Student Loan Debt Collection

By Andrew Smalley | June 2022


By the end of 2021, total outstanding student loan debt exceeded $1.7 trillion. While payments, interest accrual and collection activities on federal student loans remain paused, continued research highlights the economic impacts of student loan debt on borrowers across the country. While the consequences of student loan debt impact state economies broadly, certain groups bear the costs of loan repayment differently. A recent report from the American Association of Retired Persons found that 22% of outstanding student loan debt is held by borrowers over the age of 50. The Education Trust conducted an analysis that found many borrowers, particularly Black women, struggle to manage repayment. The analysis found that 12 years after starting college, Black women owed 13% more debt than they had borrowed compared to white men, who had paid off 44% of their debt.

Experts have also warned about the potential for significant challenges for borrowers and loan servicers when the federal student loan pause ends on August 31. According to data from the Department of Education, just 500,000 of the more than 43 million total federal student loan borrowers are making payments during the pause in collections.

State lawmakers continue to address student loan debt challenges in their states. Last year, 19 states passed 27 bills related to student loans. In the 2022 legislative session, more State lawmakers continue to address student loan debt challenges in their states. Last year, 19 states passed 27 bills related to student loans. than 75 bills related to student loan debt have been introduced in 29 states. Bills relating to student loan forgiveness programs have been introduced in 18 states, and legislation addressing student loan oversight measures is under consideration in eight states.

State Action

Higher education institutions commonly withhold transcripts as a tool to get students to pay debts or fees owed to the institution. A 2016 survey found 64% of higher education institutions withheld transcripts for balances under $25. Research from Ithaka S+R estimated that roughly 6.6 million students have stranded credits at an institution due to an unpaid balance or outstanding debt. Credits become stranded when a student has completed the academic coursework, but their current or former institution will not provide a transcript or documentation showing those credits.

Additional research also has found students at community colleges, students of color and students from low socioeconomic backgrounds are more likely to be impacted by stranded credits. Stranded credit issues can also impact military veterans if billing or benefits issues arise related to the GI Bill.

When transcripts are withheld, students often are unable to submit academic documentation needed for further postsecondary education or employment that would help them repay their debt. Students who have transcripts withheld also are ineligible to receive additional federal financial aid. Colleges and universities argue that withholding transcripts is a key method to communicate and incentivize students to repay all debts owed to the institution. Institutions also assert that without transcript withholding, they will be forced to refer debts to third-party collections agencies, which reduces the amount of funds colleges are able to recover and may further negatively impact the debtor’s credit history.

In response to concerns about transcript withholding, some institutions and systems, such as the State University of New York and the City University of New York, have announced they will end these practices. Additionally, some institutions have used funds from federal COVID relief packages to erase or reduce outstanding debts for students.

In 2019, California passed legislation that prohibited higher education institutions from withholding a student’s academic transcripts because a student has an outstanding debt to the institution. Institutions also may not charge a higher fee or provide less favorable treatment for students who owe an outstanding debt. This legislation impacted both public and private institutions operating in the state.

At least four other states—Colorado, Louisiana, Maine, and Washington—have enacted legislation that would prohibit transcript withholding at higher education institutions. Washington’s law provides that institutions may not withhold transcripts if the transcript is requested for a job application, transfer to another college or university, financial aid application or application for military service. Maine’s law, passed in 2022, provides that two-year institutions may not condition the release of transcripts or diplomas on an outstanding debt of less than $500 or debts less than $2,500 at four-year institutions. The law also establishes terms related to repayment plans and requires an annual report regarding the release of transcripts and diplomas to be submitted to the legislature. In 2022, at least 11 other states are considering legislation that would prohibit or modify an institution’s ability to withhold a transcript.

Federal Action

On April 6, the U.S. Department of Education announced an extension of the pause on student loan repayment, interest accrual, and collection activities through Aug. 31. This pause first began in March 2020 in response to the COVID-19 pandemic. The department recently expanded loan forgiveness efforts, including a revamp of the Public Service Loan Forgiveness Program. The department also forgave loans for borrowers who have a total and permanent disability and for borrowers who made successful claims through the Borrower Defense to Repayment Program. On April 19, the department announced new changes to the income-driven repayment (IDR) plans, which will retroactively count various borrower payments and actions towards IDR forgiveness for at least 3.6 million borrowers.

Recent draft regulations from the Department of Education would only prohibit transcript withholding that is the result of a debt due to financial or clerical error made by the institution. In April, the Consumer Financial Protection Bureau announced it would examine the practice of transcript withholding as a debt collection practice.