September 14, 2023

CFPB: Report Finds College Tuition Payment Plans Can Put Student Borrowers At Risk

Some payment plans can be confusing, carry expensive fees, and lead students further into debt

The Consumer Financial Protection Bureau (CFPB) issued a new report finding that students face risk when entering into agreements with colleges to spread the upfront cost of tuition into several, interest-free loan payments. The report, which looks at tuition payment plans offered by nearly 450 institutions, finds that many plans have inconsistent disclosures and confusing repayment terms, putting students at risk of missing payments, incurring late fees, and accumulating debt. The report also finds that many institutions withhold transcripts from students as a debt collection tool, a potentially illegal practice that can have severe consequences for students trying to begin their careers or finish their education.

“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.”

The report, Tuition Payment Plans in Higher Education, finds that some schools are partnering with third-party service providers to facilitate their tuition payment plans. The schools act as lenders, and commonly include enrollment fees, late fees, and other fees as part of the tuition payment plan. Nearly 4 million students each term are in some form of tuition payment plan arrangement with their school. The CFPB’s report finds that while these payment plans can be a good option for some students, the plans can carry risk. And 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 looked at public information on tuition payment plans from nearly 450 institutions’ websites. According to the data reviewed by the CFPB, 87 percent of the institutions in the sample offer tuition payment plans directly to students, with 60 percent of those institutions offering payment plans outsourcing some repayment functions to third-party financial service providers.

Even though these tuition payment plans are typically interest-free, students often encounter tacked-on fees. The report found:

These fees, when added on to the cost of the tuition balance, can create a high cost of credit. In particular, when the amount borrowed is relatively low and the enrollment fee is relatively high, students can face annual percentage rates as high as 237 percent.

The report identified other potential risks from tuition payment plans, including:

The CFPB will continue to gather and analyze information on tuition payment plans and the practices of school-based lenders, including risks to consumers that may give rise to violations of federal consumer financial law.

Read today’s report, Tuition Payment Plans in Higher Education.

Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

This post was originally published here.