Last week, the Consumer Financial Protection Bureau (CFPB) released a new report taking a deep dive on tuition installment plans, which allow students to pay for postsecondary education through installments throughout a term. 

The report found that many colleges charge numerous fees that increase the overall cost of the plan, or quickly trigger punitive clauses, while obscuring the terms and conditions of these plans across several documents and webpages.  The CFPB also found that the high fees and adverse debt collection practices associated with these plans lead to negative outcomes for students.

The CFPB reviewed tuition payment plans from nearly 450 schools and found that even though most do not charge interest, the majority of them charge fees – such as late fees, returned-payment fees, and enrollment fees – that often turn the plans into an expensive form of credit. In rare cases, students face annual percentage rates on their payment plan as high as 237%.

In addition, CFPB found that many payment plans include clauses that make them difficult to distinguish from traditional loans. The report highlighted instances where missed payments made entire plan balances due immediately and if the balances could not be paid the no-interest plan would turn into an interest-bearing loan. Other harmful provisions identified by the report include forcing students to waive their right to legally pursue a discharge of the debt or retain counsel, withholding transcripts, removing students from meal plans, or removing them from classes entirely. One institution may even evict students from their dorms for late payments.

The CFPB report also noted that, while students usually sign up for these plans on their own, some are automatically enrolled when federal loan money is not disbursed before the school’s tuition deadlines.

The CFPB has indicated that colleges that extend this type of credit to students have assumed the role of lender, and the agency could potentially levy sanctions against those that violate consumer financial protection laws. The bureau is encouraging colleges to review their payment plans to ensure that they do not contain any harmful or punitive provisions for students.