Have you been contacted by your school or a collection agency about a debt owed directly to your school? Unlike student loans, which are owed to your lender or the federal government, these debts are owed directly to your school. These types of debts are also called institutional debt or direct-to-school debts. Common charges that lead to institutional debts include: unpaid tuition costs, campus parking tickets, damages charges to dorm rooms or campus buildings, late withdrawal fees, and library fines.
How Are These Debts Different From Student Loans?
Because these debts do not come from the federal student loan program, they don’t have the same protections and benefits as student loans. Schools can also be very aggressive when collecting these debts and may withhold your transcript or diploma or even sue you to collect on these debts. This could not only hurt you financially, but it could also impact your ability to get a job or go back to school if you need a copy of your transcript, degree, or diploma.
Perkins Loans owed to schools are federal student loans
If you owe money on a Perkins Loan to your school, that is different from institutional debt because Perkins Loans are part of the federal student loan program. You have lots of rights and protections on any debt owed on Perkins Loans. For more information, see our various pages on dealing with federal student loan debt, including repaying your federal loans, pausing your student loan payments, and help with student loan defaults.
What Rights Do I Have If I Owe Debt to a School?
Although you don’t have the same kinds of protections and relief options available to you when you are behind on your federal student loans, you still have rights and protections as a consumer.
Withholding Transcripts, Degrees, or Diplomas
A number of states ban schools from withholding transcripts, degrees, and diplomas if a debt is owed to the school. Some states have laws that tell schools to release transcripts and diplomas if the student is applying for a job or going back to school. States with full or partial bans on transcript withholding include: New York, California, Colorado, Maine, Minnesota, Washington, Ohio, and Illinois. More states are considering similar bans as well. Additionally, the Consumer Financial Protection Bureau recently told schools that withholding transcripts to collect debts owed to schools may be a violation of the Consumer Financial Protection Act. If you believe your school is withholding your transcript or diploma illegally, you can file a complaint with your State Attorney General’s Office or the CFPB.
Lawsuits to Collect Institutional Debt
If you are sued, you may also have protections related to the statute of limitations (the time the school has to bring a lawsuit against you) and other basic consumer protections that you can raise to stop the school from getting a judgment against you even if you think you owe the debt. You should talk to a lawyer or your state’s consumer protection agency if you need help with institutional debt. You may even be eligible for free help from your local legal aid office depending on your situation.
You also have rights and protections when it comes to dealing with debt collectors, including debt collection lawyers. For more information about dealing with debt collectors, see the CFPB’s website. If you believe you have been harassed by a debt collector, talk to a lawyer or file a complaint with the CFPB or your State Attorney General’s Office.
I’ve Been Sued for a Debt I Owe to My School. What Can I Do?
If you are sued, you may have defenses to the lawsuit and should talk to a lawyer right away. If you ignore the lawsuit, you could end up with a default judgment against you. Judgments also include interest, legal fees, and court costs. Once a judgment is entered, depending on which state you live in, the school could get a lien against your house (which could stop you from selling or getting a loan on your house until the judgment is paid), seize money from your bank account, and garnish your wages to collect the judgment.
In some cases, if your school was a state university or college, the State Attorney General’s Office will act as the debt collector for the school on behalf of the State. The State usually has more power to collect on these types of debts and may be able to take your tax refunds if a judgment is entered in addition to garnishing your wages and getting liens on your property.
Can I Settle My Debt with My School?
Sometimes the best way to deal with institutional debt is to try to negotiate a settlement with your school. If you don’t believe you owe the debt, you can try to first dispute the debt with your school or the collection agency that has contacted you.
If you have an institutional debt because you had to withdraw from school after the withdrawal deadline, you may be able to ask the school to waive your bill. Schools will sometimes have tuition refund committees that review your situation to decide whether or not you qualify for a waiver. These committees will sometimes consider if you had a good reason to withdraw late, such as a medical issue or family emergency.
As with any type of settlement agreement, make sure you don’t agree to pay anything you can’t afford and get the agreement in writing. It may be helpful to have a lawyer review the settlement for you or negotiate it on your behalf. See our page on negotiating settlement agreements for more tips and guidance.
