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State law mandates aggressive collection of student debt, but colleges can set flexible policies

people pulling on either end of door
School policies and state and federal laws don't perfectly align when it comes to student debt collection practices. The mix match can make things tougher for 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. Today we’re explaining university-level policies and practices that create and perpetuate this problem.

Relatively small amounts of college debt can hold students back, especially those from lower-income households. And although Virginia colleges and other state agencies are mandated to aggressively collect such debt by state law, schools do have some flexibility when it comes to setting up policies that determine when students owe money to schools in the first place. They also choose how to communicate with students about this debt and how to help them get back on track. 

VPM News spoke with over 20 Virginia students over the past year about direct-to-school debt, and discovered they were dealing with competing policies and procedures and confusing, cumbersome appeals processes. They described a lack of proactive support from universities that had left them stranded and unsure of how to get back to school.

One of those students, Alexis, whose full name we’re not using to protect her privacy, moved to Virginia to live with her grandparents in 2010 and eventually decided to attend George Mason University. She planned to enroll as an in-state student, but was accepted as an out-of-state student in 2011.

That meant she was short about $8,000 in tuition. She wrote to staff at GMU, asking for guidance. In an email, Darren Troxler, director of admissions operations, replied: “Looking at your record, it seems that you have now resided in Virginia for 12 months.”

Alexis enrolled in fall 2011 classes and with Troxler’s encouragement, she appealed the school’s decision to deny her in-state tuition. But her appeal was rejected because her vehicle registration was only completed 10 months prior to enrollment.

Still, Alexis was encouraged to appeal again. Meanwhile, she remained enrolled. Now, she was on the hook for the entire semester’s tuition including the difference between in-state and out-of-state tuition. She couldn’t continue her education until she paid the balance. 

She asked GMU to drop the $2,480 collection fee. But they didn’t drop it. 

Because Alexis felt wronged, she appealed the school’s decision in court twice, in 2012 and 2019. But even with the help of a pro bono attorney, Travis Pittman, and after multiple court hearings and hundreds of pages of court documents filed, she lost.

The AG’s office also refused to drop attorney fees. Through litigation, Pittman was ultimately successful in getting interest and attorney fees reduced because the AG’s office waited for years to pursue the debt. 

Pittman wrote in court documents that “GMU, through the Office of the Attorney General, advised an unrepresented lay person to wait for it [GMU] to initiate a court proceeding to resolve a disputed collection matter. It then sat on the claim for years without filing suit, and now demands over $3,500 in interest and $2,491 in fees. This is unjust and unethical.”

Alexis had to postpone her education for years because she could only get access to her GMU transcript when she paid the full balance. She wasn’t able to reenroll in college classes until fall 2019, eight years after she first enrolled at GMU. She plans to graduate next spring from a different school.

After a year of denied appeals, VCU approved a tuition refund

Another student VPM News spoke to ran into trouble navigating confusing policies at Virginia Commonwealth University after withdrawing from classes he couldn’t attend due to medical reasons. 

Logan says that while in a treatment facility for substance use disorder in 2017, he was encouraged to look up his name in the state’s court system to see if he had any pending legal action. We’re not using his full name to protect his privacy.

He was shocked to see his name there. VCU had taken him to court over his fall 2016 semester’s tuition and had gotten a default judgment against him.

person looking out window
Logan, photographed on the VCU campus. (Photo: Crixell Matthews/VPM News)

“Honestly, I felt sick,” Logan told VPM News. “Because I had not known about this.” 

In fall 2016, Logan says he stopped attending classes during his second semester at VCU because of severe depressive and manic episodes. He was eventually diagnosed with bipolar disorder. 

With help from his academic advisor, he submitted paperwork in December to retroactively withdraw from his classes so his GPA wouldn’t drop. He thought this would also cover a tuition refund, but it did not. Logan’s retroactive withdrawal request was approved by VCU, and he thought everything was taken care of. He didn’t realize he would still be on the hook for tuition and fees for that semester, per VCU’s tuition refund policy.

“I just assumed that them not reaching out to me was a sign that it was handled,” Logan said.

Less than a month after his retroactive withdrawal was approved, his account was sent to the VCU Collection Unit.

Logan says he now knows VCU was reaching out to him through his VCU email address. But he didn’t get the collection notices because he says he was locked out of his university email account, due to the financial hold. The school sent collection letters to his home, which he thought were sent in error.  

Logan eventually contacted the school to figure out what was going on. He was then informed that the retroactive withdrawal didn’t guarantee a tuition refund, and was told he’d have to go through a separate appeal process to request a tuition refund. Logan says he couldn’t submit the appeal immediately because he was still in a treatment facility. 

A few months later, a default judgment was granted against him in Richmond’s general district court for $2,479 in tuition and fees plus $619.75 in collection costs and 6% annual interest. 

In early 2018, Logan began the process of submitting a tuition refund appeal. VCU denied two of his appeals for a full tuition refund but granted him a partial refund for one class. In one rejection, VCU cited insufficient medical documentation, even though his doctor had submitted two letters stating that “he was not able to function to his full capability academically.”  The appeal committee determined that Logan wasn’t precluded from participating in his classes. Logan was told that the committee’s decision was final.

It wasn’t until Logan’s doctor submitted a third letter in early 2019 noting severe symptoms including delusions and severe manic episodes – and specifically stating that he was physically and mentally incapable of completing any schoolwork during fall 2016 – that Logan’s appeal was fully approved.

But Logan thinks there’s something else that finally tipped the scales in his favor. In early 2019 – after over a year of submitting paperwork and getting denied – he and his dad met in person with a new head of accounting.

“She gave me some tips on how to write the petition,” Logan said. “And I emailed it to her and she proofread it. And that's what got me approved.”

Logan is now in his final year at VCU, studying political science. He’s worked for a local law firm while at VCU and plans to go to law school. He wants to focus on consumer law, helping students in situations similar to his own.  

“I found that I was super passionate about helping people who’ve been victimized by debt collection and credit reporting,” Logan said.

VCU takes students to court to collect

VCU is one of the only four-year public Virginia colleges that seeks court judgments itself, outside of the AG’s office. VCU only involves the AG’s office if a student disputes the debt or if the debt is over $25,000. Only when court action doesn’t result in payment — and after wage garnishment is attempted — does the school refer student accounts to third-party collection agencies. 

According to an internal collections manual, the school has historically pursued court action for balances of $50 or above. However, VCU told VPM News that in November 2019 they changed this practice to instead only pursue court action for balances of $500 or above.

What makes litigation particularly harmful according to experts like Joanna Darcus, formerly an attorney with the National Consumer Law Center, is that it allows creditors to seize a portion of someone’s wages through paycheck garnishment. While third-party collection agencies can add fees and report debts to credit bureaus, they can’t directly seize someone’s wages unless they also have a debt collection law firm. The collection agencies Virginia public universities work with are prohibited by contract from pursuing litigation. 

“And the harm to the person isn't just that they got sued or that it's affecting their credit, but actual dollars that person needs to feed their family or keep the roof over their head are gone,” Darcus said.

vcu campus
Virginia Commonwealth University. (Photo: Crixell Matthews/VPM News)

Between July 2015 and February 2020, VCU received 2,800 court judgments against students, including Logan. The average balance due before fees: about $3,800. Over the same time period, VCU filed court paperwork a total of 3,082 additional times in an attempt to collect from students and attempted 1,209 times to garnish students’ wages. The school has temporarily stopped court action due to the pandemic and hasn’t determined when they’ll resume this practice.

The school also initially paused referral of accounts to the VCU Collection Unit at the start of the pandemic, but resumed last October. Students whose accounts are sent to internal collections face a 25% collection fee on top of the principal.

“Unfortunately, we have to aggressively collect per the state guidelines,” said James Stables, senior manager of VCU’s Collection Unit, in a Zoom interview with VPM News. “Debt set-off is one of the principal ways that we get paid.” 

Debt setoff is a program the Virginia Department of Taxation uses to withhold tax refund payments and lottery earnings to collect debt on behalf of state agencies, including public universities. VCU consistently collected more money through the debt setoff program than any other four-year public Virginia college or university from 2008 through 2019, according to data received from the state department of taxation through a public records request. 

Records received through FOIA show VCU collected more than $6 million from its 25% collection fee alone from July 2015 through January 2021. VCU’s treasurer Denise Laussade insists they’re not profiting from this.

“The 25% was initially established as a cost recoup because there’s staff who are working to fulfill our obligation to the state, which is we must collect those unpaid tuitions and fees,” Laussade said in a recent Zoom interview with VPM News. “And so it's not a moneymaker.”

Laussade says that overall, by handling the bulk of their cases internally, they’re helping students. “We think this is more student-focused,” Laussade said.

It’s hard to know if that’s true, however. VCU doesn’t track how many students referred to the internal VCU Collection Unit are ultimately able to reenroll in classes or finish their degrees.

In 2019, Richmond attorney Stephen Moncrieffe successfully disputed VCU’s collection fee charges in court on behalf of another VCU student who had to withdraw in the middle of the semester to help take care of a sick family member.

“The argument was based on the collection fee,” Moncrieffe said. “Twenty-five percent...that's not a fair number. That is absurd.”

Moncrieffe argued that VCU couldn’t just say they charged 25% across the board because it helped the university recoup their total collection costs. He told the judge those costs needed to be justified individually.

“They [VCU] said they sent two letters. If we grant them an hour of time to send each of those two letters, they're saying their collection costs are $600 an hour,” Moncrieffe said. “That can't be the price for collection costs if they sent two letters.”

The judge significantly reduced the student’s collection fees from over $1,200 to $300. But Moncrieffe says the court decision only applied to that one case and didn’t affect VCU’s policy.

University policies can be more punitive than federally required 

University policies around the distribution of financial aid often deviate from — and are stricter than — federal requirements. 

There are only two big federal requirements when it comes to how schools dole out federal financial aid, says Karen McCarthy, policy director for the National Association of Student Financial Aid Administrators.

At the end of students’ second full academic year, in order to continue receiving aid, they have to be maintaining at least a C average, which McCarthy says is a “2.0 or equivalent [GPA] standing so that the student is on track to graduate.” 

McCarthy says the only other federal rule relates to credit completion. Students can’t attempt more than 150% of the credit hours required for their degree without losing aid. That means students can only withdraw from so many classes before they risk losing aid.

“And then beyond that, the school has a lot of discretion to set up their policy,” McCarthy said. “And I think that it is set up this way because the federal government is very hands-off and cannot set rules at the institution regarding the academic side of the house.”

McCarthy says that means schools can set more lenient GPA and credit completion requirements earlier on in a student’s education, for example. Schools are also allowed to round up when it comes to the percentage of credit completion; VCU’s policy specifically states that they don’t round up. That detail alone can make the difference between a student receiving future aid or not; for example, if a student enrolls in three, three-credit hour classes but withdraws from one they’re then fractions of a percentage point under VCU’s per-semester credit requirement. 

For students who withdraw after a school’s add/drop deadline, university tuition refund timelines often don’t align with a separate timeline set by the federal government through a policy called Return to Title IV. This policy mandates that colleges return any portion of financial aid to the federal government that students haven’t “earned” if they drop out before completing 60% of the term. According to VCU’s website, “as a result, students who withdraw prior to completing 60% of the semester may be responsible for all or a portion of their tuition/fee bill that was previously paid by financial aid sources.”

According to Rebecca Maurer with the Student Borrower Protection Center, schools typically hold students liable for the money they have to return to the federal government, including Pell grants, which students don’t realize they could be on the hook for. This prevents students from accessing transcripts so they can transfer, or reenroll to finish their degrees. 

“Basically, the federal money was yanked away. That's federal money that was never in the student’s pocket, it just went directly to the school,” Maurer said. “But the school thinks that under its policies, it needs to be paid. And so what it does is it says that there's a financial debt from the student who's now withdrawn to the university. That’s a really common setup.” 

Schools can set up their own grade exclusion policies. Schools also set up their own processes to determine how — and when — students can appeal for reinstatement, or reconsideration, of a financial aid award. It’s called an SAP appeal: which stands for satisfactory academic progress. 

According to VCU, students have submitted a total of 3,742 SAP appeals since July 2015 of which 2,710 have been approved and 1,002 denied. 

Hefty down payment required to avoid VCU’s collection fee

Former VCU student Salona Perkins first enrolled in classes at VCU as a freshman in fall 2018, and was excited to study nursing. She grew up in foster care and was adopted at the age of sixteen.

woman standing in front of wal-mart
Salona Perkins in front of the Wal-Mart where she works. (Photo: Louise Keeton/VPM News)

“When I got dropped off, like moving day, I was like, yo, like, I'm actually in college!” Perkins said.

Between scholarships, grants and federal student loans, Perkins says she only had to pay $600 out of pocket that first year for school. But her grades were low in her first semester. While Perkins’ grades improved the next semester, she was still under VCU’s required 2.0 GPA, which meant she was placed on SAP probation. Perkins submitted an SAP appeal in order to receive federal aid for the fall of her sophomore year. 

Though her SAP appeal was approved, she was only awarded a fraction of the aid she received her first year. Perkins recalled being told that she was only given “leftovers.” Documents from VCU indicate aid was awarded based on “eligibility and available resources.” 

Although VCU could have given her another full year to get her grades up and still receive federal aid, they only gave her one extra semester. Perkins was put on an academic plan that required her to get a 2.0 her third semester in fall 2019. When that didn’t happen — even though she was closer than ever at 1.84 — Perkins was academically suspended from VCU, barring her from finishing her degree unless she reapplied for a later year. 

Perkins submitted another appeal to VCU, asking them to reconsider. She told the school there’d been a misunderstanding about the grades for one of her classes; she’d been told she would receive a B instead of a C. She wrote about having to take up two jobs to pay for school.

“This is something I want, and I am determined to do exceedingly better next semester. My circumstances have really shown what I am capable of,” Perkins wrote in her appeal letter. “If I did this, this current semester, imagine next semester. My GPA can be mathematically put at the 2.0 level at a reasonable time period for this spring semester of 2020. I have worked really hard at this school. I could have given up a long time ago, but I chose to keep going.”

That appeal was denied. She was now on the hook for about $9,000 in tuition and fees due directly to the university for the fall 2019 semester. She got an email saying that a deferred payment plan could be an option for her to avoid the school’s 25% collection fee. 

But it wasn’t. According to a VCU spokesperson, students have to pay off 35% of the initial balance in order to qualify for this payment plan. Perkins says she couldn’t afford that; she would have needed to pay over $3,000 up front. At the time, she’d moved back in with her parents in Staunton, Virginia, and was working at Wendy’s and Wal-Mart. Her balance due jumped to over $11,000. 

“All my hard work and everything that I earn is going to try and pay this bill off,” Perkins said in a fall 2020 interview. “For somebody that wants to continue their education — for somebody that wants to be successful — this is just a setback for me.”

It’s been two years, and Perkins and she hasn’t been able to pay off the balance. Perkins now works at a bank inside a Wal-Mart in the Richmond area, and is sharing an apartment with some friends from VCU.

She says she can’t afford to make payments right now. She’d like to go back to school but isn’t sure how.

“I don't want to be just working, paying off student loans, didn't finish college. This is not what I want to do,” Perkins said. 

Law update allows schools to rethink payment plans

After the Washington Post published a 2017 article about a GMU student whose account was sent to a third-party collection agency, Virginia lawmaker Del. Marcus Simon (D-Fairfax) started getting messages from upset constituents. 

The following year, he proposed legislation adding new language to the Virginia Debt Collection Act that specifically applied to state colleges and universities. The legislation passed. Schools were now allowed — but not required — to facilitate student payment plans beyond the semester in which a student is enrolled, to avoid referral to collection agencies and fees. 

Through examination of schools’ websites and a survey VPM News sent to Virginia’s 14 public four-year colleges, it’s unclear if any schools have made changes to payment plan options based on the legislation.

Only VCU and JMU responded to a specific question about payment plan updates. VCU wrote that they’ve offered a deferral payment plan since 1990, but they didn’t start letting students know it was an option in collection letters until 2016. 

JMU said they’ve offered payment plans to students since 2016, and therefore made no changes as a result of the 2018 law.

According to Old Dominion University’s website, payment plans are only offered in very limited circumstances. Payment plans are only offered for current semester charges, and “if any installment payment, or portion thereof, becomes past due, the student will be removed from the payment plan. The full balance will then be accelerated, which means the entire amount will be due and payable immediately.”

Some schools have created flexibility in their student debt policies through special permission from the state AG’s office. Several years ago, James Madison University got approval to only send past-due accounts of $10,000 and higher to the AG for collection. 

In 2017, JMU also decided they’d eat the cost of collections when referring accounts to third-party collection agencies instead of passing the fee to students. 

While there hasn’t been significant progress to address direct-to-school debt in Virginia, some schools in other states are taking a more proactive approach. Tomorrow, we’ll explore some potential solutions including a model one school in Michigan has employed to help students with direct-to-school debt go back to school, and how some other institutions are replicating it.

This is part 3 of a 4 part series called Dreams Deferred examining direct-to-school debt affecting Virginia college students. Click here to read part 1, and here to read part 2. Read part 4 here.

Tomorrow, we explain how one school in Michigan has helped students with direct-to-school debt go back to school.

Read about how we reported this series 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, Beena Raghavendran and Annie Waldman.