Withholding college transcripts for loan payment is ‘abusive,’ federal agency says

In March, 2021, Meredith Kolodner and Sarah Butrymowicz first reported on the way that direct-to-student loans were used by for-profit colleges to bolster their business models while ensnaring students in practices that blocked them from getting jobs or transferring to other colleges. We continue to investigate these hidden debt practices; you can find the stories here.

Colleges that lend directly to their students cannot later refuse to release students’ transcripts as a way of forcing them to make payments, the Consumer Financial Protection Bureau announced on Thursday, calling the practice “abusive” and a violation of federal law.

The loans made directly by a college, rather than a traditional lender, are used to pay for classes, but they don’t come with the same protections as federal student loans do. Hundreds of thousands of students at for-profit colleges have taken these loans, known as institutional loans, and some public and nonprofit institutions also offer them.

The consumer bureau’s ruling was aimed at stopping the colleges from withholding transcripts from students who haven’t repaid the debt. Some colleges refuse to release a student’s transcript until the full amount has been repaid, even when even when students had entered into a payment plan and is making regular payments.

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