According to experts and advocates, a proposed ban that limits the withholding of a student’s transcript by colleges and universities could be a crucial measure benefiting thousands, if not millions, of students who have been unable to access their credits and continue their college education.
“This is a small but important step,” said Martin Kurzweil, the vice president of educational transformation at Ithaka S+R, a research and consulting firm that has been studying how transcript withholding affects students. Over the past few years, Ithaka S+R researchers have estimated that approximately 6.6 million students have credits that they cannot access due to an unpaid balance. Kurzweil believes that about 10 to 15 percent of these students owe money because of a federal requirement that mandates colleges and universities to return a student’s federal financial aid if they withdraw from the institution before the end of an academic term.
The proposed ban, which is part of a package of regulations released by the Department of Education last month and applies to all institutions that receive federal financial aid, would prevent colleges and universities from withholding a student’s transcript solely on the basis of owing money due to the federal aid requirement. However, it does not address the larger issue of the students’ underlying debt or the inability to access their credits.
“The proposal doesn’t address the financial challenges associated with the balance due,” Kurzweil noted. “It’s addressing one aspect of the problem, but in a somewhat limited way.”
The Department of Education’s proposed ban comes at a time when more states are taking action to prohibit the practice of withholding transcripts as a means to compel students to pay outstanding balances. Consumer protection advocates argue that transcript withholding is both cruel and ineffective as a debt-collection practice, and it hampers students’ ability to complete their education.
To assist students who owe money to an institution in resuming their education, Kurzweil and Ithaka S+R have partnered with a coalition of Ohio colleges and universities. This pilot program, which just completed its first year, will continue in the fall.
Since 2019, nearly a dozen states have enacted some form of ban on transcript withholding, and several others are considering legislation on the issue. Federal regulators, including the Consumer Financial Protection Bureau, have also criticized the practice. Education Secretary Miguel Cardona has voiced his opinion that transcript withholding should be discontinued.
As part of proposed regulations released last month on how to certify an institution’s eligibility for federal financial aid, the Department of Education suggested prohibiting transcript withholding when a student’s balance is the result of an administrative error, an institution’s fraud or misconduct, or the Return to Title IV process, which pertains to the return of federal financial aid. The ban is one of several new conditions being proposed by the department for institutions’ program participation agreements, which are required for accessing federal financial aid.
Title IV of the Higher Education Act authorizes federal financial aid programs. Under federal regulations, colleges and universities are required to return any unearned federal financial aid when a student withdraws. Consequently, students are then charged by the institution for the funds that were returned. This means that a student who received a Pell Grant but did not take out any other loans may end up owing money after withdrawing.
“Although this kind of debt doesn’t involve signing a promissory note, it is still real debt,” explained Winston Berkman-Breen, the deputy director of advocacy and policy counsel at the Student Borrower Protection Center, an organization that has researched and lobbied for state bans on transcript withholding.
Berkman-Breen noted that the issue of institutional debts arising from returned federal aid gained attention during the pandemic, as more students were withdrawing before completing the academic term. In California alone, during the pandemic, nearly 750,000 students accumulated approximately $390 million in debts to the state’s public institutions over a two-year period. The primary source of this debt was charges for returned Pell Grants. (California has already banned transcript withholding.)
“There’s a significant amount of money involved,” Berkman-Breen stated. “So, when the Department of Education steps up and declares that institutions can no longer compound this problem by withholding transcripts, it’s a very positive step in the right direction.”
The issue of transcript withholding was briefly discussed during negotiated rulemaking last spring. Some participants in the negotiations argued for a complete ban on the practice, citing concerns about its disproportionate impact on low-income students and students of color.
The proposed regulation from the Department of Education cited the comments from negotiators and other reports, including research conducted by Ithaka S+R, in support of addressing this issue.
“Withholding transcripts or taking any other negative actions against students makes it more difficult for them to re-enroll or transfer credits to another institution,” the department explained in the proposed regulation. “Therefore, we believe that withholding transcripts for additional charges is counterproductive and inappropriate in these circumstances.”
Jill Desjean, a senior policy analyst at the National Association of Student Financial Aid Administrators, expressed her view that the department’s proposal could have been more comprehensive but still makes sense.
“The ban only applies when a student withdraws,” Desjean said. “You don’t just leave school because you no longer feel like attending.”
Berkman-Breen suggested that if the proposed change is implemented, colleges and universities might choose to eliminate transcript withholding altogether as a means of collecting any type of debt. He has observed institutions voluntarily moving in this direction in states where the issue has been discussed but no formal bans have yet been enacted.
“We will probably see some schools abandoning this practice because it is increasingly unpopular and not particularly useful for them,” Berkman-Breen predicted.
Although he sees the department’s proposal as a positive step, Berkman-Breen and others believe that more can be done to address transcript withholding and the institutional debt resulting from the Return to Title IV process. They hope that the department will address this issue in the upcoming round of rulemaking when Return to Title IV is on the agenda.
“There is still work to be done, but this is a significant step forward,” Berkman-Breen emphasized. “And it won’t be the last step.”