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Public colleges in 49 states send students' debts to collection agencies, imperiling financial futures

"It's overwhelmingly low-income students who are disproportionately being caught up in this vicious cycle," one expert said.
Illustration of person resting their head on a desk with graded papers and debt collection notices scattered on the desk.
Public colleges in every state except Louisiana use for-profit debt collection agencies to recover overdue tuition, library fees and even parking ticket fines.Chloe Cushman / for NBC News

This story about debt collection was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

Richard Fishburn never imagined he’d one day be facing down debt collectors — all because he decided to return to college.

An Army veteran who had worked all his life, Fishburn enrolled at Cleveland State University in Ohio in 2016. But in his third semester, when the back injury he sustained in the Army flared up, his advisers encouraged him to take time to heal so he wasn't in excruciating pain sitting in lecture halls.

That decision proved costly. Although he withdrew from classes, Fishburn said, he still received a bill for tuition without any explanation for why he still owed money. When he tried to re-enroll, Fishburn was told he needed to pay in full. Cleveland State had added $600 in collection and late fees, and eventually, as required by state law, it passed the debt on to the state attorney general's office, which then sent it to a for-profit debt collection company and then to a private law firm. At each step along the way, interest was tacked on. His original bill of $2,447 ballooned to more than $4,250.

Fishburn, 34, can't imagine when he'll have the money to pay off his debt, and until he does, he can't go back to college. He has been unemployed since his last job in television and film ended and the pandemic began. His wife is working, but with three young children and a mortgage, they have nothing left over to chip away at a debt that is now 74 percent more than what he originally owed.

To the surprise of many students and parents, public colleges in every state except Louisiana use for-profit debt collection agencies to recover overdue tuition, library fees and even parking ticket fines. Many universities add late fees to students' bills, and when debt collectors add another 40 percent, students can end up owing thousands of dollars more than they did originally.

As tuition has risen astronomically, one child care or medical crisis can push students over the edge and force them to choose between household bills and tuition payments. The extra fees and interest can make it impossible for them to get back on track, ruining their credit and imperiling their financial futures.

Public colleges have sent hundreds of thousands of students to private debt collection agencies, and the spiraling debt held there totals more than half a billion dollars, a Hechinger Report investigation has found through more than 60 inquiries with agencies in every state and more than 120 inquiries with individual institutions.

The financial burden makes it impossible for many students to return to college and earn degrees that could get them good jobs. State officials often bemoan a lack of college-educated workers for their economies, yet very few states track the problem. Most can't provide figures about how often they use the companies, how many students are affected or how much in additional fees and interest is being charged.

"I don't know that anyone is winning. The third-party collection agencies that are expanding their client base, they may be the only winners here."

Juana H. Sánchez

More than 36 million adults in the U.S. have earned some college credits but haven't finished their degrees, and experts say the barrier is often financial.

"It's overwhelmingly low-income students who are disproportionately being caught up in this vicious cycle,"said Juana H. Sánchez, a senior associate at the public policy group HCM Strategies. "I don't know that anyone is winning. The third-party collection agencies that are expanding their client base, they may be the only winners here."

University administrators say they're in a tough position. They say that with states regularly cutting education funding, they need the private agencies to retrieve as much money as they can. But there is also evidence that public colleges can do better financially if they keep students' debts out of the hands of collection agencies — setting up payment plans, for example, means students are better able to pay what they owe and stay enrolled, which means tuition dollars keep flowing.

Administrators and government leaders pushing for reform also note that the stated mission of a public university is to provide an affordable education. If tuition were affordable, they say, students wouldn't be stuck in the vise of debt collection agencies in the first place.

Some argue that private companies shouldn't be able to profit from students' financial woes.

Debt collection written into state law

In some states, the law requires public colleges to use collection agencies if debts go unpaid for too long.

Ohio is one such state where the practice is particularly stringent. Public universities in the state are required by law to send student debts to the state attorney general's office after 45 days if accounts are overdue. The state can then add a 10 percent fee. If a student can't begin paying back a debt within four months — regardless of the reason, such as a job loss or a medical crisis — it goes to private debt collection agencies, which can increase the bill by another 21 percent. If the debt goes unpaid for 18 more months, a student could be charged as much as 35 percent more than the original debt.

The law was meant to ensure that public universities and other state institutions were collecting money they were owed and not passing the costs on to other taxpayers and students. Officials say an unintended consequence is that the law has kept some low-income students from earning degrees.

More than 157,000 former public college students in Ohio, who altogether owe $418 million, have debts that have been sent to private collection agencies or outside law firms, which they are struggling to pay back. With few exceptions, they can't re-enroll in college or obtain their transcripts until they pay the entire amounts.

Recognizing the depth of the problem, Ohio's higher education chancellor, Randy Gardner, an appointee of Republican Gov. Mike DeWine, issued new guidance last month authorizing colleges and universities to slow down the debt collection process. The new approach also clarifies that colleges may offer debt forgiveness to students who re-enroll, a practice several colleges in Ohio have already adopted.

It's unclear how many students will be affected by the new debt forgiveness pathway. Because the original law hasn't been changed, students at colleges and universities that want to maintain the status quo can still end up with debt collectors pursuing them and with bills far beyond their original amounts.

Someone like Jenny Jones, who faced debt collectors last year when her daughter was set to graduate from Ohio State University, could have benefited from the relief program.

Jones' daughter had taken summer classes in 2018 at the University of Cincinnati, near home, to make sure she could graduate in four years. Jones thought she could use Parent Plus loans (federal loans parents can take out to cover college costs for their children) to pay the tuition. She found out belatedly that the loans couldn't be used for summer classes at the university.

Her original balance of $2,712 grew to more than $4,600 by December 2019. Jones' own student loan payments are more than her mortgage, and with three kids to support, she was stuck.

"I just felt this panic, like, oh, God, I don't have that much money."

Jenny Jones

"I just felt this panic, like, oh, God, I don't have that much money," she said.

To top it off, just weeks before graduation, Jones was told that her daughter couldn't receive her degree, because the University of Cincinnati wouldn't release an official transcript until Jones paid the debt. Frantically, she tried to negotiate a payment plan but couldn't. In the end, she put the remaining balance on a credit card, which she is still paying off.

The university said it couldn't comment on specific students but said that it provides payment plans.

"I don't dispute that I owed UC the tuition," said Jones, 46. "What I took exception to was the fact that these different agencies can almost double the amount that I'm supposed to pay."

'I really regret going back to college now'

Most states don't have timelines for repayment inscribed in law like Ohio, but many public colleges impose their own deadlines, along with additional fees and interest.

Missouri State University in Springfield, for example, sends about 1,100 students' debt to collection agencies every year; the current number is about 7,300. At Hillsborough Community College in Florida, about 3,990 students are involved with debt collection agencies. Florida allows universities to use debt collection agencies that charge an additional 20 percent to 25 percent on top of the original bill. Debt collection agencies that contract with community colleges in California can add 39 percent. The figures were obtained via email responses from each institution. At some Kentucky public universities, the bill can grow by upward of 40 percent.

Sam Houston State University in Huntsville, Texas, sends overdue accounts to private debt collection companies after about six months, according to the university’s public information officer. More than 2,200 students owe about $5 million (an average of more than $2,200). The students can't re-enroll until their debts are fully paid.

Brendan Mullican, a former student at Sam Houston State, served in the Navy for four years, including in the Middle East during the 2003 Iraq War. Mullican, the first in his family to go to college, used the GI Bill to pay for classes that earned him a bachelor's degree in 2013. Mullican got a job, but his employer said that if he wanted to move up in the company, he needed additional accounting courses.

Image: Brendan Mullican with his family.
Brendan Mullican, second from left, wants to take accounting classes so he can move up in his company but can’t go back to school until he pays a debt collection agency $12,689. Linda Bippus

Determined to get a better-paying job, Mullican continued taking classes while he was working. He kept track of his bills, which showed a balance of zero after three semesters, when he stopped taking classes. A year later, he got a bill from the university for $9,760. After he disputed the bill in an email exchange with university administrators, communication ceased, he said, and he assumed the situation had been resolved. Instead, the university referred the debt to a collection agency without telling him, he said. He got a bill from the agency in 2017 informing him that he owed $12,689.

Mullican, 36, says there's no way he can pay that amount. Until he does, the college won't let him re-enroll and won't release his transcript for the three semesters he completed.

"It just seems unethical," Mullican said. "I really regret going back to college now. I can't believe they would treat me that way. They say they do things to help vets, but it seems like it's just a lie."

A spokeswoman for Sam Houston State said she couldn't comment on individual students because of federal privacy law. She said that in general, students are responsible for all tuition and fees.

The fight over profiting off of public education

Some institutions, such as Northern Illinois University, the University of North Dakota and Gwinnett Technical College in Georgia, have decided not to charge any extra fees, even when they send overdue balances to debt collection companies. Administrators say keeping the bills at their original amounts makes it easier for students to set up payment plans and re-enroll.

In Ohio, some legislators — both Democratic and Republican — are working to ensure that students don't end up with extra fees. But the proposals have met with opposition from some conservatives in the Republican-controlled Legislature. Some public university leaders oppose the change, too. And private debt collection agencies stand to lose millions of dollars if collection efforts are kept in house at the colleges.

Six collection agencies in Ohio have contracts with the attorney general's office. The largest is National Enterprise Systems Inc., which this year had 40,000 students and more than $95 million to collect, according to the Ohio attorney general’s office, potentially bringing up to $20 million in revenue to the company, if it tacked on the maximum 21 percent allowed by law.

State records showed that from 2019 to the first quarter of this year, the company's lobbyists met several times with the attorney general's office about what was listed in public records as “collection decisions.”

Margie Brickner is the CEO of Reliant Capital Solutions LLC, which stands to make up to $3.5 million from student debt this year, based on figures obtained from the attorney general’s office. She donated $95,000 to the state Republican candidates fund from 2017 to 2020, according to public records kept by the Ohio secretary of state. She also contributed $4,000 to a candidate committee for the current attorney general, Dave Yost, in the lead-up to his election in 2018.

National Enterprise Systems didn't respond to several requests for comment. A representative for Brickner and Reliant said they declined to comment.

The attorney general's office also gets significant revenue when student debts are sent to its staff for collection, even before they go to the private agencies. The law allows a 10 percent additional fee, and as of this spring, about 385,000 students owed more than $740 million.

On average, the office collects debts of about $50 million a year, according to a report by Piet van Lier of Ohio Policy Matters, a nonprofit research institute; that could mean $5 million in revenue.

Debts sent to the attorney general's office disproportionately came from campuses with higher percentages of Black and Latino students, according to the report.

"It seems to me to be ludicrous that we make students who are struggling to finish their degrees incur even more charges and late fees and debt."

Tom Lasley

As in other states, efforts to reform the system in Ohio have been fueled by concerns about population decline and job losses. About 1.3 million people have completed some college in Ohio but haven't gotten degrees. State officials worry that businesses will shy away from the state without more college graduates.

"Some people are saying that's the problem with our country — people want something for nothing," said Tom Lasley, CEO emeritus of the advocacy group Earn to Learn Dayton and a former dean at the University of Dayton. "It seems to me to be ludicrous that we make students who are struggling to finish their degrees incur even more charges and late fees and debt."

Lasley said he was pleased with the new guidance from Gardner, Ohio's higher education chancellor.

State Rep. Tom Young, a Republican, also sees the announcement as a good first step. He wants to make sure students have incentives to finish college and remain in Ohio to build up the workforce. Young emphasizes that his goal isn't debt forgiveness but scaling up the programs that allow students to go back to school and earn their degrees.

"We want Ohio to be a place that can attract and keep businesses. The challenge we have is that sometimes life happens to people," he said. "They leave school for some reason, and the debt continues to increase."

Some argue that the new guidance will help only a small minority of students and that more sweeping change is needed.

"Ohio is one of the worst states in terms of college affordability, and that is a connected component and why this particular policy and practice is egregious," said Prentiss Haney, a co-executive director of the Ohio Organizing Collaborative, a grassroots community organization.

"There's an incentive for the debt collection agency to lobby and make sure those debts are referred to them, instead of an incentive for the university to keep debt," Haney said.

The search for solutions

Even as several universities have expressed concerns behind the scenes about losing revenue, some say using collection agencies isn't necessarily more effective than other ways to collect the money.

For example, in fall 2018, Wayne State University in Detroit started a program called Warrior Way Back. Students who owe less than $1,500 are allowed to re-enroll, and for each semester they complete, one-third of their debt is forgiven.

University administrators say the program has actually helped financially: Wayne State has gained $1.5 million in tuition from those students after taking into account the debt it forgave.

"Think about when you're 18 years old and what you don't know about managing debt," said Dawn Medley, the associate vice president of enrollment management at Wayne State, who created the program. "We had a lot of students who owed us these past balances — they may have had veterans' benefits or remaining federal aid money, but they're caught. They can't enroll until they pay the debt, and they can't get aid until they enroll."

The program, like those at institutions like Ivy Tech Community College in Lawrenceburg, Indiana, requires extensive financial counseling and academic guidance to ensure that students can pay going forward and are on viable career paths.

Even before Ohio announced the new guidance, Cleveland State University had started forgiving up to $5,000 in exchange for re-enrollment and course completion. Administrators say they hope the forgiveness program can keep student debts from being sent to the attorney general's office in the first place so fees and interest don't pile up.

"Our program helps," said Dean of Admissions Jonathan Wehner, Cleveland State's vice president of enrollment management and student success, "but really the dialogue we need to have is about affordability and how we make sure that every student who could benefit from a four-year degree can get a four-year degree."

Wehner and other university officials say they try to accommodate students as best they can, given the constraints of the law.

But even though Cleveland State has one of the most generous debt forgiveness programs in the state, it doesn't help Fishburn. Students like him whose debts have already been sent to collection agencies aren't eligible for the program.

So for now, he is in limbo.

"The fact that they're passing this debt around just makes no sense to me," Fishburn said. "Someone's profiting on it, for sure. It just seems like a giant scam to me."