What Are “Stranded” Credits? — The James G. Martin Center for Academic Renewal

Thousands of current and recently graduated students across the UNC System—and millions around the country—are having future job and academic opportunities put on hold as a result of outstanding account balances at their alma maters. Many higher-education institutions withhold diplomas and transcripts as a way of ensuring that students pay those balances—resulting in a phenomenon known as “stranded credits.” In response, several states have introduced bills that would prohibit this practice. Moreover, new regulations from the Department of Education are in the offing and may limit universities’ debt-collection tactics.

What Are Stranded Credits, and Why Are They a Problem for Students?

Stranded credits refer to inaccessible academic credits earned by students in college. Such credits are “stranded” because of unpaid balances at institutions that hold student transcripts as collateral. This practice means that students cannot transfer their credits to other institutions or use them to obtain a job. As reported by the National Association of College and University Business Officers (NACUBO) and Lumina Foundation in 2021, the practice of withholding transcripts is widespread, with 95 percent of institutions—both public and private—indicating that they withhold transcripts as a debt-collection tactic. This creates obstacles for students who need their transcripts to continue their educations or obtain jobs that will help them pay off their educational debts.

64 percent of institutions that withhold transcripts for unpaid balances do so for amounts as small as $25.Most institutions that withhold transcripts do so as a matter of institutional practice and without any policy mandate from either state or federal governments. One of the main justifications for this is that forgiving students’ debts would create a moral hazard: Students might avoid paying their balances if they knew there would be no consequences for doing so.

Significantly, the student-account balances in question are often small. According to a 2016 survey conducted by the American Association of Collegiate Registrars and Admissions Officers (AACRAO), 64 percent of institutions that withhold transcripts for unpaid balances do so for amounts as small as $25. This number is slightly higher for community colleges, with 68 percent saying they withhold transcripts for balances under $25. To make matters worse, “institutions that predominantly serve a population less likely to be Pell recipients … are less likely to have practices that lead to withholding an official transcript.” This means that the neediest students are at greatest risk of having their credits stranded. A simple parking ticket or unreturned library book could warrant a hold on a student’s transcript.

The aforementioned surveys are great for assessing how many institutions engage in the practice of withholding transcripts for unpaid balances; however, they do not provide estimates of the number of past and current students affected by the policy. To that end, the higher-education thinktank Ithaka S+R released a study in 2020 that sought to provide accurate data.

To formulate its estimates, Ithaka S+R used publicly available Integrated Postsecondary Education Data System (IPEDS) data and information from the 2019 NACUBO Student Financial Services Benchmarking Study. The resulting analysis suggests that “approximately 8.3 million students nationwide had unpaid balances in FY2018, and over 1.4 million had accounts in collection.” Furthermore, the study estimates that the total dollar amount owed in unpaid balances for FY2018 was approximately $6.5 billion. Obviously, not all of the estimated 8.3 million students in question had their transcripts withheld. But given that nearly all institutions engage in the practice to some extent, it’s safe to say that millions had their future aspirations stonewalled, at least for a time, by this pervasive policy.

The inability to access their credits has resulted in significant financial and academic burdens for students. These burdens can include debt, collections fees in excess of 30 percent, federal financial-aid charges in the thousands of dollars, and effects on credit reports, which could potentially prevent students or graduates from applying for mortgages even years after their interactions with higher education.

Millions have had their future aspirations stonewalled.States such as California and Washington have enacted legislation banning the withholding of transcripts. New Jersey, on the other hand, has sought a middle path by introducing a bill that would prohibit the withholding of transcripts for balances under $2,000. Meanwhile, some institutions are attempting to address the issue on a more local level by using debt-forgiveness programs and gap loans to bring former students back to school and allow them access to previously earned credits.

How Is the UNC System Addressing Stranded Credits?

Considering that the practice of withholding transcripts for unpaid balances is an institutional practice and not one mandated by law, one would think there would be some disparity amongst the UNC-System schools. Yet that is largely not the case.

All 16 institutions in the UNC System have three things in common where transcript and diploma holds are concerned: (1) No distinction is made between tuition-related and non-tuition-related balances; (2) balances must be paid in full for transcripts and diplomas to be released, and simply starting a payment plan does not suffice; and (3) various debt-collection techniques are utilized to collect outstanding balances, including sending debts to the attorney general’s office.

However, where the schools do slightly differ is in their respective policies on dollar-amount thresholds. For example, the majority of UNC-System institutions place holds on accounts for any dollar amount. NC State, on the other hand, withholds diplomas for outstanding balances of $50 or greater, though any amount of debt results in official transcripts not being issued. Likewise, UNC Asheville’s official policy prevents students who owe any amount from obtaining their transcripts. However, when reached for comment, UNC Asheville’s registrar’s office stated that, due to Covid, the threshold of outstanding balances for registering for classes had been moved from $50 to $2,000. When asked whether they planned to revise their policy, UNC Asheville responded, “Not at this time.” The office did say, though, that informal discussions have been taking place within the UNC System, but that “nothing substantive has taken place yet.”

Below is a list of the UNC-System schools and their policies concerning transcript and diploma holds:

At the end of the day, it is important that students are able to access their transcripts and/or diplomas so that they can reap the benefits of their hard work. But it is also important that they are responsible and held accountable by the institutions they attended. The debate over transcript holds is likely not going anywhere anytime soon, as more and more states move to place restrictions on the institutional practice or to revamp it to make things more palatable for both students and institutions alike.

Michael Bruce is a political consultant for congressional candidates. Prior to consulting, he worked as a communications and research intern at the John Locke Foundation.