owed to institutions has come under scrutiny in recent years from states and the Department of Education. 


Publication Date: 10/5/2022

Darren C | 10/6/2022 9:15:04 AM

Its quite clear that the Federal Government and ED will continue to push accountability and responsibility to schools all under a broken system that they created and are not in any way held accountable for. Schools are evaluated by data such as Default Rates and Repayment rates, yet have little to no control over what students can and can't do with financial aid prior to leaving school. By that time the problem is too late to fix or it's out of their hands. It would be a much better idea to have higher standards and checks in place that Universities can use, before handing out tax payer funds in the form of a loan to anyone that says they want to pursue education. There are standards in place for every other kind of loan.

This is the kind of comment from an article that bothers people working in this industry trying to do what's right. "CFPB said institutions “engaged in abusive acts and practices,” such as withholding transcripts for borrowers that were delinquent or in default on institutional student loans." Really? Please give some more effective options and solutions for these challenging situations instead of just pointing fingers.

John C | 10/5/2022 9:48:13 AM

The general trend of making it more and more difficult for schools to collect, such as releasing transcripts and not credit bureau reporting, will leave schools with the decision to either raise tuition to offset writing off balances or dropping students from classes for delayed payment. Both of these options will impact far more students than just those that are delinquent.

David S | 10/5/2022 9:7:58 AM

OK, so colleges withhold transcripts for non-payment of student loans. The federal government, in conjunction with servicers and various entities like state licensing agencies for some professions, absolutely completely ruin peoples' lives for non-payment of student loans. So help me understand why the withheld transcripts are the target here.

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