Beware of the dangers of fictitious debt
A consumer watchdog has issued a major warning about student loans.
Here’s what you need to know.
Beware of the dangers of student loan debt. A new investigation by the Student Borrower Protection Center (SBPC), a non-profit advocacy group, has revealed the rise of “fictitious debt” affecting millions of student borrowers. Traditional coverage of the student debt crisis has focused on $1.7 trillion in student loans owed by 45 million borrowers. However, there is a poorly regulated student loan debt “ghost” market that also poses a significant risk to student borrowers. “With the high fees, harsh contract terms, and abusive collection practices that characterize phantom student debt,” writes the SBPC, student borrowers are suffering financially.
The SBPC has identified more than 100 non-accredited for-profit schools that market point-of-sale financing such as Buy Now, Pay Later” or BNPL, as a type of student loan to pay for education. The SBPC warns student borrowers that these risky types of credit disguised as student loans lack key protections found in private and federal student loans and may have hidden fees and other dangers.
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Beware of the dangers of this type of student loan
Student borrowers should be aware that using forms of credit such as the BNPL to fund their education under “untested, unaccredited, and/or slightly or completely unsupervised programs” could put you at tremendous risk. Specifically, student borrowers could:
- face significant costs;
- being required to repay their loan before getting a job;
- have little or no protection against fraud;
- experience a decline in their credit score;
- limit their ability to assert their rights in court; and
- they are not eligible for student loan forgiveness.
“Today’s report exposes another industry determined to make money from the student debt crisis,” said SBPC Director of Research and Investigations Ben Kaufman. “Policymakers and law enforcement at all levels must step in to protect borrowers from the ungodly but increasingly prevalent marriage of dodgy schools and risky private credit.”
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Student loans: what to look for
Student borrowers should be aware that for-profit colleges have continued to experience significant growth. At least some of these education companies offer short-term, degree-based courses (such as boot camps) that are supposed to lead to employment (but may not deliver on their economic promises). However, the SBPC warns that consumers face “extreme danger” with for-profit schools increasingly using “exotic forms of private credit” as a way to fund tuition fees. According to the SBPC:
- Student borrowers should beware of dodgy for-profit schools that advertise the “Buy Now, Pay Later” credit as a student loan. BNPL is an installment loan used in retail purchases in which you purchase the goods in advance but do not have to pay for the goods until a later date. When applied to tuition, the SBPC wants BNPL credit to be a source of “quick and risky loans” for student borrowers to use for courses such as cosmetology, outdoor survival and craft making. wigs. Many of these courses cost hundreds or thousands of dollars to attend.
- Student borrowers should be especially careful before using BNPL loans in for-profit “bootcamps” for tech careers. Like revenue-sharing agreements, be especially wary of using BNPL loans for technology-focused job training programs. At least some of these programs are not accredited. Even if you pay high tuition fees with a BNPL loan, you can get your desired tech job.
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Student loans: final thoughts
Before borrowing a financial product, make sure you understand its terms and conditions. Make sure the financial product is right for you. A BNPL loan may make financial sense for your particular situation, but it’s important to understand the total costs and the fine print. Likewise, before enrolling in a course or degree program, do your due diligence on the educational institution and the promises, if any, made. With temporary student loan relief set to end in less than 60 days, having a student loan repayment game plan is essential.
Here are smart ways to repay student loans: