Warning: College Tuition Payment Plans Come with Risks

Add-on fees, coercive debt collection among top concerns

A new report reveals that although college tuition payment plans can help students and their families manage cashflow and college costs, they also come with some serious risks.

The Consumer Financial Protection Bureau (CFPB) studied payment plans at 450 institutions of higher education and found that the plans are widely used and often helpful, but also carry some burdens for students making payments. These include add-on fees for using the services and coercive debt collection practices.

“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.”

While most tuition payment plans are essentially interest-free loans, the report found that with added fees, some plans carry an effective annual interest rate of 237%.

Additionally, the report notes that some colleges withhold transcripts from students who are behind on their payments, which in some instances the CFPB says is illegal.

The CFPB notes:

"This practice might have the effect of preventing students from getting hired and gaining the income they need to afford their debt payments."

The CFPB says the report should encourage colleges and universities to examine their tuition payment plans and eliminate any undue burden on students.

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