California Schools Transformed into “Creditor Colleges” During the Pandemic; Low-Income Students Denied Access to Higher Education, May Face Debt Collection and Forfeiture of Government Benefits
March 17, 2022 | WASHINGTON, DC — Today, a team of researchers at University of California, Berkeley School of Law, University of California, Irvine School of Law, and University of California, Merced released the results of a groundbreaking new study projecting that nearly 750,000 California students became indebted directly to California public colleges during the COVID-19 pandemic. The new research finds that this little-known type of student debt, called “institutional debt,” exploded in California since the onset of COVID-19, as students withdrew from California public colleges for economic, family, or health reasons.
According to this new report, when students owe debts to “Creditor Colleges,” the consequences can be catastrophic. For example, schools typically bar these student debtors from enrolling in future courses if a debt goes unpaid. The current websites of at least seven University of California (UC) and 19 California State University (CSU) institutions also stated that students with outstanding debts could be placed with for-profit debt collection agencies.
Today’s report, Creditor Colleges: Canceling Debts that Surged During COVID-19 for Low-Income Students, was issued jointly by the Student Borrower Protection Center (SBPC) and NextGen Policy, and is available here: www.protectborrowers.org/creditorcolleges
Students most commonly incur institutional debts when they withdraw before the end of a term because they can be required to repay federal student aid such as a Pell Grant. As a result, students who owe these debts overwhelmingly have low enough household income to qualify for Pell Grants. The authors call on California lawmakers to provide direct financial support to California public colleges in exchange for the cancellation of this student debt.
“Unlike with most federal student loans, students can have institutional debts imposed on them that they never intended to take on when they withdrew because of a health or family crisis during COVID-19. And unlike with other debts, schools can perversely block students from re-enrolling until these debts are paid.” said report coauthor Charlie Eaton, an economic sociologist and assistant professor at UC Merced.
The authors of today’s report offer a series of detailed recommendations to protect students who owe debt to California colleges. These include immediate action by California lawmakers to:
- Facilitate the buyout and cancellation of any institutional debts incurred by students attending California public colleges during the pandemic
- Ban several of the most harmful debt collection tactics deployed by colleges in the past, including:
- The practice of denying enrollment or re-enrollment to students who owe these debts
- The practice of denying access to diplomas or other credentials earned by students who owe these debts
- End the extraordinary practice employed by some California public colleges of referring students to the California Franchise Tax Board for forced collection—a practice that results in low-income students forfeiting government assistance including the CA Earned Income Tax Credit.
“The State of California has an opportunity to cancel these harmful and often unintended debts for 750,000 students,” said Jonathan Glater, a professor at UC Berkeley Law and an author of this report. “This would make it easier for students to complete their education and realize the goals that led them to enroll initially.”
Today’s report examined administrative data provided by four campuses within the UC system, as well as three California community colleges. The authors used this data, along with survey data compiled by a higher education trade group, to project the scale of these debts statewide.
“It is unjust and counterproductive to block re-enrollment and send low-income students to collections if they are unable to repay their Pell Grant after having to withdraw because of a crisis at home, especially during COVID-19. The state should require schools to let students re-enroll and ban placement in collections moving forward.” said Dalié Jiménez, a professor at UC Irvine Law and an author of this report.”
A growing body of research shows that institutional debts have created barriers to higher education and economic opportunity for students across the country. In 2019, California Assemblymember Luz Rivas (D-San Fernando Valley) authored legislation passed that year prohibiting a specific set of debt collection tactics often used by schools to pursue these debts.
Federal education officials have also recognized the threat that institutional debts pose for students’ pursuit of higher education. In the first weeks of the Biden administration, the U.S. Department of Education issued new guidance allowing colleges to use federal COVID-19 relief funds to cancel institutional debts–an opportunity that led several California colleges, including Compton College, to cancel these debts in 2021.
“Across California, the pandemic has sent students’ financial lives into a tailspin, knocking hundreds of thousands off track and driving them deeply into debt.” said SBPC executive director Mike Pierce. “Today’s research makes clear the stakes for California leaders who hope to sustain a broad and equitable recovery: cancel student debt now or block the path to economic opportunity for a generation of California students.”
In 2022, the federal Consumer Financial Protection Bureau issued new guidance for schools that pursue students for outstanding debts. The federal consumer watchdog highlighted restrictions on enrollment as a practice of particular concern where colleges seek to collect debts owed by students.
“Another fissure in our higher education system’s financing structure is highlighted in today’s research – that of institutional debt,” said NextGen Policy executive director Arnold Sowell Jr. “This additional debt burden has put the promise of higher education at risk for thousands of students – as if surviving and navigating the pandemic wasn’t enough, now this. California has a fiduciary duty to clear the books on this financial hurdle and ensure that all students have the opportunity to pursue a future free from institutional debt.”
About the Student Borrower Protection Center
The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.
About NextGen Policy
NextGen Policy is a California based non-profit organization that fights for progressive policy change to address environmental, social, racial, and economic inequities in California through justice-centered legislative advocacy, grassroots partnerships, and democratic civic engagement.
About the Higher Education Race and the Economy (HERE) Lab
The Higher Education Race and the Economy Lab at the University of California, Merced seeks to explain uneven racial and class distributions of resources and risk in higher education systems and economies—and to help reverse those inequalities.
About the Student Loan Law Initiative
The Student Loan Law Initiative (SLLI) at the University of California, Irvine School of Law is the nation’s first academic research project focused on student debt and the law. SLLI fosters the highest quality research, provides grants, and builds the capacity of student loan experts to shape the future of this marketplace.