Student Borrower Protection Center Investigation Uncovers that Public Colleges and Universities are Partnering with Unaccountable Contractors to Saddle Students with Dangerous “Shadow Student Debt”
June 11, 2021 | WASHINGTON, D.C. — Public colleges and universities nationwide are driving students toward expensive, predatory student debt according to a new report issued today by the Student Borrower Protection Center (SBPC). In particular, new findings indicate that flagship state universities and local community colleges alike are pushing borrowers toward the perilous market for “shadow student debt.” The report highlights how this practice is particularly prevalent at short-term, non-degree granting “bootcamp” programs. Many of these programs are offered at public schools through for-profit contractors known as Online Program Managers (OPMs). Schools’ and lenders’ actions appear to run afoul of key consumer protections, highlighting the need for the Department of Education to vigorously enforce student protections in the Higher Education Act and for the Consumer Financial Protection Bureau to carefully scrutinize quickly evolving dangers in the student loan market.
“Our findings are a stark warning that public schools have revived the tactic of pushing students into predatory debt to make a buck,” said Seth Frotman, SBPC Executive Director. “Policymakers and law enforcement must put an end to these widespread violations of basic consumer protections by schools, shadow student debt companies, and Online Program Managers.”
Read the SBPC’s report: Pushing Predatory Products: How Public Universities are Partnering with Unaccountable Contractors to Drive Students toward Risky Private Debt and Credit
The shadow student debt market is one of the most concerning areas of the student debt crisis. As previous research from the SBPC has revealed, shadow student debt comes with extremely high interest rates, risky underwriting, excessive fees, and punitive collection terms. Moreover, companies operating in this market, which play a critical role in propping up predatory for-profit schools, have a documented history of abusive and illegal conduct.
Ongoing Investigation Reveals that the Shadow Student Debt Market Reaches Further than Previously Understood
As part of its active monitoring of the shadow student debt market, the SBPC found that the scope of actors driving students toward companies operating in this space goes even further than previously understood. In particular, the SBPC’s investigation revealed that public colleges and universities across the country now offer programs that specifically advertise or otherwise direct students to finance their education through shadow student debt. These courses often exist as short-term, non-degree granting credential programs referred to as “bootcamps,” which are frequently offered through OPMs. These bootcamps are generally targeted toward students who are older or who have already entered other careers, and they regularly make lofty promises of high-paying jobs in the technology industry upon graduation.
The SBPC’s investigation makes clear that public schools’ growing reliance on shadow student debt stands to put borrowers at risk.
The SBPC’s investigation uncovered the following:
- Public schools are pushing students toward shadow student debt—all while blurring the line between lender, school, and service provider. In dozens of examples, schools ranging from flagship state universities to local community colleges are listing specific shadow lenders on the school’s official web domain as a recommended option for students to finance attendance at non-degree granting programs.
Example: In a co-branded page advertising a coding bootcamp offered through the OPM Trilogy, the University of Texas at San Antonio lists various lenders including Meritize and Climb Credit in a graphic with the header “Options To Help You Invest In Your Future.”
- The shadow student debt products that public schools are driving students toward are extremely risky—and the companies peddling them have a track record of borrower harm. As is typical in the shadow student debt market, the products that public schools are driving students toward regularly involve double-digit APRs, excessive fees, and other hidden terms likely to be particularly dangerous for borrowers. These findings fit closely within the track records of the companies they involve, which are marked by dubious business tactics and borrower harm.
Example: A Climb Credit loan for a coding bootcamp available at the community college Sierra College and facilitated by the OPM Promineo comes at a 14.44 percent APR with a five percent origination fee. Similarly, the “example loan” available for online OPM-backed bootcamps at 11 or more public universities through the shadow debt company Ascent involves a five percent origination fee and an APR that ranges up to 16.98 percent.
- Public schools, OPMs, and shadow student debt companies are deeply intertwined with regard to student financing, but they appear to be violating key transparency requirements that keep borrowers safe. Several public schools are failing to comply with various transparency requirements that borrowers rely on to make informed decisions and other legal protections that keep consumers safe. These schools appear to be engaged in so-called “preferred lender arrangements” with creditors operating in the shadow student debt market, meaning that they appear to be endorsing specific lenders’ products in exchange for the assurance that those firms will lend to students attending certain programs at those schools. This pattern is especially prevalent and visible at public schools offering bootcamps facilitated through OPMs.
Example: Available evidence points to nearly a dozen instances in which schools with bootcamps facilitated by the OPM Fullstack Academy, a subsidiary of Zovio, include on the webpages marketing these programs that Fullstack “partners” with the shadow student debt companies Climb Credit and Ascent to help students finance bootcamp attendance.
Example: Several of the schools driving students toward shadow student debt are not disclosing key details that they are required to under the law around the types of products available to borrowers and the rationale behind their chosen preferred lender arrangements. This leaves borrowers in the dark when choosing from among loans advertised under their school’s branding.
A set of exhibits documenting the SBPC’s findings is available here.
Policymakers and Law Enforcement at All Levels Must Act to Protect Borrowers
The SBPC’s findings raise substantial concerns regarding public schools’, OPMs’, and shadow student debt companies’ compliance with the law. Further, it appears that the complex contractual arrangements between schools and OPMs and the relationships between schools and lenders may bring each of these actors under the statutory authority of the Consumer Financial Protection Bureau.
To protect borrowers nationwide, the SBPC’s new memo offers the following key recommendations:
- The CFPB must carefully scrutinize practices by OPMs that drive students toward shadow student debt. Given the apparently large role that OPMs play in the execution of student financing and the substantial services that they offer lenders and schools in the delivery of financial aid, the CFPB must further examine these firms and their conduct. Publicly available information indicates that OPMs—and in particular the large and often publicly traded firms that dominate the space—are likely covered persons subject to the CFPB’s jurisdiction.
- The Department of Education (ED) must enforce requirements around preferred lender arrangements and hold schools accountable for noncompliance. Schools and OPMs are guiding students toward risky forms of debt without offering those borrowers or policymakers the full scope of information that they are required to under the law. ED already has tools at its disposal to hold schools and lenders accountable and to protect borrowers, but it has so far not engaged in meaningful oversight or taken basic steps to implement transparency measures. ED must strictly enforce compliance with requirements related to preferred lender arrangements, making sure that schools and lenders no longer operate under the impression that they are above the law.
- States must enact comprehensive registration laws to drive transparency and accountability for student financing companies. States across the country are working toward enacting comprehensively designed laws requiring all companies that finance students’ educational expenses to register with state regulators and publish key information about their businesses and credit portfolios. Legislatures must continue to prioritize adoption of these laws while state regulators must continue to enforce existing state statutes to bring predatory firms and dangerous practices out of the shadows.
To learn more about the SBPC’s work related to shadow student debt, click here.
Update: a follow-on memo outlining the legal authorities available to the Department of Education, the Consumer Financial Protection Bureau, and individual borrowers to hold the actors involved in the scheme uncovered in Pushing Predatory Products accountable is available here.
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The Student Borrower Protection Center (www.protectborrowers.org) is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.
SBPC media contact: press@protectborrowers.org