Students face risks when they enter into agreements with colleges to spread the upfront cost of their tuition into a series of interest-free loan payments, according to a Sept. 14 Consumer Financial Protection Bureau report.
According to the CFPB, many of the plans have inconsistent disclosures and complicated repayment terms with varying duration, number of payments required and determination of which disclosures are legally required, “putting students at risk of missing payments, incurring late fees and accumulating debt.”
Some of the contracts and agreements included terms and conditions that waived borrowers’ legal protections, limited how they could enforce their rights, and misrepresented the rights or protections consumers have under existing law, according to the CFPB. Many institutions allegedly withheld transcripts from students as a way to collect debt, “a potentially illegal practice that can have severe consequences for students trying to begin their careers or finish their education.
“Because of the unique circumstances in which schools offer tuition payment plans — sometimes making no other option available for meeting tuition payment obligations — students might represent a captive market in some situations,” the report stated.
The report analyzed tuition payment plans at nearly 450 institutions. According to the report, nearly 4 million students are in a school-arranged tuition payment plan as some schools are using third-party service providers to facilitate the option. The school acts as a lender, and such plans frequently include enrollment fees and late fees.
According to the CFPB, 89 percent of schools in the sample charge an average enrollment or setup fee of $37, reaching as high as $250. Sixty percent charge a returned payment fee averaging $29 per instance with two schools charging $65. Forty-four percent charge late fees, an average cost of $46 per late payment.
“Tuition payment plans offered by schools may look like a good option, but this report shows student borrowers can end up paying high fees, be forced to sign away their legal rights, or even have their transcript withheld by their school,” said CFPB Director Rohit Chopra. “Colleges and universities should take a hard look at their repayment plans and avoid subjecting borrowers to high fees or coercive debt collection practices.”