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Diploma Withheld – Why Student Loans Beat Owing the School Directly

When paying for college, there are two alternatives to getting student loans. The first is using scholarships, programs from your workplace, and savings to pay for college up front and as you go. The second is agreeing to pay your school directly at a later date.

Initially, the second option sounds more attractive than student loans. Why go through the stress and complexity of getting loans, perhaps from different companies, when you can work with the school itself?

This e-mail to shows why owing the school directly can go horribly wrong.

The writer is stuck in a tough situation. Her school won’t release the diploma until she pays for her entire degree. But, apparently, in order to get a job in her field (nursing) she needs the school to release the diploma. Otherwise, she’ll be stuck working in another field, or taking a much lower-paying related job.

I’m not sure how important having a physical diploma is to getting a nursing job–I know that no one has asked to see mine for any jobs so far. I also don’t know if her school would confirm her degree without the full repayment. I left a few suggestions for how she might be able to explain her situation, but it depends on the hospital or employer. After all, medicine is a field that should have higher standards than most for making sure people are properly educated and trained.

So what should one do in a situation like this?

Student loans definitely suck, but there are better and worse people (or organizations) to owe money. It turns out that student loan companies aren’t actually the worst. So before agreeing to pay your college after you graduate, be sure that upon graduation you’ll have all the necessary tools to be in a position to pay them back.

In the writer’s case, I think it’s in the school’s best interest to work with her so that she can get her diploma. If they won’t, it’s possible she can get student loans to pay them off–though it’ll be harder than if she were still attending the school.

So remember when taking on loans for anything. It’s not just what you owe and at what interest rate. Who you owe also matters–which credit card company, which organization, etc.

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This Week In Personal Finance – July 12
July 12, 2009 at 4:04 pm

{ 7 comments… read them below or add one }

Kari July 10, 2009 at 4:13 pm

I didn’t know you could actually owe the school. It is also my understanding that student loans do the same thing and will put a hold on your degree if you aren’t actually paying them off when you are supposed to.

Kari’s last blog post: Where I have been

mrsmicah July 10, 2009 at 7:48 pm

Hi Kari,

I don’t think most schools do it. It’s a lot harder on the school to follow up afterward than it is for them to accept loan money and leave it to the loan companies to make sure they get the money back.

However, I have not heard of a student loan company ever holding back a diploma from someone who defaulted on loans. They can do a lot of other things to you and your credit score and prevent you from every declaring bankruptcy–so the companies have a lot of power. But your diploma and your degree are between you and the school.

If you have a source for that, I’d be interested in hearing it, but otherwise I don’t think people have to worry about that if they default. Still not a good idea because of all the repercussions!

mrsmicah’s last blog post: Diploma Withheld – Why Student Loans Beat Owing the School Directly

SavingDiva July 13, 2009 at 2:04 am

That sounds SO stressful! I’m so happy that I was able to make it through school (so far) without acquiring any student loans…

I think it’s weird that the school won’t release the diploma…but I also think it’s weird that she needs it. I never had to show my diploma (for anything)….I have flashed a transcript around…but that’s about it!

SavingDiva’s last blog post: Plan to Get rid of Cockroaches—Started!

mapgirl July 13, 2009 at 10:57 am

My university used to hold your degree hostage till you paid your library fines. (I thought you would appreciate that being a uni librarian yourself.)

But from the article, it doesn’t appear that these are student loans. Possibly a heck of a lot of ‘dorm damage’?

I actually took a direct student loan from my school and it really was no different than a US Dept of Ed loan. I think there is something else going on in that article.

Frankly if I was in HR at a healthcare facility, I wouldn’t hire this person. Just like when you get a security clearance, this person has a very strong temptation to do other nefarious deeds for money within a healthcare environment. (Just ask me how.)

mapgirl’s last blog post: Where Am I Headed This Summer?

MrsMicah's Mom July 15, 2009 at 1:52 am

Some schools don’t seem to have much flexibility when dealing with unusual situations. When I was in graduate school, I paid for my health insurance on the day that the office was moving, and my check was applied to the wrong account, faculty children’s scholarships. Even after we had tracked down the check, it took three years for me to get them to credit the money to the correct account. Fortunately, I was healthy in those days.

Mike October 26, 2015 at 6:02 am

I attended a “holistic” school in Arizona. I was making payments directly to the school. Once I completed my course I ended up not finishing my payments. They are holding my certifications until I pay the amount in full. They never came after me and it’s not on my credit report but I don’t have anything to show I attended that school. I know I should pay but I’m just curious if they can do that to me.

JJ August 8, 2016 at 5:15 pm

I am unemployed and the public university I graduated from is indeed withholding my diploma & transcripts because of a default on a Perkins loan via the school.
They stated that even if I complete the rehabilitation process (which removes me from default status) that I am still not able to receive my diploma until the entire loan is paid in full.
I graduated with honors, top of my class. Full ride scholarship & ONE Perkins for $5500.
They are holding my diploma ransom. It would seem to me that they must fulfill their end of the contract so that I can fulfill mine.

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