Beware The Dangers Of Shadow Debt | #education | #technology | #training

A consumer watchdog has issued a major warning on student loans.

Here’s what you need to know.

Student Loans

Beware the dangers of student loan debt. A new investigation from the Student Borrower Protection Center (SBPC), a non-profit advocacy group, has uncovered the rise of “shadow debt” that affects millions of student loan borrowers. Traditional coverage of the student debt crisis has focused on $1.7 trillion of student loans owed by 45 million borrowers. However, there is a lightly-regulated “shadow” student loan debt market that is also a material risk to student loan borrowers. “With the high fees, harsh contractual terms, and abusive collections practices that typify shadow student debt,” writes the SBPC, student loan borrowers suffer financially.

The SBPC identified more than 100 unaccredited 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 is warning student loan 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 the dangers of this type of student loan

Student loan borrowers should be aware that using forms of credit such as BNPL to finance their education at “unproven, unaccredited, and/or lightly or wholly unsupervised programs” could place you at massive risk. Specifically, student loan borrowers could:

  • face significant fees;
  • be required to repay their loan before securing a job;
  • have little or no protections in case there is fraud;
  • experience a decrease in their credit score;
  • limit their ability to enforce their rights in court; and
  • they don’t qualify for student loan cancellation.

“Today’s report exposes yet another industry bent on making a buck through the student debt crisis,” SBPC Director of Research & Investigations Ben Kaufman said. “Policymakers and law enforcement at all levels must step in to protect borrowers from the unholy but ever-more prevalent marriage of dubious schools and risky private credit.”

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Student loans: what to look for

Student loan borrowers should be aware that for-profit colleges have continued to experience significant growth. At least some of these education companies offer short-term, credential-based courses (such as boot camps) that supposedly lead to employment (but may fall short of their economic promise). However, the SBPC warns that consumers face “extreme danger” with for-profit schools increasingly using “exotic forms of private credit” as a means for tuition financing. According to the SBPC:

  • Student loan borrowers should beware of dubious for-profit schools advertising “Buy Now, Pay Later” credit as a student loan. BNPL is an installment loan used in retail purchases in which you buy the merchandise upfront but don’t have to pay for the merchandise until a later date. When applied to tuition, the SBPC wans that BNPL credit is a source of “quick, risky loans” for student loan borrowers to use for courses such as cosmetology, outdoor survival and wigmaking. Several of these courses cost hundreds or thousands of dollars to attend.
  • Student loan borrowers should be particularly wary before using BNPL loans at for-profit “bootcamps” for careers in technology. Like income share agreements, be particularly wary of using BNPL loans for technology-focused vocational training programs. At least some of these programs are unaccredited. Even if you pay high tuition with a BNPL loan, you may get your desired job in technology.

(Biden Cancels $415 Million Of Student Loans, But Bernie Sanders Says Cancel All $1.8 Trillion Of Student Debt)

Student loans: final thoughts

Before borrowing a financial product, make sure you understand the terms and conditions. Make sure the financial product is right for you. A BNPL loan may make financial sense for your unique situation, but it’s important to understand the full costs and fine print. Similarly, before enrolling in a course or degree program, do your due diligence on the educational institution and the promises, if any, being made. With temporary student loan relief scheduled to end in less than 60 days, it’s critical to have a game plan for student loan repayment.

Here are smart ways to pay off student loans:

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