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Direct to school debt prevents students from finishing college and moving forward

illustration of person dragging ball and chain
Direct-to-school debt is a hidden burden affecting thousands of Virginia college students. (Illustration: Crixell Matthews/VPM News)

Over the past year, VPM News has been looking into a hidden type of debt affecting thousands of Virginia college students. It’s not federal student loans — which dominates most of the headlines. It’s money owed directly to institutions, called direct-to-school debt. 

In our series Dreams Deferred, we’re exploring how this debt is creating hardships for students,  making it difficult for them to complete their degrees and advance their careers. We’ll address the state and school policies that perpetuate this problem. And we’ll look at what some schools are doing to help students with this debt finish school.

Today we start our four-part series by exploring how students end up with this direct-to-school debt in the first place. And we meet three Virginia students whose dreams have been put on hold because of it.

Lakenya has started and stopped her college education multiple times over the past two decades for many reasons: moving from New York to Virginia to become her mother's caregiver after her cancer diagnosis; her mother's death; and financial hardships were among them. We’re not using her full name to protect her privacy.

In spring 2012, Lakenya went back to school at Virginia Commonwealth University, a sprawling urban college in the heart of downtown Richmond. She decided to major in homeland security and emergency preparedness, building off prior work experience at multiple state and local government agencies.

She received a $3,000 grant from the school to help cover her tuition. She could’ve received additional federal and state aid, but had poor grades while at VCU for a semester in 2006. The school said if she completed 12 credits and maintained a 2.0 GPA, she could have her 2006 grades wiped from her GPA, and become eligible for additional aid.

Lakenya thought she’d be able to manage that. She got A’s in two of her classes that first semester, but withdrew from the third, a class she says she was advised to drop because she didn’t need it for her major. She met the GPA requirements but fell short on credits.

Lakenya then enrolled in summer classes and appealed VCU’s decision to deny her institutional aid for that semester. 

“I have faced a unique set of challenges this summer, unlike those of the average young adult student at VCU,” Lakenya wrote in a detailed, personal letter to the school. “I have consistently looked for work while navigating the challenge to keep my home from going into foreclosure, loss of unemployment insurance benefits, living in a home with no water due to my water heater breaking, thus causing me to have to come to the school gym to shower to maintain proper hygiene, having my electricity go out. And all while making no excuses and still attending all my classes.”

Reading the letter aloud nearly a decade later, Lakenya paused. She’d forgotten what she’d written.

“Wow…wow. I have been through some shit,” she said.

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Lakenya, photographed in a park near her home. (Photo: Crixell Matthews/VPM News)

To close out her appeal letter, Lakenya wrote that the school’s decision “has the power to affect the outcome of my life for years to come. Today, with just the mere flick of your pen, you have the power to change the course of my future, and my ultimate destiny.”

Of the three courses Lakenya took that summer, she failed one, which VCU cited in denying her appeal. The denial meant she wouldn’t get retroactive aid for the summer semester, and owed money for the classes she took. If she didn’t pay, she could not continue her education.

She couldn’t afford the balance, and VCU placed a financial hold on her student account, ending her studies.

“With me being African American, I'm an American descendant of slaves, sometimes you don't always have enough money to just be paying schools flat out a full tuition to just be able to continue to go to the next semester,” Lakenya said. “That wasn't a reality for me, particularly because I was unemployed at the time.”

The school eventually took Lakenya to court to collect $2,531.50 for tuition and fees plus $645.01 in pre-judgment interest and $759.45 in attorney fees. Through the Virginia Attorney General’s office, which can pursue student debt from school referrals, her wages were garnished to collect the full amount.

Lakenya questions whether she was unfairly targeted for wage garnishment because she chose to appeal the debt in court. 

To this day, Lakenya hasn’t been able to complete her bachelor’s degree.

She’s in her mid-40s now, working at a large bank chain, a job Lakenya says she took out of necessity. She’s paying for a course to become a certified fraud examiner. This is the first time she’s attempted to continue her education since 2012. 

“I don't even know what my dreams are anymore, because of how damaging a lot of this stuff was,” Lakenya said. “I feel like VCU has stolen a lot of time from me during the years of my primary earning potential. As you get older, some things get a little harder. And you can't get time back.”

Different from federal or bank debt, direct-to-school debt ends studies immediately

Lakenya’s debt is direct-to-school debt, which is money owed to colleges, not federal or state loan programs or banks. There are many different scenarios that leave students with this debt, but there are some common reasons

 A student might withdraw from classes entirely in the middle of a semester for a medical, personal or financial reason. That can lead to them not meeting the school’s minimum credit requirements. Or, they might not hit a school’s minimum per-semester GPA requirement. All of these situations can result in the school sending federal student loans and grants back to the federal government, creating a shortfall the student then owes directly to the school.

According to a 2021 report from the Student Borrower Protection Center, there’s often a misalignment between school and federal policies that can lead to students not owing any money to the federal government but still on the hook to their institutions. 

“This misalignment traps students who thought their tuition was covered by loans that they could pay back over years,” said Rebecca Maurer, program manager for the Student Loan Law Initiative at the SBPC. “Instead, students are left with institutional debts that they owe almost immediately.”

Carolina Rodriguez, director of the Education Debt Consumer Assistance Program in New York, says this can be devastating for students. 

“At minimum, they're going to see their dream of acquiring a higher education derailed for months, if not years,” Rodriguez said. “And for some of them, this might be the end of it. It is so discouraging that they might never try again.”

If students default on their federal student loans, Rodriguez can help them consolidate or rehabilitate the debt so they can continue their education. But these options don’t exist with direct-to-school debt, which means students typically can’t continue their education until they pay off the full amount. 

“And that's why I dread getting those cases. Because I know what the outcome is going to be,” Rodriguez said. “I will always try. I will always do my usual calls, advocacy letters. But I never get their [students] hopes up. Because I know the outcome. Legally, there is nothing I can do.”

Experts say students who owe direct-to-school debt are more likely to be low-income and more likely to be people of color. A study from Policy Matters Ohio found that the debt is more common at schools with a higher percentage of students from disadvantaged backgrounds.

“It's a clear indicator that lower-income students, students who've historically had less access to higher education, are being hit harder by this issue,” said Piet van Lier, a researcher with Policy Matters Ohio.

Additional barriers like transcript withholding create ‘catch-22’ for students

Students are not permitted to reenroll until they pay off the direct-to-school debt. And on top of that, schools will also routinely withhold transcripts, which Maurer says is flat out unfair. Students can't take these credits elsewhere to finish their degree unless they can get a copy of their transcript. 

“I like to call it a Catch-22,” Maurer said. “These folks can't finish their degree to get a better job to earn more money, because they need money to be able to go to school and get the better degree. So they're caught in between these two worlds.”

According to a 2019 survey of colleges across the country conducted by the National Association of College and University Business Officers, transcript withholding was the No. 1 debt collection tool used, utilized by 98% of the survey’s 454 respondents. 

Another national report found that public institutions and colleges that enroll more than 40% of Pell-eligible students are more likely to withhold transcripts for an outstanding balance, suggesting students most in need of financial aid are likely most at risk for having stranded credits, even if they owe relatively small amounts.

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Bridgette Cerritos in the parking lot at Ellwood Thompson's, where she works as a manager. Photo: Crixell Matthews/VPM News

Several years ago, Bridgette Cerritos enrolled at William and Mary where, “the Bursar advises that transcript holds are placed for overdue accounts of $5 or more,” according to a public records request. 

Cerritos majored in Asian and Middle Eastern studies, with the goal of eventually teaching English as a second language in Japan. 

She told VPM News her first few years at William and Mary were academically tumultuous and says she ended up withdrawing in 2015. “I was encouraged to class it as a medical withdrawal for mental health reasons,” Cerritos wrote in an email to VPM News. “This would leave the door open for me to return and finish my education at some point in the future, and withdrawing prior to the deadline meant I wouldn’t incur any further dings to my GPA. It was not clearly communicated to me that there would be significant costs to this.”

Cerritos ended up with an unpaid balance that prevented her from reenrolling. She told VPM News she set up a payment plan to pay $25 each week toward the debt after signing a promissory note; at the time, she was working two jobs and crashing on a friend’s couch. At one point, she stopped making payments “when budgeting for my basic living expenses became a priority.”

In 2017, she was taken to court for $4,189.07 in principal plus $1,256.72 in attorney fees, as well as interest. Her wages were garnished by the Attorney General’s office two separate times: once in 2018 while working at West Richmond Fine Wine Inc. and again during the pandemic.

“As long as the debt stands, the school won’t release my transcript, making it basically impossible to finish my education there or otherwise,” Cerritos told VPM News. “I compromised my financial security for the possibility of someday completing my bachelor’s, the idea of which now makes me physically sick to my stomach. All the plans I had for my life and career were put on indefinite pause after this debt.”

Cerritos has never been able to finish her degree. She now works as a manager at Ellwood Thompson’s Local Market in Richmond.

Limited data makes it hard to tally how many students statewide have direct-to-school debt

Direct-to-school debt and transcript withholding have affected thousands of Virginia students in recent years, although it’s unclear exactly how many. Statewide data about direct-to-school debt in Virginia is not publicly available. Colleges aren’t required to report this information to the State Council of Higher Education for Virginia. And the issue hasn’t been on SCHEV’s radar, despite the state’s lofty goal of becoming the best state for education by 2030. 

Over the past year, VPM News has sent multiple public records requests to every public four-year college in Virginia and other state agencies asking for data and other records relevant to direct-to-school debt. Some schools said they didn’t collect this information. Others said they wouldn’t release the data without a fee, and some said they wouldn’t share it because they weren’t legally required to under Virginia’s public records laws. The data we did receive through public records requests helps paint a picture, although not a complete one. 

Virginia law requires public colleges to aggressively collect on all debt owed, and if students aren’t in a payment plan, schools are required to send accounts with a balance below $3,000 to a third-party collection agency. The same law requires schools to send debt of $3,000 or above to the attorney general’s office for collection.

Old Dominion University sent 13,993 student accounts to a collection agency between 2016 and 2020. Virginia State University sent 552 student accounts to a collection agency between fall 2015 and spring 2020.

Between July 2015 and February 2020, VCU received court judgments against 2,800 students, though they attempted to collect from students through the courts a total of 5,882 times not including garnishment attempts. 

According to a public records request from the attorney general’s office, 2,464 student accounts across all public Virginia colleges were sent to the Virginia attorney general’s division of debt collection between July 2015 and June 2020. However, the attorney general’s office said they didn’t have records indicating how many of these past-due accounts resulted in litigation. Instead, they suggested we review court records ourselves.

The AG’s office wanted to charge more than $30,000 for additional data about these student accounts, including a breakdown of attorney fees, interest, amount collected, and revenue generated. They also denied multiple public records requests, and claimed an internal manual cited in a 2006 legislative report about ramping up state collection efforts could be subject to attorney client privilege and therefore withheld or redacted in its entirety.

Transcript withholding was a common practice among schools that did respond to VPM’s inquiries. From 2017 through 2021, the University of Virginia withheld transcripts from 1,193 students due to past due balances. 

Schools use different metrics when collecting data about transcript withholding, and some don’t track it at all.

George Mason University says they don’t track how many transcripts have been withheld from students who requested them over the past five years, but said from July 2016 through June 2021, 26,079 students received a financial hold that would have prevented them from requesting a transcript until their debt was paid. GMU withholds transcripts for debts of $25 or more. 

Radford University said that since August 2017, 27 students requested a transcript that has been withheld due to a balance. Radford said financial holds are placed on accounts with a balance due of over $50. 

The financial holds also prevent students from enrolling in additional classes.

Transcript withholding can put backup plans, like community college, out of reach

Crystal Mulrine first enrolled in classes at VCU in 2008. She has worked many food service jobs but dreams of becoming a research psychologist. That’s why she settled on psychology for her major at VCU. 

“I have a particular mental disorder called borderline personality disorder. It is not very well understood,” Mulrine said. “It is very highly stigmatized. And there's not a lot of people doing research on this particular brand of mental illness, even though it's more prevalent than schizophrenia.”

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Crystal Mulrine at home with her cat, Mokona. (Photo: Crixell Matthews/VPM News) 

During her sophomore year, her mental health started to deteriorate. She was in a toxic relationship, and she attempted to take her own life while at VCU. 

“I was still working full time while going through this,” Mulrine said. “I just became overwhelmed. And the classes weren’t as immediate, it felt, to address.”

Her grades fell. Then in 2012, Mulrine found out a loan she was relying on to pay for school fell through, after she’d already enrolled in classes and after the deadline to add or drop classes. She was stuck; she now owed money directly to the school. She submitted an appeal to VCU for financial aid, but it was denied due to low grades.

Eventually, the school took her to court to collect on the $5,042.73 in tuition plus $1,260.68 in collection costs and $465.79 in interest. 

“My advisor said there was basically nothing they could do at that point. I just owed the money. And that until I pay back that lump sum, my transcripts are hostage and I can't finish my degree,” Mulrine said. “I just felt kind of helpless about the whole situation. I consigned myself to never finishing my degree.”

Now, a decade later, Mulrine says that if she could get her official transcripts, she might try to finish her degree at a community college because she said that makes the most financial sense at this point. She was unemployed during much of the pandemic, on Medicaid and struggling with multiple health issues. She recently got a part-time job. But a part of her is still holding on to her dream of going back to school at VCU.

“Despite the resentment I have towards VCU, and there's a strong resentment there, I still want to finish my degree there. I don't want to take my transcripts and go to a community college,” Mulrine said. “I want VCU on my degree, because I have a lot of pride in my school and my city, in the teachers that I've learned from, and the experiences that I've had as a Ram. I still consider myself a Ram.”

But for now, going back to school is out of the question unless she can come up with at least one-third of the balance she owes. VCU told VPM News that they will allow a student to have an official transcript sent directly to the school or business of their choice if they’re able to pay off one-third of the debt up front and set up a payment agreement to pay off the rest. 

Meanwhile, VCU has attempted to garnish Mulrine’s wages and got the state department of taxation to start withholding her tax refunds to collect on her balance.

“If I make less than $15,000 in a year, please don't take what little the state was gonna give me back,” Mulrine said. “Because that's the only thing probably that's gonna get me in the position to pay you guys back.”

In the next installment of our series Dreams Deferred, we’ll unpack the state’s role in the direct-to-school debt crisis. Come back to the Dreams Deferred series page all week to read more.

To read about how we reported this series, click here

Reporting for this series was made possible through a ProPublica Local Reporting Network fellowship VPM News reporter Megan Pauly received in fall 2020. 

Dreams Deferred was reported by VPM’s Megan Pauly with editorial guidance and production support from VPM's Sara McCloskey, David Streever, Connor Scribner, Elliott Robinson, Travis Pope and Ben Dolle.

Additional support was provided by independent contractors Johanna Zorn (editor) and Amy Tardiff (fact-checker). Special thanks to ProPublica’s Alex Mierjeski, Maya Miller and Annie Waldman.