A recent article in The Nation really caught our attention here at Noodle. It's about a disturbing new practice in higher education that starts with the experiences of one Temple graduate, referred to as Pedro Rodriguez in order to protect his identity.
In 2002, Pedro Rodriguez graduated summa cum laude from Temple University. Having come from a low-income family, Rodriguez was dependent on student loans to pay for his education. After graduating, he stayed on at Temple to get a Master's degree in music and taught as an adjunct professor for the next three years until he was laid off due to budget cuts. Unable to find another job in his field, he applied to a PhD program in order to get the credentials he needed to continue teaching at the university level.Unemployed at the height of the financial crisis, he also defaulted on his student Stafford, Perkins and private bank loans.
Rodriguez was accepted into a PhD program and offered a full scholarship but there was one problem: Temple refused to provide Rodriguez with his official transcripts because his loans were in default. They informed him that he would not receive his transcripts until his loans were no longer in default.
Rodriguez's story is much more than a potent reminder about the danger of defaulting on student loans, but it should be mentioned that student loans only go into default after no payments have been made for 9 months. Given that there are several ways to reduce or postpone payments on federal student loans due to economic hardship and unemployment, there are options for a careful borrower who's fallen on hard times. Unfortunately it takes 9 months of regular, on-time payments to rehabilitate a loan out of default, so it could take Rodriguez quite some time to get his hands on those transcripts.
This policy is not unique to Temple University. In fact, it's completely legal at any school. where students take out federal student loans to pay tuition. You may be asking yourself why a college would do such a thing since they've already been paid the tuition anyway. As the Nation puts it, "they do this despite the fact the colleges themselves are not out the money. They have received the students' tuition payments in full and are in effect simply acting as collection agencies for the federal government."
While I couldn't find any data about how often this happens or how many schools are known to hold transcripts hostage, I did find an interesting document on the Department of Education's "Information for Financial Aid Professionals" site. Turns out they like it when schools to do this. Here's what they said:
"As a result of a borrower's default in the Title IV Student Loan Programs, the Department of Education encourages the withholding of academic transcripts. The withholding of academic transcripts is solely an institutional decision, but has resulted in numerous loan repayments."
And, yes, the word "encourages" was underlined in the original document. The unemployment rate for Americans aged 18-24 is currently at 54% and the total default rate for the $1 trillion dollars of outstanding student debt is at 9%. These are sobering numbers. For a school to choose to withhold transcripts from their deeply indebted graduates as they try to get jobs and advanced degrees seems outrageous. A spokesman from Temple told the Nation that aggressive collection tactics are required in order to continue to lend to new students; he indicated that the school may lose funding for new students if previous borrowers do not pay back what they owe.
Regardless, withholding these transcripts sounds eerily close to extortion. The student loan industry creates a significant amount of profits for companies like Sallie Mae (who also run several collection agencies), private banks and even the U.S. government as the interest owed by students builds up over years and years. Guaranteeing loans that can't even be discharged in bankruptcy is a lucrative endeavor. And it's only becoming more profitable as many recent graduates are unemployed and relying on minimal or deferred payment plans that keep accruing interest.
Aside from activism and political change, the best thing we can do as student borrowers is to make sure we're as informed, cautious and responsible as possible until the laws change or we pay back what we owe. You never know when you might need that transcript...**
Previously: Social Security Meets Student Loans