A recent CFPB blog post endorsed part of U.S. Department of Education Secretary Cardona’s keynote address for the 2021 FSA Training Conference that issued a call to end the longstanding institutional practice of transcript withholding in order to promote equity and diversity.  While the CFPB rings alarm bells in its blog post, it offers no data concerning the prevalence of this practice to explain why it finds cause for alarm.

Observing that schools withhold transcripts for a variety of debts such as library fines, parking tickets, and student loans for tuition, the CFPB asserted that withholding transcripts as a debt collection practice “may” preclude students from making professional and educational gains. The CFPB went on to assert that the practice “may” have the “perverse” effect of preventing students from acquiring jobs that would allow them to pay down their debts.  As a consequence, students “may” be left mired in a “cycle” of collections without a path to successful repayment.

According to the blog post, because schools are often not subject to the same rigorous servicing oversight as other lenders and servicers, the CFPB is concerned about higher education lending and debt collection practices that only schools can use.  In January 2022, the CFPB announced that it will begin examining post-secondary schools, such as for-profit colleges, that extend private loans directly to students and/or parents to fund undergraduate, graduate, and other forms of postsecondary education.  The announcement was accompanied by the CFPB’s issuance of an update to its Education Loan Examination Procedures manual.  Among other items, the update directs CFPB examiners to determine, when examining a school, whether and under what circumstances the school withholds transcripts from or otherwise refuses to certify program completion for students who owe a debt.

We note that nowhere in the blog post does the CFPB explain how withholding transcripts, a practice that is somewhat analogous to a purchase money security interest in the education being financed and that is often clearly and conspicuously disclosed upfront in school enrollment agreements and on school websites, might be a violation of law.