Colleges across the country are putting students in danger of paying high fees and facing aggressive debt collection practices \u2014 and they aren\u2019t being forthcoming about those risks, according to the nation\u2019s top consumer watchdog.\u00a0<\/p>\n
Those are some of the findings of a report on tuition-payment plans released Thursday by the Consumer Financial Protection Bureau. Through these plans, colleges offer students and families the ability to pay tuition in installments during a semester or quarter instead of through a lump sum. Almost all colleges offer tuition-payment plans, according to the CFPB, and the agency estimates that up to 3.9 million students use them each term to pay for school.\u00a0<\/p>\n
\n
Though the plans may seem like a \u201cgood option,\u201d the report highlights some of the harsh consequences students could face under these plans, Rohit Chopra, the director of the CFPB said in a statement accompanying the report.\u00a0<\/p>\n
\u201cColleges and universities should take a hard look at their repayment plans and avoid subjecting borrowers to high fees or coercive debt collection practices,\u201d Chopra said in the statement.\u00a0<\/p>\n
The report comes amid concerns from the CFPB and others about the steps colleges will take to collect funds owed to them by students and former students. Over the past few years, practices by colleges, including withholding transcripts over an unpaid bill or sending a student to collections have drawn the ire of officials and consumer advocates. These concerns come on top of separate worries about the challenges borrowers can face repaying the $1.7 trillion in traditional federal and private student loans that they used to finance college.<\/p>\n
\u201cWhat you see here is that the CFPB recognizes that most colleges are just financial companies,\u201d Mike Pierce, the executive director of the Student Borrower Protection Center, an advocacy group, said of Thursday\u2019s report on tuition-payment plans. When big banks are accused of charging high fees or pushing consumers towards a risky product, \u201cof course it\u2019s going to draw scrutiny from regulators, the real story here is that this has managed to escape the focus of financial regulators for decades.\u201d\u00a0\u00a0<\/p>\n
When schools offer tuition-payment plans, they become lenders, CFPB says<\/h2>\n
In many cases, schools pitch tuition-payment plans as an alternative to debt because the payments are often interest-free. But in its report, the CFPB makes the case that these plans are a \u201ctype of loan.\u201d When colleges offer tuition-payment plans, \u201cthey allow students to obtain their education now and pay for it over time; in other words, they become lenders,\u201d officials wrote in the report.\u00a0<\/p>\n
\u201cWe think it can lead to consumer confusion, over extension on debt and other problems when students see this as an alternative to a student loan,\u201d said Julia Barnard, students advisor, Director\u2019s Front Office, at the CFPB.\u00a0<\/p>\n
Whether the product is a loan has important implications for what schools are required to disclose to students and families. Private educational loans come with disclosures that are required by federal law. According to the CFPB\u2019s report, schools\u2019 disclosures around similar tuition-payment plans can vary significantly.\u00a0<\/p>\n
Some say explicitly that the plan is not a loan while others describe the enrollment fee as a finance charge, the CFPB found. In other cases, the bureau found that schools stipulate that the tuition-payment plans are educational loans and therefore can\u2019t be discharged in bankruptcy.\u00a0<\/p>\n
Without consistent information, students and families may not fully understand the cost of the product they\u2019re signing up for or be able to compare the tuition-payment plan with other options for paying for school, the CFPB noted.\u00a0<\/p>\n
\u201cThere are definitely consequences that wouldn\u2019t be possible if a student used a different type of debt financing,\u201d said Charlotte Hancock, program manager at the CFPB\u2019s Office for Students and Young Consumers.<\/p>\n
\u201cIn the worst case, late payments could lead to disenrollment or eviction during the school term,\u201d she added.\u00a0<\/p>\n
Adding to the confusion, payment-plan terms are often spread across multiple documents or websites, which can make it challenging for students and families to gather all the information they need to understand the plans, the CFPB found.\u00a0<\/p>\n
The inconsistent disclosures may also obscure the role that third-party companies play in administering the tuition-payment plans, according to the CFPB. The bureau found more than 60% of schools in their sample offering these plans outsource at least some functions to a third-party. In some cases, the CFPB found that these entities received revenue tied to students\u2019 enrollment and late payment fees.\u00a0<\/p>\n
Tuition-payment plans often involve fees<\/h2>\n
Fees are a relatively common feature of the plans, the CFPB found. Roughly 89% of the plans the bureau reviewed charged an enrollment fee and about 80% said they charged a late fee or a returned payment fee.\u00a0<\/p>\n
The median fee in these plans was $30, but the CFPB found schools charging enrollment fees as high as $200 and fees as high as $300 for a single late payment. The bureau estimated that under some plans in certain circumstances \u2014 for example if a student financed a relatively low amount through a payment plan, but paid a high enrollment fee \u2014 the annual percentage rate could be up to 237%.\u00a0<\/p>\n
Students and families should keep an eye out for those high fees in assessing their options for paying tuition, Hancock said. But in many cases, they may have no choice but to pay them because they\u2019re enrolled in a tuition plan without their consent, the CFPB found.\u00a0<\/p>\n
In a complaint to the Department of Education featured in the report, a student at a large public university said their school enrolled them in a payment plan, even after they were specifically told by school representatives that they wouldn\u2019t be. Due to system issues, the student experienced a delay in receiving their federal financial aid and so it wasn\u2019t available when their bill was due.\u00a0<\/p>\n
The school signed them up for the payment plan in the meantime and charged them the enrollment fee, the student wrote in the complaint.\u00a0<\/p>\n
In some cases, as part of signing up for tuition-payment plans, schools forced students to waive their right to participate in class action or other lawsuits related to the plans, instead requiring them to take disputes to arbitration. Similar clauses in other consumer contracts have drawn scrutiny from the CFPB and elsewhere because they can often make it difficult for consumers to get a fair airing of their disputes with financial service providers.\u00a0<\/p>\n
Regulators watching closely<\/h2>\n
The CFPB report also highlighted aggressive tactics schools use to pursue students who owe them money, including through tuition-payment plans.\u00a0<\/p>\n
At at least one college, students who make a late payment to the school could be kicked out of their dorm, have their meal plan suspended and face late fees and interest charged on unpaid balances, the CFPB found. In some cases, schools will send unpaid balances to debt collectors and charge fees to cover collection costs that can be as high as 50% of a student\u2019s unpaid balance, according to the CFPB.<\/p>\n
At roughly one third of colleges with a payment plan that the CFPB reviewed, schools will withhold transcripts to collect past due tuition payments.\u00a0<\/p>\n
Thursday\u2019s report comes out of a dataset and body of work at the CFPB focused on partnerships between colleges and financial institutions. Lawmakers and regulators have been looking closely at these relationships for years in part because a product offered by or through a college, including a tuition-payment plan, can feel to some students as if it has the endorsement of an institution they trust.\u00a0<\/p>\n
Students often assume that financial products offered through their school are in their best interest and schools review their own practices to ensure that\u2019s the case, Barnard said.\u00a0<\/p>\n
\u201cMany schools are committed to the financial health and success of their own students, and they should look at the products they are themselves offering to make sure that they\u2019re setting their students up for success,\u201d she said. \u201cToo often, students don\u2019t understand what they\u2019re signing up for and the products are laced with fees that will penalize them and can jeopardize their financial circumstances.\u201d<\/p>\n
If schools don\u2019t make changes themselves, they could be at risk of facing consequences from regulators. The CFPB has previously described withholding transcripts in connection with extending credit as \u201can abusive practice,\u201d under the Consumer Financial Protect Act and told lenders to stop.\u00a0<\/p>\n
The Department of Education also proposed limiting schools\u2019 ability to use transcript withholding as a debt-collection practice in certain circumstances. The agency will continue to share students\u2019 complaints with the CFPB and state law enforcement officials, a Department spokesperson wrote in an email.\u00a0<\/p>\n
The Department of Education \u201cshares the CFPB\u2019s concerns about financial products that have unfavorable terms and unexpected fees that can leave vulnerable students deeper in debt and threaten their path toward graduation,\u201d the spokesperson wrote.\u00a0<\/p>\n
In addition, some states have banned transcript withholding. Despite the prohibition, the data the CFPB\u2019s report is based on indicates that some schools in these states may still be participating in the practice, Pierce said.\u00a0<\/p>\n
In those cases, \u201cthe college is making threats they can\u2019t back up,\u201d he said. \u201cIf I were a school business officer I would be really worried about that practice,\u201d because it could draw scrutiny from state regulators and lawmakers.\u00a0\u00a0<\/p>\n
Still, he added, \u201cit seems like some of these state laws aren\u2019t worth the paper they\u2019re printed on if schools can go about business as usual.\u201d\u00a0<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Colleges across the country are putting students in danger of paying high fees and facing aggressive debt collection practices \u2014 and they aren\u2019t being forthcoming about those risks, according to the nation\u2019s top consumer watchdog.\u00a0 Those are some of the findings of a report on tuition-payment plans released Thursday by the Consumer Financial Protection Bureau. […]<\/p>\n","protected":false},"author":1,"featured_media":61336,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-61335","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\n
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