What Is Tuition Debt?

Private schools in the National Association of Independent schools charged an average of $17,441 per year in 2008, non-member schools charged $10,841 and parochial schools charged an average of $6,906. The result is that many families sending students to private schools accumulate substantial educational debts in the form of student loans or tuition debt. Understand the distinction between tuition debt and student loans to determine your options should you face financial difficulty.

Definition

Tuition debt is debt owed directly to an educational institution for unpaid tuition bills. Such debt can come from unpaid tuition at all education levels, from private elementary schools to graduate school. Tuition debt differs from student loans because there is no promissory note, which contains your promise to repay the loans or interest. This debt can arise when an individual believes he can pay the tuition without financial aid and attends classes as though this were the case, but then fails to make the payments on time.

Effects

In addition to being a financial burden and blow to the individual's credit score, tuition debt has a large impact on the private school system. Private schools, especially at or below the high school level, are dependent on the tuition they receive to stay open. The superintendent of the Bridgeport Diocese schools in Connecticut reported in 2010 that many private Catholic schools have been forced to close because of lost revenue from unpaid tuition.

Withholding Transcripts

The school has a strong interest in collecting this overdue tuition and has one main tool to convince the debtor to pay up: withholding official transcripts until the debt is paid.

The Family Education Rights and Privacy Act (FERPA) requires schools to allow students to inspect their own education records and transcripts. This means the school must send a transcript to students unable to inspect the records in person; however, FERPA does not require this to be an official copy, nor does it require the school to send more than one. This can prevent the student from completing applications to colleges or graduate schools until the debt is paid.

Discharging

United States Court of Appeals for the Second Circuit has ruled that tuition debt, unlike student loans, can be discharged in a Chapter 7 or Chapter 13 bankruptcy.

Additionally, withholding transcripts is considered a debt collection action by the courts. This means that once the bankruptcy case is concluded, the school must release transcripts as normal.