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4 lawmaker proposals to reduce the burden of direct-to-university debt

people seated at desks in rows
The floor of the Virginia House of Delegates. (Photo: Craig Carper/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’ve been exploring how this is creating hardships for students, making it difficult for them to complete their degrees and advance their careers. To start this series from the beginning, click here.

VPM News recently reported that Virginia Sen. Ghazala Hashmi (D-Chesterfield) is sponsoring legislation this year to ban transcript withholding as a form of debt collection for students who attend Virginia’s public colleges and universities.

VPM reached out to over a dozen lawmakers about our recent Dreams Deferred series to get their thoughts about what else needs to be done to address the direct-to-school debt crisis.

Below are several areas lawmakers would like to see addressed.

Collect more data to understand the scope of the problem

Even though the State Council for Higher Education in Virginia has requested and received some data from public colleges about transcript withholding, the data is incomplete and possibly not reflective of the students most harmed by transcript withholding and other debt collection practices.

Lee Andes, associate director for financial aid at SCHEV, says question marks remain about the data, which fails to specify how old the debts are and the amounts that are ultimately recovered for each debt. In national reports about other states, Andes says the return rate has been between 5 and 10%. The Virginia figures show a return rate closer to 50%.

“Maybe these other reports [from other states] are dealing with students who specifically have gone into collections, and the collection rate on that could be very small,” Andes speculated. “Whereas in our data collection, it was more recent debt. Maybe a student who was just finishing up their degree in spring owed a little bit of money, requested a transcript, paid off what was leftover, and it was all smooth?”

Several state lawmakers including Del. Jeff Bourne (D-Richmond) agree that more consistent data is necessary in order to better understand the scope of the problems.

“I think data collection is probably the most important piece to solving this puzzle,” Bourne said. “To see what's going on now, what the scope of the problem is and the magnitude of it, and then figure out how we both balance the state recouping money that it has essentially lent to students versus doing it in such a punitive way that it really negatively impacts those students’ ability to go on in life and be productive adults that we want them to be.”

Student financial aid for higher education is one of two topics the Joint Legislative Audit and Review Commission, which conducts research for state lawmakers, will be studying this year. JLARC is still determining the scope of this study, but lawmakers like Bourne want to see it include direct-to-school debt and collection measures.

Del. Carrie Coyner (R-Chesterfield) supports better data collection, specifically calling for colleges and universities to report more data to SCHEV about students who ultimately don’t complete their education.

“Our current data shows us who is not completing…but we aren't seeing the full picture of, well, how much debt are these folks leaving us with?” Coyner said.

Coyner also wants to see increased accountability for colleges when it comes to students who start but don’t finish a degree.

“What I think it shows us is we're doing a very poor job of helping folks get their degrees,” Coyner said. “And if a degree’s not working out for someone, where's the accountability for all parties, the individual [student] but also the higher education institution?”

Limit punitive collection measures

Coyner is sponsoring legislation this year to cap fees Virginia’s attorney general can retain for collecting the debt on behalf of public colleges at 15% of the principal balance. The AG’s office is currently allowed to retain “as special revenue” up to 30% of the principal balance. (This amount is separate from the 30% attorney fees the office has routinely charged in many student debt cases.)

“What I question is whether or not we have incentivized them [attorneys and staff in the AG’s office] in a way that is having unintended consequences, where they are really trying to get as much of these debts collected so they can get their 30%?” Bourne questioned.

Coyner’s office told VPM News the AG’s office asked Coyner to file the legislation. Attorney General-elect Jason Miyares also told VPM in a recent interview that he plans to put forward legislation to update the Virginia Debt Collection Act, though he did not clarify what those changes would be.

Under predecessor Attorney General Mark Herring, students from Virginia State University were taken to court over old debts during the pandemic and charged 30% attorney fees. Virginia Sen. Mamie Locke (D-Hampton) said the system that led to that situation “needs to be overhauled, right about now.”

“During the pandemic, to try to force the hands of students to pay debt when people couldn’t even get outside of your house…I mean, that’s ridiculous,” Locke said. “[Students] oftentimes have to drop out and work for some time to even pay for their education. So this aggressive collection doesn't help the matter at all.”

Other lawmakers like Del. Marcus Simon (D-Fairfax) think there should be a limit on the number of times – or number of years – the state attempts to collect from students. Many of the VSU student cases litigated during the pandemic were at least a decade old.

“To the extent we can give them [AG’s office] clearer guidance about when it's appropriate to stop pursuing these things and when it's appropriate to give them more flexibility to work out [payment] plans or sometimes just write it off…If they need better instructions, I think the legislature ought to do that,” Simon said.

Require schools to offer additional payment plans, more effectively communicate with students

Simon worked on legislation a few years ago that made it clear that colleges and universities had the option to continue working with students directly to set up payment arrangements if they’ve been delinquent on payments for up to 60 days. But not all colleges have elected to allow students this additional option.

Simon says he thinks the state should require schools to offer payment plans for a certain period after a student drops out or defaults before referring accounts to third-party collection agencies or the attorney general’s office.

“These are kids who are in school, who are working hard and trying to get ahead,” Simon said. “Let’s not weigh them down. Let’s not hang this debt over their necks if we don’t have to.”

Multiple lawmakers also agree that Virginia colleges need to work on more effectively communicating with students about their financial needs and obligations: before students enroll in classes, while they’re enrolled and after they’ve left an institution.

“The federal financial aid guidelines are really complex and oftentimes arcane to even professionals in the institutions. And they're especially arcane for students and their families as they're navigating through the system,” Senator Hashmi said. “So being able to simplify that process to make sure students understand what their roles, their responsibilities are is crucial.”

Delegate Coyner thinks colleges should be required to do more counseling with students and families on the front end — before they even enroll. She says that will help students plan financially for success.

“It shouldn't be: we can give you financial support and help you this year. It ought to be: it's going to take this number of years to complete the program. And let's have a full financial and life plan for what those four years are going to look like for you,” Coyner said. “And I think if we spent the time doing that, we'd have more people succeeding because they would know what it would take and we'd have less folks dropping out because they'd be prepared.”

Delegate Bourne said it’s important to communicate with students on the back end as well.

“I suspect that many of these colleges and universities have exit counseling or graduation checklists,” Bourne said. “Maybe one of those things has to be a credit counseling session that talks to them about their student loans, any debts that they have that may have arisen from medical reasons or a change in tuition status.”

Forgive certain amounts of student debt

Not all lawmakers agree with or support even limited measures to forgive student debt. But others like Bourne think that forgiving certain debts – particularly debts that are a certain number of years old – is reasonable.

“A bad debt is a bad debt,” Bourne said. “Maybe we tie it [debt forgiveness] to volunteer or public service hours. Maybe we tie it to – much like they do scholarships – where you maintain a certain grade point average. I think we’ve got to be creative and be more with a carrot and less with a stick.”

Simon said he’s interested in setting up some sort of state-funded emergency fund that universities could dip into “so that the university is not so desperate for these funds.”

“It hurts all of us, not just [students], when they carry this debt. It prevents them from moving on and making other investments, having more money in their pockets frankly to spend on things that will stimulate the economy,” Simon said. “So, I think it's good for the commonwealth to help people put things like that behind them and move forward.”

But he says part of the solution is changing the culture of higher education.

“I think frankly, for many cases, in the scheme of their [universities] big budgets, these are nickels and dimes, relatively speaking,” Simon said. “It just doesn't make sense. I think universities ought to look at their mission as educating kids and not being collectors of tuition and old debts.”