The Family Educational Rights and Privacy Act (FERPA), also known as the Buckley Amendment, guarantees that students at accredited institutions of higher learning that receive federal funding have the right to inspect all elements of their educational record. FERPA applies to virtually all accredited colleges in the United States. The term "education records" encompasses everything from an administrative email about the student to financial aid applications. The student's transcript is included in the education records regulated by FERPA. A student is always guaranteed the right to inspect her own transcript and receive a copy (though a nominal fee may be applied) as well as request an amendment. If the requested change is not allowed, the student has the right to add a letter of explanation to accompany the disputed record.
Many colleges have adopted a policy of withholding "official transcripts," such as those used in applications to a graduate program or to transfer to a new college, as a means of leverage to compel the student to meet certain obligations. Most commonly this occurs in situations where a student has failed to honor a financial obligation to the college, such as not making tuition payments or defaulting on a loan. The legality of this is centered around the common practice in higher education to only consider "official" transcripts in the context of an application from a graduate or transfer applicant. A school receiving an application will expect the transcript to come directly from the college, and a copy provided by the student is generally rejected. For this reason it is common practice for official transcripts to have an embossed seal on them.
This practice is not regarded as a violation of FERPA. Essentially, the line of reasoning is that while a school must provide the factual contents of the transcript to the student, FERPA does not obligate schools to produce certified documents to third parties. "Unofficial" transcripts are components of a student record that must be surrendered to the student; "official" transcripts are part of a service rendered by the college to a third party institution on the student's behalf.
If your FERPA rights have been violated, first try speaking with the dean of students for mediation. Many schools also have an advocacy office for student's rights, and universities with a law school may have a free legal clinic for students. If these options fail, you may wish to either hire an attorney who could possibly seek a court order to hand over the transcripts, or you can file a complaint with the Department of Education's Family Policy Compliance Office (FPCO). Hiring an attorney will most likely be expensive, but filing a formal complaint with the FPCO will likely take upwards of six months to be investigated and resolved.
However, if you are able to obtain an unofficial transcript for the purpose of admissions to another institution, you may be able to speak with an admissions counselor about whether your situation will be considered. If you can convince the school to which you are applying that the hold on your transcript is unmerited, they may consider accepting an unofficial one. Keep in mind, however, that it may not leave a good impression with an admissions board if the application package includes notes about your failing to meet financial obligations to previous schools.