By Ben Kaufman and Mike Pierce | March 19, 2021
When the last recession hit, millions of people displaced from their jobs returned to school in the hopes of boosting their career prospects. At that time, companies wrapped in the language of technology and disruption marketed themselves as a quick path toward a sure job and a brighter future. But the decade that followed the Great Recession was marked by a long line of school failures, lawsuits, and broken promises in which hundreds of thousands of students took on billions of dollars in student loan debt for degrees that left them worse off than when they enrolled. Sadly, borrowers are still dealing with the fallout of this fraud today.
There is now evidence that the next chapter in the long story of fraud and abuse by for-profit colleges is only beginning. The employment shock stemming from the COVID pandemic has proven to be even more severe than the job loss associated with the Great Recession. The past year has seen over 81 million first-time claims for unemployment. Over 4 million people are currently long-term unemployed, and estimates indicate that 42 percent of COVID-related job loss will be permanent.
In response, a renewed push toward credentialization—a central feature of the post-Great Recession job market—has already begun. Credentialization refers to the phenomenon of employers increasingly relying on higher education as a precondition for employment or employees pursuing an ever-growing set of certificates and diplomas to compete for jobs, particularly in fields where no such requirement existed in past decades. For example, where home healthcare aides and providers of early childcare education once pursued careers with just a high school diploma, today some higher education is often required by major employers. Similarly, where a high school or college degree was once generally enough to ensure job security, workers who are already employed are increasingly pursuing additional certifications to demonstrate continued value to employers—a process referred to as “upskilling”—or to accelerate efforts to break into new fields.
The rise in credentialization amid treacherous economic conditions has created a new wave of anxiety among American workers. COVID hit just as fears of job displacement from rising automation were already top of mind for many. These fears are shared by workers from coast to coast and in every field.
For-profit colleges and career training institutions have quickly entered the breach to target the newly unemployed with promises that seem worryingly similar to those made by predatory schools during the last recession. Like their predecessors, these actors cloak themselves in language bringing to mind cutting-edge technology, with many offering programs in computer science that can be attended by taking on dubious new forms of easy credit to draw borrowers toward certifications that too often have not lived up to their lofty branding or promises. In fact, some of these actors are the very same companies that cashed in on job displacement during the last crisis, but with new branding and even with new strategies to masquerade as nonprofits.
SBPC has been vigilantly monitoring, investigating, and working to shine a light on developments in the for-profit college sector and across the dangerous web of companies that empower predatory schools. What we have unearthed has been disturbing:
- Tech giants are exploiting workers seeking to build new skills. During COVID, private student loan companies’ efforts to lock students into high-cost debt have only accelerated. For example, research by SBPC revealed that PayPal’s online credit card product PayPal Credit was being offered by over 150 for-profit schools including dubious vocational training institutes and coding bootcamps as a means for students to finance tuition. Only days later, in response to this investigation, PayPal cut ties with hundreds of the risky institutions SBPC flagged as exposing students to this expensive and risky credit product.
- Venture-backed finance firms are combining lending and lead generation for low-quality training programs. A new hybrid model of private student lending is blurring the lines between finding schools and financing students’ attendance at them, possibly putting borrowers in harm’s way. For example, an SBPC investigation uncovered that Climb Credit, a specialty lender that offers loans students can use to finance attendance at job training programs ranging from coding bootcamps to teacher training courses, was making a range of dangerous misrepresentations around the cost of its loans and exposing borrowers to fair lending risks. Climb was quickly forced to address these abuses, but serious concerns about the company’s loan product and the schools Climb supports remain. The targeting of low-income communities and communities of color with these inferior student loans is one reason why, as our own research has shown, Black borrowers with private student loans fall behind on those loans due to economic hardship at nearly four times the rate of white borrowers.
- Predatory schools and financial services firms are driving students to take on billions in risky, high-cost “shadow” student debt. In the shadow of the student loan market sits an additional hidden web of credit and debt taken on by students to pay for college—and in particular, to attend many of the most dangerous for-profit colleges. As an SBPC investigation revealed, these high-cost, high-risk financial products are used to prop up predatory for-profit schools across the country, often including job training and upskilling programs. Financial services firms have partnered with these schools to drive students and families to take on billions of dollars of shadow student debt that is now crushing borrowers nationwide. Our investigation revealed sky-high interest rates ranging up to 35 percent on these loans, excessive and punitive fees at origination and throughout repayment, reckless underwriting practices likely to trap in unsuspecting borrowers, and abusive debt collections strategies such as certification and transcript withholding by the institutions these loans support. Moreover, a review of available court records highlighted that companies operating in the shadow student debt market have a long history of evading the law, failing to comply with basic licensing requirements, and ignoring legally mandated consumer protections.
- As the pandemic has worsened, companies peddling “income share agreements” have ramped up to reap the reward. Income share agreements (ISAs) are an increasingly prevalent alternative form of credit that are frequently available at coding bootcamps and other dubious vocational training programs. There is a long list of consumer protection and fair lending concerns associated with these products and a sad history of firms in the ISA market actively misleading borrowers. Research from SBPC revealed that the ISA industry has taken the opportunity presented by COVID-related job loss to lure customers in with promises of transparency and aligned incentives, the very same promises that have historically left borrowers too often with piles of unaffordable debt for degrees that leave them unable to pay their creditors back.
These risky products and practices call for a concerted response. We are fighting for borrowers to know that they can safely navigate the private student loan market, that “gotcha” provisions buried deep in their loan and school enrollment contracts (regardless of whether they are attending a Title IV school or a vocational program) won’t block them from pursuing justice in court if they are ripped off, and that they will never be made the victim of abusive debt collection practices such as transcript withholding. At the federal level, we are demanding that the Biden Administration prioritize rooting out schools that engage in aggressive reverse redlining tactics as a civil rights issue and roll back the disastrous guidance still blocking state and federal agencies from vigorously supervising and enforcing the law in the student loan market. Finally, as the cause of student borrower protection advances, we are laying out the path for state and federal officials to hold unscrupulous schools to account for underhandedly evading key accountability metrics, weed out illegal practices by ISA companies, and fully utilize all of the tools at their disposal to rein in abusive practices.
And yet, there is so much more work to be done.
Borrowers are still digging themselves out from under the predatory behavior that pervaded the last recession. With millions of newly unemployed Americans desperate for help, unscrupulous schools and lenders are already pouncing. Student borrowers have never needed protection more badly, and the threat that they face has never been more clear. Because without substantial, immediate, and sustained action, tens of billions of dollars are destined to flow to predatory programs that will harm borrowers, their communities, and our country for decades to come—just like they did in the last recession.
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Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center.
Mike Pierce is the Policy Director and Managing Counsel at the Student Borrower Protection Center. He is an attorney, advocate, and former senior regulator who joined SBPC after more than a decade fighting for student loan borrowers’ rights on Capitol Hill and at the Consumer Financial Protection Bureau.