CFPB Investigating Tuition Payment Plans and Practices of School-Based Lenders

The Consumer Financial Protection Bureau (CFPB) is looking into, and warning students about, the risks faced by students when entering into agreements with colleges for tuition payment plans.

The regulator has released a report focused on these plans and the practices of school-based lenders. It will also continue gathering and analyzing information on these topics, and invites students who encounter issues with financial products or services related to tuition payment plans to submit complaints, the CFPB said in a Thursday (Sept. 14) press release.

Many of these plans lack consistent disclosures and have confusing repayment terms, putting students at risk of missing payments, incurring late fees and accumulating debt, according to the press release.

Some schools partner with third-party service providers to facilitate these plans, acting as lenders themselves, the release said. Although these plans are typically interest-free, they often include enrollment fees, returned payment fees and late fees.

These additional fees, when added to the tuition balance, can result in a high cost of credit, per the release. In some cases, students may face annual percentage rates as high as 237%, particularly when the borrowed amount is relatively low and the enrollment fee is significantly high.

The report also found that some institutions withhold transcripts as a debt collection tool, according to the press release. This practice is deemed illegal and abusive by the CFPB, as it can hinder students from finding employment and earning the income necessary to meet their debt obligations. In addition, some schools remove students from meal plans and exclude them from classes if they miss payments on loans.

Furthermore, the report highlights the snowballing effect of fees and interest as another risk, the release said. Late or missed payments can lead to the accumulation of hundreds of dollars in fees due to the stacking of late and returned payment fees. The CFPB also discovered terms in some contracts that allow institutions to convert no-interest payment plans into interest-bearing loans when payments are missed.

The report raises concerns about students being forced to sign away their legal rights, per the release. Certain payment plan contracts include terms and conditions that appear to waive borrowers’ legal protections, limit their ability to enforce their rights, or misrepresent the rights and protections available to them under existing law.

Inconsistency and confusion in disclosures were also identified as issues, the release said. Unlike private education loans, which are subject to a common set of disclosure requirements, tuition payment plan terms and conditions vary widely.

PYMNTS Intelligence has found that students are grappling with college affordability. At the same time, they are finding that educational institutions are offering greater convenience via a fully connected and automated campus, according to “The Automated Campus: Enabling the Future of Higher Education,” a PYMNTS and American Express collaboration.