Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
Unfortunately, even though this is beyond the statute of limitations
for them to sue you, the law says the school does not have to release an official transcript. The Family Education Rights and Privacy Act (FERPA), 20 USC 1232g and 34 CFR 99, gives you the right to inspect and review their own education records.
Under 34 CFR 99.10 (d)(1) the college must provide you with a copy of the education records if circumstances prevent you from inspecting and reviewing the records in person. Since the definition of education records includes an academic transcript, FERPA requires colleges to provide you with a copy of your academic transcripts if you do not live in the local area. Under 34 CFR 99.10(d)(2) permits the college to "make other arrangements for you to inspect and review the requested records", so a college could potentially fulfill the requirement by means other than providing a copy.
The big issue is that the copy does not need to be an official copy of the academic transcript with the registrar's seal. The college is also not required to provide more than one copy of the unofficial transcript. Also, since the law says they only must provide YOU with a copy of the education records, the college is not required to send a copy of the education records to a third party such as a prospective employer or another school.
So, yes, they can hold the official transcript until you pay what is owed, even if they cannot sue you on it any longer because of the SOL.