Dive Brief:

• Payment plans allowing college students to break up their tuition into interest-free installments put students at increased risk of racking up debt, the Consumer Financial Protection Bureau said in a report released Thursday.
• Tuition payment plans often have “inconsistent” disclosures and confusing repayment terms, leaving students at risk of missing payments or accruing late fees, the CFPB warned in a corresponding release.
• “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,” CFPB Director Rohit Chopra said in the release.

Dive Insight:

About 4 million students set up some form of tuition payment arrangement with their university each term, the CFPB said. The plans, marketed as an alternative to student loans, are typically interest-free. But the universities, which act as lenders, commonly add enrollment fees, late fees and other fees to the plans, the bureau said. 

For the report, the CFPB reviewed information on tuition payment plans presented on about 450 universities’ websites. About 87% of those schools offer payment plans directly to student borrowers, and 60% of those outsource some repayment functions to third-party providers such as Nelnet, Transact, and TouchNet, the CFPB said. 

Nearly 90% of the school plans the CFPB reviewed charge an enrollment or set-up fee that averages $37, 60% charge a returned payment fee averaging $29 per instance, and 44% charge late fees at an average cost of $46 per late payment, the bureau discovered. 

These fees lead the cost of credit to soar for student borrowers, the CFPB noted, adding that annual percentage rates can be as high as 237% when the borrowed amount is low and the enrollment fee is high.

Additionally, some universities withhold transcripts from student borrowers behind on payments, “a potentially illegal practice that can have severe consequences for students trying to begin their careers or finish their education,” the CFPB said in a release. 

“Colleges and universities should take a hard look at their repayment plans and avoid subjecting borrowers to high fees or coercive debt collection practices,” Chopra said in the release.

As part of its campaign against junk fees, CFPB has also taken aim at credit card late fees and fees charged by debt collectors. The bureau is also scrutinizing medical credit cards and the costs associated with them.