Biden administration issues rules against withholding transcripts and sudden school closures

Schools of higher education will no longer be able to withhold transcripts arbitrarily and those that suddenly close must abide by stricter rules to protect students and taxpayer dollars.

Those changes, among others, are part of new rules that the Department of Education announced on Tuesday. These regulations will be published on Oct. 31 in the Federal Register and go into effect July 1, 2024.

They are yet another effort in President Joe Biden’s agenda to make college more affordable, hold colleges accountable, and protect taxpayers and consumers.

"Too many students have been abandoned by shady colleges that close their doors and leave borrowers with unaffordable debt and little hope of completing their educational journeys and embarking on rewarding careers," US Secretary of Education Miguel Cardona said in a press release. "With these final rules, the Biden-Harris administration is fixing a broken system, which failed to protect students and families, and addresses abuses in higher education that have cost taxpayers billions of dollars in recent years."

Withholding transcripts

Over 6.6 million students have their transcripts withheld due to unpaid balances, preventing students from transferring or getting job opportunities that require transcripts for job offers, according to James Kvaal, under secretary of the Department of Education.

"Transcript withholding is designed to gain leverage over borrowers and coerce them into making payments, as it is difficult to seek employment or transfer education credits to another school without an official transcript," the Consumer Financial Protection Bureau (CFPB) stated in a 2022 examination. "The CFPB’s examinations found that the blanket withholding of transcripts to pressure borrowers is an abusive practice under the Consumer Financial Protection Act."

The new rule from the Department of Education is designed to prevent schools from holding the entire transcript hostage. If a student paid off previous semesters using federal funds, the school cannot withhold transcripts for the semesters that were paid off.

This allows transfer students to get access to their records and job seekers to comply with employment offers that require transcripts.

Abrupt school closures cost taxpayers $1.6 billion

The closed school loan discharge and borrower loan defense discharge programs allow borrowers to get their student debt discharged if their school closes while enrolled or if the school misled students. The Biden administration has discharged over $22 billion in debt under these programs for more than 1.3 million borrowers.

Although the Department of Education can go after schools to recoup the costs of debt discharged under the programs, the department collected only $344 million from 2013 to 2022 of the more than $1.6 billion in liabilities from these institutions, many of them for-profit institutions.

Read more: Do I qualify for student loan forgiveness?

The stricter rule will strengthen financial accountability by requiring schools with risky financial status to set aside funds that will go toward offsetting costs associated with abrupt school closures and borrower defense claims.

Other changes

The new regulations would also make sure colleges are administratively capable of participating in the federal student aid program, especially their financial aid offices and career services. Many borrower defense claims show schools misrepresented financial aid and job opportunities.

Additionally, the rule would require options for students to finish their education even if a school closes. In prior borrower defense discharges, students did not have transferable credits, which occurred at Westwood College, DeVry University, and ITT Tech.

"Today’s regulations prioritize students and taxpayers and continue our work to fix a broken student loan system," Kvaal said. "They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations. They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded."

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government.

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