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A proposed ban to limit when colleges and universities can withhold a student’s transcript could help thousands of students, if not more than a million, access their credits and resume their college education, experts and advocates say.
“It’s a modest but important step,” said Martin Kurzweil, vice president of educational transformation at Ithaka S+R, a research and consulting shop that has reported over the last several years on how transcript withholding affects millions of students.
Kurzweil and other Ithaka S+R researchers estimated that about 6.6 million students had credits at an institution that they couldn’t access because of an unpaid balance. Kurzweil estimated that about 10 to 15 percent of those students could owe money because of a federal requirement for colleges and universities to return a student’s federal financial aid if they withdraw before the end of an academic term.
Under the department’s proposed ban, which was included in a package of regulations released last month and that applies to all institutions that receive federal financial aid, colleges and universities would no longer be allowed to withhold a student’s transcript if they owe money because of that federal requirement. Kurzweil said the ban is the first federal regulatory proposal focused on transcript withholding as a debt-collection practice, though the requirement would not affect the underlying debt that students owe and the broader issue of students having credits they can’t access.
“There are financial challenges of having that balance due,” he said. “The proposal doesn’t do anything about that … It’s addressing one aspect of this, but it may be doing it in a somewhat limited way.”
The Education Department’s proposed ban comes as more states are starting to ban the practice of withholding a student’s transcript as a way of forcing that student to pay a balance on their account. Consumer protection advocates have said transcript withholding is cruel, an ineffective debt-collection practice and hinders students from completing their education.
Students who can’t access their transcripts can’t continue their education elsewhere without completely starting over. Kurzweil and Ithaka S+R have partnered with a coalition of Ohio colleges and universities to help students who owe money to an institution resume their education. That pilot program just wrapped up its first year and will continue in the fall.
Nearly a dozen states have passed some form of a ban on transcript withholding since 2019, while several others have considered legislation on the issue. Federal regulators also have taken notice. The Consumer Financial Protection Bureau said in October that withholding transcripts was abusive, and higher education groups have called on institutions to review their practices. Education Secretary Miguel Cardona has also said the practice should end.
“This shows that it’s not just rhetoric and that the department is serious about this,” Kurzweil said of the proposal.
Under proposed regulations released last month that deal with how to certify an institution’s eligibility for federal financial aid, the department proposed prohibiting transcript withholding when a student’s balance results from an administrative error, an institution’s fraud or misconduct, or the Return to Title IV process, which relates to returning a student’s federal financial aid.
The ban is one of several new conditions the department is proposing to add to institutions’ program participation agreements, which are required to access federal financial aid. The public comment period on the regulations, which include the new gainful employment, closes June 20.
Title IV of the Higher Education Act authorizes federal financial aid programs. Under federal regulations, colleges and universities must return any unearned federal financial aid when a student withdraws. Typically, students are then charged by the institution for the funds that were returned. That means a student who received a Pell Grant and didn’t take out any other loans could end up owing money after withdrawing.
“It’s real debt even though you didn’t come in and sign a promissory note for this kind of debt,” said Winston Berkman-Breen, deputy director of advocacy and policy counsel at the Student Borrower Protection Center, which has researched this issue and lobbied for state bans.
How much is returned depends on when a student withdraws and a federal calculation. If 60 percent or more of the term has passed, a student is considered to have earned all their federal financial aid. Many students drop out earlier.
‘Counterproductive and Inappropriate’
Berkman-Breen said that the issue of institutional debts stemming from returned federal aid started receiving more attention during the pandemic because more students were withdrawing before the end of the academic term.
In California, over the course of two academic years during the pandemic, nearly 750,000 students racked up about $390 million in debts to the state’s public institutions, according to a March 2022 report from the Student Loan Law Initiative, the Student Borrower Protection Center and other researchers. The largest source of the debt was when students were charged for returned Pell Grants. (California bans transcript withholding.)
“There’s real money underlying this,” he said. “To see the Department of Education come out and say that, like, when this happens, you can’t do this sort of insult to injury and withhold transcripts, is a really good step in the right direction.”
The issue of transcript withholding was briefly addressed last spring during negotiated rule making. Some negotiators pushed for a blanket ban on withholding transcripts as a debt-collection practice, citing concerns that it disproportionately impacts low-income students and students of color, among others.
Department officials cited the negotiators’ comments and other reports about the issue, including Ithaka S+R’s research, in the proposed regulation.
“Holding transcripts or taking other negative actions against the student make it more difficult for the student to re-enroll or transfer credit to another institution,” department officials wrote in the proposed regulation. “Thus, in these circumstances we believe that withholding transcripts for additional charges is counterproductive and inappropriate.”
Jill Desjean, a senior policy analyst at National Association of Student Financial Aid Administrators, said the department’s proposal could’ve been broader but makes sense.
“You’re only doing it if someone withdraws,” she said. “You don’t just leave school because you don’t feel like doing it anymore.”
Berkman-Breen said that if the proposed change is enacted, colleges and universities could just do away with transcript withholding entirely to collect any type of debt. He’s seen institutions voluntarily move in that direction in states where the issue is discussed in the Legislature but no formal ban has been adopted yet.
“We’ll probably see some schools move away from it both because it’s an increasingly unpopular policy and because it’s an easy thing to give up because it wasn’t really that useful for them anyway,” he said.
Berkman-Breen and others say the department could’ve gone further in its proposal to restrict transcript withholding more broadly and to address the institutional debt created by Return to Title IV. The department could tackle the issue in the upcoming round of rule making when Return to Title IV is on the agenda.
“There’s still work to be done there, but this is a great step to have taken and it’s not the last step,” he said.
