A recent report from the bureau examines risks and concerns associated with tuition payment plans in higher education.
09/15/2023 1:25 P.M.
2.5 minute read
In a recent report, the Consumer Financial Protection Bureau highlighted the risks faced by students using the tuition payment plans offered by colleges and universities across the U.S., according to a recent press release.
The CFPB asserts that these payment plans, aimed at easing the upfront burden of tuition costs, often conceal hidden fees, confusing repayment terms, and potentially illegal debt collection practices by these schools.
The report examines the practices of nearly 450 educational institutions using public information on their websites and reveals inconsistencies and non-transparent disclosures in payment plans, which are outside of federal student loans from the U.S. Department of Education and lending from private financial institutions. According to the CFPB’s findings, 87% of these institutions offer tuition payment plans, with 60% outsourcing repayment functions to third-party financial service providers. While interest-free, these plans commonly impose enrollment fees, late fees, and returned payment fees, pushing the effective annual percentage rates to as high as 237%, according to the bureau.
“Nearly 4 million students each term are in some form of tuition payment plan arrangement with their school,” according to the CFPB.
Even though these tuition payment plans are typically interest-free, students often encounter added fees. For example, the report found:
- 89% of schools in the report’s sample charge an enrollment or set-up fee, averaging $37 and as high as $250;
- 60% 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% 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.
“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,” according to the bureau.
Additionally, the report identifies the snowball effect of fees and interest resulting from missed payments, potentially converting no-interest payment plans into interest-bearing loans. The CFPB also found contracts that include forced arbitration provisions, waive 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.”
The CFPB emphasizes the importance of reevaluating repayment plans and ensuring that students are not subjected to excessive fees or potentially illegal debt collection practices by the institutions.
“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,” according to the news release.