On September 14, the Consumer Financial Protection Bureau (CFPB or Bureau) released a report on Tuition Payment Plans in Higher Education. Ninety-eight percent of colleges now allow students to pay for their education in installments using tuition payment plans. Tuition payment plans have a wide range of structures and may be managed by the schools or administered by third-party payment processors. Typically, tuition payment plans are interest-free, but, according to the CFPB, many charge enrollment fees, late fees and returned payment fees. The Bureau asserts that these fees can create a high cost of credit. Specifically, the CFPB states that when the amount borrowed is low and the enrollment fee is high, students can face annual percentage rates as high as 237%.
In the press release announcing the issuance of the report, CFPB Director Rohit Chopra stated, “[t]uition 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.”
As a basis for its report, the CFPB stated it reviewed nearly 450 college websites to gather publicly available data on tuition payment plans and related contracts. The CFPB also reportedly analyzed consumer complaints, met with industry participants, and conducted interviews with current consumers. According to the data reviewed by the CFPB, 87% of the institutions in the sample offer tuition payment plans directly to students, with 60% of those institutions offering payment plans, outsourcing some repayment functions to third-party financial service providers.
Key findings of the report include:
- The CFPB observed varied and sometimes inconsistent disclosures. Unlike traditional private education loans, which are subject to federal disclosure requirements, disclosures of tuition payment plan terms and conditions can vary widely.
- The CFPB observed terms and conditions that the Bureau believes may allow borrowers to be enrolled in a tuition payment plan without knowingly signing up for one.
- Some tuition payment plans may impose high costs for missed payments. While the average late payment fee is $30, in some cases, late fees can be over $100 per missed payment. In other cases, colleges may charge late and returned payment fees on the same transaction. The CFPB also observed terms that may allow colleges to convert no-interest payment plans into interest-bearing loans when payments are missed.
- If a student’s account is sent to collections, one in three colleges reserve the right to withhold the student’s transcript, which the CFPB has opined may be an abusive act or practice. Students could also risk removal from classes, meal plans, and campus housing when they miss a payment on a tuition payment plan.
- Some tuition payment plan contracts as well as enrollment and student financial responsibility agreements, include terms and conditions that, in the CFPB’s view, purport to waive the student’s legal protections or limit how students can enforce their rights. The CFPB found terms and conditions in contracts that included arbitration provisions, waivers of the students’ right to seek discharge and retain their own legal counsel, and misrepresentations of students’ legal right to discharge private student loans in bankruptcy. In some cases, important terms and conditions may be included in contracts that are signed only once when a student initially enrolls in the school and may not be re-disclosed at the point-of-enrollment for the payment plan.
Tuition payment plans are not a new focus for the CFPB. As discussed here, on September 29, 2022 the CFPB released a special edition of its Supervisory Highlights focusing on student loan servicing, particularly loans made by schools themselves. The CFPB simultaneously announced that it was updating its examination manual and would be conducting examinations of schools that make their own loans to students.
The September 29, 2022 Supervisory Highlights and this most recent report are part of the CFPB’s initiative to examine schools’ in-house lending programs. Because of the CFPB’s continued focus on schools, especially non-traditional and vocational schools, they and their service providers would be well advised to prepare for the scrutiny by assessing their products, services, and operations for the kinds of risks highlighted by this CFPB report.