Educational Debt Collection Practices Act Goes Into Effect January 1, 2020

On October 4, 2019, California Governor Gavin Newsom signed into law Assembly Bill 1313, prohibiting postsecondary schools from withholding transcripts as a debt collection tool. The new law goes into effect January 1, 2020.   

AB 1313 adds new Title 1.6C.7, the “Educational Debt Collection Practices Act,” to Part 4 of Division 3 of the California Civil Code.   

Under the Act, schools will no longer be able to refuse, condition or otherwise restrict transcripts to students on the grounds that they owe a debt. Schools also cannot charge a higher fee for a transcript or provide less favorable treatment to transcript requests for students with outstanding debts.   

Under the Act, a “School” means any public or private postsecondary school, or any public or private entity, responsible for providing transcripts to current or former students of a school.

Impact on Educational Debt Collection in California 

Schools will have a greater challenge collecting on delinquent or default student debt accounts, as they will no longer be able to hold transcripts as collateral against payment.   

Loss of Student Accountability  

In most states, withholding transcripts is an accepted practice, with schools often including language about transcript withholding in their enrollment agreement, which the student must sign before accepting the loan and attending school.   

In the same way a bank might place a lien on a vehicle for an auto loan, schools hold transcripts to keep students accountable for the debt they owe.   

But unlike a bank, which can repossess a car upon failure to pay, schools cannot take back the knowledge and experience imparted to the student. That means that when a student fails to pay, the school goes unpaid for the services rendered, with no way to recover their assets.   

Without holds on their transcripts, students, current or former,  with past-due debts will have less reason to hold to their financial obligations.  

Consequences for California Schools  

Without a way to hold them accountable for nonpayment, schools may find that more borrowers default on their accounts. Schools may have to resort to more drastic, costly measures to get paid, which may include:  

  • Hiring debt collection agencies
  • Reporting the debt to the credit bureaus
  • Taking legal action against the borrower

In the meantime, cash flow may suffer, compounding existing funding problems in higher education institutions and making it difficult for schools to effectively render services to other students.  

Actions Schools Can Take 

1. Adjust Policies & Procedures for Compliance
The first thing schools should do is adjust their accounts receivable policies and procedures to stay compliant with the new law. As of January 1, 2020, “schools” (as defined by the Act) can no longer withhold or restrict transcripts to borrowers with unpaid debts. Schools will want to ensure the language in their enrollment agreements/student handbooks are adjusted accordingly. 

2. Improve Default Prevention and Management Programs
The best way to increase student accountability is to have a proactive plan in place to prevent delinquencies and defaults from occurring in the first place.   

Now may be a good time to review processes that encourage on-time payment of debts, before, during and after enrollment, including, but not limited to:  

  • Entrance counseling to promote greater financial literacy
  • Early identification and counseling for at-risk borrowers
  • Better interdepartmental communications
  • Dedicated staff for default prevention and retention
  • Exit counseling to re-emphasize consequences of defaulting
  • Maintaining contact with former students to improve repayment

Having trouble staying in contact with students regarding past-due payments?
Ask us about our Student Outreach Programto streamline your internal efforts. With our custom 1st party collection solutions, you can: 

  • Increase student retention and satisfaction
  • Decrease the number of default accounts
  • Easily roll over unpaid accounts to full collections

3. Hire an Experienced Educational Debt Collection Agency
No matter how hard schools work to prevent delinquencies and defaults, some will inevitably occur. Without the ability to withhold transcripts to encourage payment, schools may need to rely more heavily on collection agencies to resolve unpaid student accounts.   

Hiring a trusted, experienced educational debt collection agency can help schools boost payments, cut operational costs and increase overall cash flow.   

The right agency will have effective techniques for handling disputes, encouraging payment and navigating the unique challenges that schools and students face with their accounts, even without the leverage of transcript withholding.   

Affordable contingency rates can ensure that schools only pay for services when their accounts are recovered, minimizing collections costs and reducing funds lost to bad debts.  

Putting Students First
Cedar Financial’s educational clients enjoy some of the highest recovery rates in the industry.   

With over 28 years of experience, an extensive worldwide debt collection network and a focus on positive student relations, we can diplomatically resolve your accounts or disputes to recover lost money from students everywhere.   

Learn more here:  

Getting started is quick and easy - request a free quote today.   

*The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.

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