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Media Press Releases Web of Predatory Schools and Finance Companies Drive Students to Take On Billions in High-Cost ‘Shadow’ Student Debt New Study Finds

Web of Predatory Schools and Finance Companies Drive Students to Take On Billions in High-Cost ‘Shadow’ Student Debt New Study Finds

SBPC Investigation Uncovers Lenders Engaged in Schemes at the Center of the Predatory For-Profit School System, Calls for Urgent Action by Law Enforcement

July, 17 2020 | Washington, DC — Today, the Student Borrower Protection Center released a new report exposing the web of predatory schools and financial services firms that drive students to take on billions in risky, high-cost “shadow” student debt. The SBPC investigated  over a dozen financial companies that partner with for-profit schools notorious for causing borrower distress and identified pervasive predatory features such as high fees and misleading marketing materials. The study also shines light on the key role these companies play in propping up the predatory for-profit school system. The SBPC is urging lawmakers, law enforcement officials, and regulators at every level of government to protect students and families from abuses by these firms.

“Today we are shining light on the web of lenders that prop up predatory for-profit schools while driving students deep into high-cost debt,” said SBPC Executive Director Seth Frotman. “By exposing and halting abuses by the companies that drive students and families to take on billions of dollars in shadow student debt, we can remove a key cog driving the predatory for-profit college machine.”

The new report, Shadow Student Debt, can be found here:

Shadow Student Debt

According to the new report, students across the country, especially those attending for-profit schools, have taken on billions of dollars in shadow student debt to finance educational costs. This debt stems from a web of schools and finance companies peddling financial products that often include a set of harmful features, such as extremely high interest rates and risky underwriting. Once students take on these debts, they also often face abuses by firms hired to collect payments, leaving borrowers in persistent financial distress.  

Many predatory schools drive students to take on shadow debt because it is their only financing option, or it is heavily marketed as a preferred lender for the school. For instance, students may attend schools that are unaccredited and not eligible for federal loans. Alternatively, shadow debt is used to supplement federal loans– and evade federal accountability standards– when traditional private lenders, including the largest banks, will not lend to students at the poorest-performing for-profit schools.

Uncovering a Web of Predatory Players

Through its investigation, the SBPC examined law enforcement filings, records from the closures of for-profit schools, open records request responses, and consumer complaints, among other documents, and identified over a dozen finance companies that extend credit or facilitate debt taken on by students at for-profit schools. The SBPC then reviewed the companies’ marketing materials and borrower-facing contracts in order to map out the web of credit and debt offerings that support both large and small operators of for-profit colleges.

A package of example marketing and promotional materials peddling predatory shadow credit and debt products uncovered in the investigation can be found here:

The investigation identified common problems across the web of credit and debt offerings including:

  • Extremely High Interest Rates. The SBPC consistently found exorbitant interest rates charged to students who owe shadow student debt. Products described in this report carried rates as high as 35 percentplacing them at three to four times the cost of the highest-priced federal student loans and beyond rates seen among many of the highest-priced credit card products.

Example: A typical borrower at for-profit school Bonnie Joseph Academy who used financing provided by TFC Credit to finance the gap between federal student loans and the cost of attendance will find themselves with more than $15,000 in high-cost debt, as much as 23 percent of the typical income for a cosmetologist.

  • Reckless Underwriting: The SBPC found dangerous underwriting practices at a wide range of schools. In some cases, lenders require applicants to first be denied by other large commercial lenders, such as Sallie Mae, before they can be approved for financing. In other cases, companies advertise automatic approvals, marketing products that do not require credit checks or any underwriting whatsoever in order for a student to be approved for a loan. Where lenders fail to consider borrowers’ ability to repay these loans, borrowers may find themselves deeply indebted with no viable path to satisfy these debts—ensuring a financial future defined by debt collection and damaged credit.

Example: The for-profit school Energetic Health Institute uses the firm UGA Finance as a third-party lender to “guarantee approval on all student loan applications.” In a similar fashion, North Carolina’s Mountain Eagle College advertises an “exclusive financing plan” through Tuition Options where students can “get approved with bad credit or no credit. Everyone qualifies.”

  • Aggressive Debt Collection Practices. Several schools and firms engage in transcript and credential withholding—which has been banned in some states—wherein a school refuses to give students access to their diplomas or transcripts if they have an outstanding debt owed to the school or if they have fallen behind on a financial obligation. Other schools and firms assert that they can compel licensing boards to revoke professional licenses—denying borrowers the right to work in their chosen field if they are unable to pay. These practices place students in the precarious position of being unqualified to work without first paying these debts, but unable to earn wages to make ends meet.

Example: When describing its financing option facilitated by financing firm Tuition Options, the for-profit school First Institute states that if following graduation, a student falls into delinquency, additional copies of their diploma and/or transcript will be withheld. Similarly, when marketing its loan program to potential partner nursing schools, TFC Tuition Financing boasts that the relevant licensing body will allow a school to suspend a student’s professional license if they default on their loan payments.

  • Ignoring or Evading Consumer Protection Laws. SBPC’s investigation uncovered evidence suggesting widespread practices that may violate existing laws and regulations designed to protect students and consumers. For instance, schools and lenders appear to require prospective borrowers to enroll in autopay or direct monthly debit from borrower’s bank or credit accounts before they can be approved for a loan, which is prohibited under consumer protection laws. When lenders force students to grant access to their bank accounts, these creditors become first in line to get paid, even when struggling students may need to prioritize meeting basic needs. 

Example: The for-profit school Finger Lakes School of Massage explains clearly on its website that automatic payments are required when its students use financing provided by TFC Tuition Credit. Similarly, financing firm Education Loan Source markets its “TuitionFlex” lending program to potential school partners by explaining that payments are withdrawn automatically so the school is essentially first in line to be paid before the student’s other monthly expenses.

The investigation also found misleading marketing materials, excessive origination and processing fees, and a range of other harmful features. The companies examined in the SBPC investigation include little-known lenders that largely cater to the for-profit school sector and firms that specialize in so-called “institutional” loans made or backed by schools themselves. Companies also include schools themselves, when students are driven deeply in debt for unpaid tuition bills. This practice is part of a common scheme through which schools allow students to attend classes without up-front payment or financing secured in advance, only to spring high-rate debt on students at the end of the term.

Urging Law Enforcement Action to Protect Borrowers

The SBPC is issuing recommendations for lawmakers, law enforcement officials, and regulators at every level of government to protect students and families from abuses by the firms driving borrowers to take on shadow student debt. These steps include aggressively enforcing existing consumer protection laws, enforcing licensing and registration requirements to bring companies out of the shadows, closing gaps in state oversight regimes, and increasing transparency requirements. Together, these actions can dismantle a key cog in the predatory for-profit school system. The SBPC will continue to study and shine light on shadow student debt and its web of predatory players as well as advocate for reforms to protect borrowers.


The Student Borrower Protection Center 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.

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