The CFPB recently released a report regarding higher education tuition payment plans that discusses prevailing practices and highlights certain CFPB concerns regarding consumer impact. The CFPB’s report was based upon (a) a review of hundreds of postsecondary school and college websites that contain publicly available information on tuition plans and related contracts, (b) consumer complaints submitted to the CFPB and Department of Education, and (c) interviews with consumers and meetings with industry participants.
A tuition plan essentially allows students to pay for postsecondary education in installments and, depending on how the program is structured and implemented, could implicate lending rules and other regulatory restrictions. The report makes clear that the CFPB considers many tuition payment plans to be “loans” (a term the CFPB uses to include loans and retail installment contracts), a fact that may come as a surprise to many institutions. Tuition payment plans allow students to pay for tuition and education expenses in payments, typically between three and six installment over the course of a year, but sometimes more. Either the school or a third party may administer the payment plans. Plans may be interest free but include other fees such as enrollment fees, late fees, and/or returned payment fees. The report highlights that in the 2022-2023 academic year, the vast majority of colleges offer tuition payment plans to students.
This report builds on the Bureau’s earlier work regarding student loans and other student financial products, such as initiatives on deposit and credit products offered at colleges, supervisory exams of student lenders, and other activity, including enforcement matters. Additional CFPB scrutiny of tuition payment plans, possibly to include enforcement activity, is likely to follow in the future, and the report states that the agency will continue to “gather and analyze information relating to tuition payment plans and to ensure the institutional “lenders” follow applicable consumer financial laws.”
Is a Tuition Payment Plan Regulated Like a Loan?
A tuition payment plan may not typically be considered a “loan” by either the institution or student, but as the CFPB notes in its report, such plans are a form of financial product that can trigger regulatory requirements. Some institutions market tuition payment plans as an alternative to a loan, but the report notes significant variation in how schools characterize these plans as well as the fees and other features associated with the plans and how they are disclosed. For example, the CFPB found variation in: (a) whether a non-interest-bearing payment plan was called a loan; (b) whether costs and fees were disclosed on the school website; (c) whether the cost of credit was clearly disclosed and whether fees were treated as finance charges; and (d) whether Truth in Lending Act (TILA) requirements for closed-end credit advertising were followed.
The CFPB makes clear that, in its view, many such plans are in fact private education loans under TILA. Whether any particular plan is in fact covered by that part of TILA and Regulation Z, or any other part of TILA and Regulation Z, is a fact-specific inquiry, but as the CFPB notes in the report, other regulatory restrictions (including notably the prohibition on Unfair, Deceptive, or Abusive Practices) may also apply to the schools’ administration of such plans.
- As many as 98% of schools offer a form of a tuition payment plan;
- Tuition payment plans included varied and inconsistent disclosure of terms and conditions. Disclosure practices can obscure the nature of the product, the cost of the credit, and the servicer. For example, one plan is called “learn now, pay later” which could lead the student to believe that the payment plan was structured like a no-interest buy-now, pay-later product;
- Some tuition payment plans include terms and conditions that allow automatic enrollment and forced use. Students may unknowingly become enrolled in a tuition payment plan by virtue of school enrollment documents that students are required to sign at the point-of-enrollment (e.g., registration documents and student financial responsibility agreements). Moreover, students are a “captive” market and may be unable to compare product options. Some students are forced into payment plans due to delays in federal financial aid, or if they miss a tuition payment deadline;
- Students can face high costs when missing a payment according to a tuition payment plan. The median late fee observed was $30 but could be over $100 per missed payment. In some cases, schools charge late fees and returned payment fees. In some cases, schools converted no-interest plans to interest-bearing loans upon missed payments;
- Some schools were observed withholding transcripts as a debt collection practice, affecting a student’s future employment opportunities. The CFPB has previously found this practice to be an abusive act or practice. Students that miss payments face other consequences as well, such as removal from courses, meal plans, and campus housing. The report notes that the consequences to students upon failure to pay would not be applicable if the student chose to pay for school through federal or private student loans, or other general-purpose financing; and
- Contracts and agreements purport to waive certain consumer rights, through such provisions as class action waivers and mandatory arbitration provisions.
The CFPB continues to expand its oversight of financial products in higher education. This latest report on tuition payment plans is an important message to nonprofit and for-profit postsecondary schools and colleges alike. The CFPB has articulated clear concerns regarding disclosures, fees, contract terms, and other related activity, and we expect additional regulatory developments in this space, including enforcement activity. Schools that offer tuition payment plans should work with experienced consumer financial services attorneys to closely evaluate their activities – as well as those of their service providers – for compliance with applicable federal and state law requirements.