Universities which currently rely on the threat or practice of withholding degrees will need to adopt alternative, more pro-active and commercial methods to ensure debts are settled because withholding degrees because of non-academic debts is almost certainly against the law.
Many universities have regulations which allow them to withhold degrees from students who owe them money. This seems justifiable in relation to academic debts such as tuition fees but is not so clear cut for non-academic debts such as rent or childcare.
The OFT is investigating the use of academic sanctions for non-academic debts and is looking into whether such action would be an unfair penalty under the Unfair Terms In Consumer Contract Regulations and other consumer protection legislation.
The trouble for universities is that the provision of academic services is governed by one agreement, often referred to as the 'student contract', and the provision of accommodation or childcare by separate agreements. Stopping students from graduating because of actions related to a separate agreement is probably unfair and a breach of consumer protection law.
The fact that universities use this power infrequently is beside the point. They will want to avoid the bad PR resulting from making use of the power, but there is no doubt that it is a powerful threat to have in their arsenal.
Universities are hampered by the fact that once a student leaves it has virtually no sanctions to impose short of taking the student to court, which will result in more bad PR and costs which will soon dwarf the debt itself. So they want a threat they can use whilst a student is still part of the university. This is where the threat to withhold a degree is useful.
But that threat would lose its power if the OFT rules it is illegal. This means that universities must adopt methods from the commercial world and be more disciplined about forcing repayment earlier and with more rigour.
For example, if a library fine is unpaid after 21 days, could the university deactivate the student’s access pass into the library or stop the student taking books out on loan until the debt is paid? Restricting access to other university services such as sport and leisure facilities, perhaps on a phased basis, for debt would have a material impact on students' lives and could help to encourage debt repayment.
Such practices, though, will need to be carefully thought-through and must be fair and proportionate to the level of the debt. This could re-open the debate about whether written student contracts defining rights and obligations between university and student clearly should be used.
Universities may want to try to persuade the OFT that withholding degrees is not unfair but, if they are going to be successful, it is likely that they will need to present a united front and ensure that each institution is delivering the same message to the consumer protection regulator. Taking co-ordinated action is something that universities have found challenging in the past.
In making its decision, the OFT should be sensitive to the fact that universities have limited opportunity to enforce debt collection once a student has graduated and left. Its finding should be based on an understanding of the universities' position.
Even if a finding of unfairness is made there are likely to be some grey areas. Are library fines academic or non-academic debts, for example? And, if they do count as academic, can it ever be a proportionate response for universities to withhold qualifications for debts that are often as low as under £100?
The OFT will publish initial findings in October and are likely to find the withholding of degrees for non-academic debt unfair. Universities should start planning now, and should take a leaf out of commercial organisations' books if they are to find new and effective ways to recover non-academic debt.
Nicola Buchanan is a universities expert at Pinsent Masons, the law firm behind Out-Law.com