By Chris Hicks and Ben Kaufman | August 4, 2021
Dialogue surrounding America’s student debt crisis usually focuses on the $1.7 trillion balance of federal student loans, and sometimes on the additional $140 billion balance of outstanding private student loans. These headlines typically conjure up the image of a simple and straightforward student loan product—one with a formal billing statement and promissory note explaining the fees and terms. But as the Student Borrower Protection Center has documented before, there is also a “shadow” student debt market that extends beyond brand-name private student loan companies and sometimes even from the legal definition of a private education loan. This shadow student debt market consists of various expensive, misleadingly marketed, and lightly underwritten credit products ranging from certain private student loans to personal loans, open-ended revolving credit, income share agreements, unpaid balances owed directly to schools, and more. These types of credit often operate under law enforcement’s radar, but they are nevertheless pervasive, predatory, and opaque.
New evidence indicates that employers nationwide are increasingly leveraging shadow student debt to trap workers into unfair contracts and substandard working conditions. In particular, a growing number of industries and employers are using bait-and-switch tactics to force workers to take on loans and debt through nefarious “training repayment agreements” (TRAs). Buried deep inside employment contracts, these agreements require workers who receive on-the-job training—often of dubious quality or necessity—to pay back the “cost” of this training to their employer if they try to leave their job. This cost often involves massive interest, hugely inflated fees, and little or no disclosure of its existence at the time the “training” in question is delivered, thereby creating a debt that is likely to hang over workers’ heads for years if they do in fact move on to another job.
TRAs are abusive and anticompetitive. It’s time to call TRAs what they are—21st century indentured servitude made possible through shadow student debt. Consumer watchdogs and policymakers at all levels must act to protect borrowers before TRAs and other predatory contract terms like them become even more widespread.
Training Repayment Agreements turn the promise of on-the-job training into a debt trap for workers
Opportunities for workers to improve their marketable skills through on-the-job training programs such as upskilling courses are a key pathway toward career advancement and job stability. But it is increasingly clear that employers are abusing purported opportunities for learning and employee training requirements to make leaving a given job literally unaffordable.
TRAs are a key mechanism that employers use to turn on-the-job education into a predatory debt trap. Simply put, TRAs are terms tucked into workers’ employment contracts stipulating that an employer can demand repayment for the so-called cost of “training” received during the course of employment when a worker attempts to quit his or her job. The training in question can range from preparation for a recognized credential to extremely basic and firm-specific orientation programs. If workers bound by a TRA attempt to leave their job, the cost that they will be on the hook for can quite literally be made up by the employer, with sky-high interest rates, attorney fees, collection fees, and the ability of employers to withhold final paychecks and retirement balances added in.
The following are only a few examples of reports of employers using TRAs to keep workers trapped in low-wage jobs and substandard working conditions:
- A trucker who took advantage of a “free training” program is forced to endure poor working conditions because any attempt to leave her job triggers tens of thousands of dollars of debt with a double-digit interest rate, something that was not clearly disclosed when the trucker signed her employment contract.
- A nurse who was forced to sit through a training video during orientation months later realizes their employer just obligated the nurse to repay $15,000 in expensive and risky surprise credit if he tries to leave his job.
- A firefighter who received paramedic training is unable to leave her job because doing so would trigger a previously opaquely disclosed $7,500 bill for purported training costs.
In all of these cases and countless others, borrowers who were required to undertake on-the-job training or offered occupational learning opportunities find only after trying to leave their job that a TRA was buried deep in their employment contract. The TRA can stipulate that the worker is suddenly on the hook for thousands of dollars “borrowed” at a double-digit interest rate to compensate their employer for any training received, regardless of its utility, whether it was required, or whether it was advertised as free. In fact, in instances where workers have sued to challenge these unfair terms, employers have frequently countersued citing breach of contract. Such action serves only to cement the chilling effect that TRAs impose on workers who might otherwise assert their rights.
Plus, the financial ruin that TRAs can cause for borrowers involves more than the costs they will face if they leave their job. In particular, beyond simply being expensive, the debt balance that borrowers under a TRA face if they quit could substantially harm their credit. This damage could lead borrowers to struggle in the future to find a subsequent job, rent a home, or maintain a professional license. Each of these facts serve to compound the anticompetitive power of TRAs.
Training Repayment Agreements unfairly protect employers from labor market competition
The growing use of TRAs to block workers from moving to better jobs is a consumer protection crisis for individual workers, but it is also something broader: a flagrantly anticompetitive effort by employers to hold back labor market competition. In particular, as TRAs grow more prevalent, the chilling effect that they have on individual workers’ ability to quit their jobs cements industry-wide imbalances between labor and management across a range of professions. Indeed, labor turnover is one of the largest costs that employers face, with the loss of a single employee costing 1.5 to two times the worker’s salary. But it appears that instead of competing to retain workers through increased wages, better benefits, and true opportunities for learning, companies are responding to the cost of labor turnover through a race to the bottom involving the increasing use of hidden debt to deter workers from finding new opportunities.
Industry pronouncements confirm this fact, indicating that employers see TRAs as a new form of noncompete clause. As one industry publication for roofing contractors recently stated:
“Notably, in California, noncompete agreements are unenforceable. In other states, such as Georgia, . . . courts may refuse to enforce a noncompete agreement against a field employee.
But roofing contractors in these states are not without hope. Another potential solution is a reimbursement agreement. If properly drafted, you can require a field employee who is achieving [National Roofing Contractors Association] ProCertification to repay or reimburse your company the expenses incurred if the employee leaves the company within a certain time after achieving NRCA ProCertification.”
These revelations are timely, as the use of noncompete agreements is coming under increasing fire from states across the country and the Biden administration. Indeed, it is clear that employers may be looking to shadow student debt in the form of training repayment agreements as a replacement for noncompete clauses in employment contracts.
In fact, observers have noted that TRAs may be even more effective at stopping labor market competition than more traditional noncompete clauses. As Loyola Law School Professor Jonathan Harris recently put it:
“. . . many TRAs can be worse for low-wage workers than noncompetes; that is because preventing workers from working for a competitor may be less onerous to workers than requiring them to pay the employer a substantial sum to quit. TRAs can be especially burdensome for workers in industries accustomed to high turnover, where the average employee would not be expected to stay for the duration of the two-to-three-year TRA repayment period.”
It’s time to stand up for working people trapped under predatory, anticompetitive student loans
The system has long been rigged against employees at the workplace, but the presence of shadow student debt as a new, potent tool for employers to use to hold back workers is an especially troubling development. Workers are being transformed into borrowers, and then these borrowers are held hostage in their jobs because they don’t earn enough to cover the cost of quitting.
The Biden administration has taken positive first steps to speak out against anticompetitive practices and to dismantle tools used to tip the scales against workers. But this work is just beginning—and there is much more to be done. Employers are increasingly using debt to extend their power over workers beyond the jobsite and across workers’ personal and financial lives. Confronting the abuse of TRAs and shadow student debt is the next front in the fight against anticompetitive conduct that undercuts worker mobility. All workers deserve opportunities to better themselves and their families—and they deserve to be safe from shadow student debt traps set by their employers.
Chris Hicks is a Student Loan Justice Fellow at the Student Borrower Protection Center. He joined SBPC from the American Federation of Teachers, where he assisted in organizing contingent faculty members.
Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.