college

Should Colleges Use Collection Agencies for Overdue Student Bills?

Colleges have many potent options for getting students to square their accounts.

Question: I hear that some public colleges turn over the overdue bursar accounts of current students to private collection agencies, which sometimes charge fees as high as 30% of the balance due. This strikes me as unnecessary and usurious. What do you think?

Answer: I agree, when this is done to current students or those about to graduate. Colleges have numerous potent alternatives for getting students to square their accounts—for example, not letting them register for the next semester or remain in a college dorm. If the student is a senior about to graduate, the college can withhold the diploma or refuse to issue an official transcript of grades.

Given these remedies, it’s unnecessary and punitive to place a current student’s account with a commercial collection agency that may, under some states’ laws (like Virginia’s), charge as much as 30% of the outstanding amount. Such a practice should be reserved (as most colleges apparently do) for loan defaults by former students over whom the college no longer has any leverage—and only after the debtor has ignored repeated warnings to begin payments and/or attempts to work out a repayment plan.

Colleges that turn current students’ overdue bills over to collection agencies defend the practice by noting that it is rarely used and typically only at the end of a semester, after they have sent the student up to eight notices of the delinquency over a five-month period and offered to work out a repayment plan.

That may be true, but we all know the propensity of young adults to remain in denial of the need to take action until the very last minute. That’s why colleges should go to great lengths to exhaust their other remedies before turning the outstanding debt over to a collection agency, with a possible 30% charge to the student. That is a substantial price to pay for procrastination, denial and a lesson in adult responsibility.

Have a money-and-ethics question you’d like answered in this column? Write to editor in chief Knight Kiplinger at ethics@kiplinger.com.

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