College Tuition and Debt Collection Practices

When we think about unfair debt collection practices, most of us think of scenarios in which creditors assess exorbitant fees for late payments, or situations involving fraudulent debt collection measures. When we imagine the creditor in these scenarios, few Chicago residents think about nonprofit colleges and universities. However, the harmful actions of various for-profit colleges, which have led to massive student debt, have made national news over the last several years. As such, it should not come as too much of a surprise that nonprofit colleges also may be engaging in debt collection practices that involve the assessment of “whopping collection fees for unpaid tuition,” according to a recent article in the Chicago Tribune.
What else do you need to know about the debt collection practices of colleges and universities when it comes to unpaid student tuition?
Student Debt Collection: A Case Study
The article discusses one student’s recent debt collection issue at a regional, public, nonprofit university. The student enrolled at the university and paid her tuition and fees for the first semester. The following semester, the tuition and fees rose, and the student continued to make payments. At the end of the semester—by the time classes had ended—the student still owed $3,000 for tuition and fees. She continued working and attempting to pay down the balance. However, when she tried to make her last payment, “she was shocked to learn that her account had been sent to a collection agency that tacked on a fee of 30 percent.” Unless the student pays the remaining tuition and fees balance, on top of the 30% fee, she cannot attend the university or classes this fall.
Part of the reason that the bill at this university was sent to collections has to do with a state statute concerning public universities and debt collection. The university is located in Virginia, but the lessons from this case should still be of interest to Illinois residents, either for those who have kids attending colleges or universities in Virginia or for those who know that debt collection practices do not always remain state-specific. In this case, Virginia has a statute that says public colleges and universities must refer unpaid tuition and fees that are more than 60 days late to debt collectors. The law allows those debt collection companies to charge a fee of up to 30 percent. Yet Virginia colleges and universities are not the only entities relying on debt collectors.
Collection Fees for Current Students at Colleges and Universities Across the Country
Colleges and universities across the country have begun referring unpaid student tuition and fees to debt collection agencies. As the article clarifies, “colleges typically incur no expense in employing private collectors because companies take their cut through fees.” As such, there is not always a reason for colleges and universities not to send an unpaid bill to a debt collector.
According to Anne Gross, the National Association of College and University Business Officers vice president of regulatory affairs, “87% of schools surveyed by the trade group said they relied on such [debt collection] companies,” and that “the practice and fee structure have been around for decades.” To be sure, the U.S. Department of Education permits nonprofit colleges and universities to impose a fee as high as 40% when students default on Perkins loans, which are loans designed for low-income students.
When student debtors cannot make payments in full on back-owed tuition, along with steep collection fees, they typically cannot register for classes and thus cannot continue their educations. In some cases, these debt collection practices may violate the Fair Debt Collection Practices Act (FDCPA). If you have questions, you should reach out to an Oak Park consumer protection lawyer as soon as possible. Contact the Emerson Law Firm to learn more about how we can assist with your case.
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