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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

SEP 14, 2023
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WASHINGTON, D.C. – 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:

 * 89 percent of schools in the report’s sample charge an enrollment or set-up
   fee, averaging $37 and as high as $250;
 * 60 percent charge a returned payment fee, averaging $29 per instance with two
   schools charging $65. These fees are in addition to any nonsufficient funds
   fees that may be charged by the student’s financial institution; and
 * 44 percent charge late fees at an average cost of $46 per late payment. One
   school in the sample charged students $300 for the first late payment.

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:

 * Coercive debt collection practices: Some schools examined in this report
   withhold transcripts from students who are behind on their payments, a
   practice that the CFPB has found to be illegal and abusive in some cases.
   This practice might have the effect of preventing students from getting hired
   and gaining the income they need to afford their debt payments. At some
   schools, students who miss payments on loans can be kicked off of their meal
   plans and potentially be removed from classes.
 * Snowballing fees and interest: In some cases, tuition payment plans may
   impose hundreds of dollars in fees if a single payment is missed, due to the
   stacking of late and returned payment fees. The CFPB also found terms in some
   contracts that allow institutions to convert no-interest payment plans into
   interest-bearing loans when payments are missed.
 * Borrowers forced to sign away their legal rights: Some payment plan contracts
   and agreements include terms and conditions that appear to waive borrowers’
   legal protections, limit how consumers can enforce their rights, or
   misrepresent the rights or protections available to consumers under existing
   law. The CFPB found terms and conditions in contracts that included forced
   arbitration provisions, waivers of the borrowers’ right to seek discharge and
   retain their own legal counsel, and misrepresentations of borrowers’ legal
   right to discharge private student loans in bankruptcy.
 * Confusing and inconsistent disclosures: Unlike private education loans, which
   are subject to a common set of disclosure requirements, tuition payment plan
   terms and conditions vary based on the structure of the loan, particularly
   with regard to the duration of the contract, the number of payments required,
   and the school’s determination of what disclosures are legally required. This
   often leads to inconsistency in how these loans are marketed on school
   websites, making it difficult to find a complete set of terms for the product
   being offered.

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).



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The Consumer Financial Protection Bureau is a 21st century agency that
implements and enforces Federal consumer financial law and ensures that markets
for consumer financial products are fair, transparent, and competitive. For more
information, visit consumerfinance.gov.

Topics:
 * • Student loans


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