By Rebecca Maurer | March 29, 2019
We are used to thinking of the higher education financing crisis through the lens of a singular issue: student loans. But recent court settlements at for-profit colleges have shed light on a less traditional type of student debt: past-due financial accounts, otherwise known as accounts receivable.
While defaulted student loans can lead to long-term problems like bad credit and wage garnishment, accounts receivable have a much more immediate effect: a school can decide to withhold a student’s transcript, preventing that student from transferring credits or obtaining a higher-paying job. Indeed, a withheld transcript puts a student in a Catch-22. She may need the transcript to complete her degree to get a higher paying job. But without the higher paying job, she cannot get the extra income to pay off her debt and have her transcript released.
Unlike much of student loan law, transcript withholding is well within the purview of state regulators since it is tied to state-level property rights. This means that as states increasingly step into the role of protecting student borrowers, they should consider regulating transcript withholding as part of their work.
It’s worth backing up to get the larger picture. How did we get here and how large of a problem are accounts receivable and withheld transcripts?
At most institutions of higher education, students can carry an open financial account with the school. In other words, the school can charge fees that are not covered by federal student loans, Pell Grants, scholarships or other sources of income. The debts are open balances owed due directly to the school.
At many schools, these accounts are low balances that consist of things like library fines, parking tickets, and lab fees. But at other schools, students rack up large amounts of tuition debt owed directly to the school.
Recent case studies show that there may be large numbers of these receivables on the books of many colleges, especially for-profit colleges.
As part of their bankruptcy representation, the Harvard Project on Predatory Student Lending helped to resolve more than $600 million in receivable accounts owed directly to ITT Tech by 750,000 students—amounting to an average of $800 per student.
A group of 49 attorneys general recently settled claims against Career Education Corporation (CEC)—the parent company of for-profit schools like Sanford Brown Institutes, Le Cordon Bleu, and Colorado Technical University. The settlement demonstrated that CEC was carrying $493 million in institutional receivables—an average of $2,750 per student.
A review of SEC filings for other for-profit schools show examples of millions in accounts receivables tied to students. For instance, Bridgepoint Education, which runs for-profit schools Ashford University and University of the Rockies, reported almost $50 million in accounts receivable in their most recent 10-Q to the SEC, a 10% increase from the year before. It is hard to determine exactly how many open accounts receivable the school has, but with an average student enrollment around 40,000, there is more than $1000 in open accounts receivable for every enrolled student.
While the problem may be particularly acute at for-profit schools, it certainly is not limited to them. My research into collections practices at Ohio schools revealed that the Ohio Attorney General currently has almost 400,000 open collection accounts tied to the state’s public universities—enough for 1-in-every-30 people in Ohio.
How do we know about the link between accounts receivable and withheld transcripts? I made a public records request to every public university in Ohio, and each one that replied had a policy saying that transcripts would be withheld for any past-due balanced owed directly to the school. In other words, each of those 400,000 accounts likely represents a withheld transcript. That is an immense amount of economic potential locked up by past-due school fees.
The CFPB’s 2015 case against ITT Technical Institute demonstrates an even darker side of this connection between past-due accounts and transcript withholding. The Bureau alleged that, “ITT leveraged the threat of withholding transcripts” if students failed to cover the balance of their tuition. The Court agreed that “the threat of withholding vital educational assets like transcripts and class credit is not only likely but appears calculated to produce considerable leverage over ITT students, and that under certain circumstances the deployment of such leverage could fairly be termed ‘coercive.’”
Despite the apparent wide-spread use of transcript withholding, there is almost no legal literature on the topic of accounts receivable and transcript withholding. In fact, the few courts that have taken up the question have differed wildly on whether a student even has a fundamental property right to their transcript.
In the absence of a legal consensus, the opportunity has arisen for misconduct by schools, as we see in the case of ITT Tech. But the relatively open regulatory space—as well as intersection of transcript withholding with state property law—means there is an opportunity for states to address the issue.
We are already seeing the rise of states that are stepping up to protect student borrowers in the absence of leadership from Washington. Policy issues around transcript withholding should be on the table as well. For instance, a state could prohibit transcript withholding overall, or alternately, a state could explicitly give students a property interest in their official transcript for the completed course they have paid for in full. This property right would give students the ability to access most of their transcript, even if they end up with a past-due account for their final classes.
Even without regulatory changes, state attorneys general should investigate the practice of transcript withholding to look for misconduct. In Ohio, there are certain schools that seem to have a far higher number of open accounts per enrolled student than others, raising the question of whether the school policies and practices are encouraging students to get trapped into yet another debt cycle.
Transcript withholding tied to accounts receivable is a quiet higher education financing crisis. All the numbers point to the conclusion that there are millions of Americans with economic potential locked up in their transcript. These citizens cannot get the jobs they are qualified for or are discouraged from finishing their degree because they cannot get the credits they have already completed.
Addressing the practice of transcript withholding needs to be part of the conversation of how we protect students. And in California, Assembly Member Luz Rivas has already taken the step to address this in AB 1313, which was sponsored by California Attorney General Xavier Becerra and seeks to prohibit schools from refusing to provide transcripts to current or former students due to an unpaid debt. Other states can look to legislation like this as a model for how to better protect students from abuses that disrupt lives, and derail the pursuit of a higher education.
Rebecca Maurer is an attorney practicing in Cleveland, Ohio and a SBPC Student Loan Justice Fellow. She consults and writes on a variety of student loan, consumer debt, and housing issues. You can read more about her work here.
 Consumer Fin. Protection Bureau v. ITT Educ. Servs., 219 F. Supp. 3d 878, 917 (S.D. Ind. 2015).
 Id. at 915.
 Compare Juras v. Aman Collection Serv., Inc., 829 F.2d 739, 742 (9th Cir. 1987) (finding it “unlikely” that the transcript belongs to the student), Ball St. U. v. Irons, 27 N.E.3d 717, 723 (Ind. 2015) (finding that the transcript was, in fact, the property of the student), and In re Kuehn, 563 F.3d 289, 294 (7th Cir. 2009) (finding that “the students and colleges [were] to be joint owners” of the transcripts).