Public colleges and universities are facing criticism from consumer advocates for advertising high-cost private loans to students in nondegree programs.
“Across the country, public colleges saw the scam predatory for-profit schools ran a decade ago and decided they wanted in on the action — regulators must bring these abuses to an end,” Frotman said.
But some of the schools identified in the report dismissed the allegations as baseless and accused the advocacy group of mischaracterizing their marketing materials, as did the creditors and third-party vendors cited in the report.
SBPC stands by its findings, which are based on publicly available data. Researchers examined the online marketing materials of dozens of public institutions and reviewed some of their contracts with third-party contractors hired to run nondegree programs.
They say contractors such as Trilogy, Fullstack Academy and Promineo are helping schools push students toward what they call “shadow debt” — loans that operate outside of the traditional education finance market. The practice is common for boot camps, short-term courses that many colleges offer through third-party providers known as online program managers, according to the report.
Because these courses are not for credit, students may not use federal loans to pay their way, leading some to the private market. But the role colleges play on that path is under scrutiny, as are the terms of the products.
On its website, Indiana University’s Kelley School of Business lists PayPal Credit as a payment option for students interested in its business essentials certificate, which can be completed within a week for about $4,000. SBPC notes there is no disclosure of the terms of the funding and it is the only credit option mentioned.
PayPal Credit, an arm of the payment processor, offers six months of deferred interest for students using the line of credit for educational expenses. If the balance is not paid off within that time, 25 percent interest is retroactively charged from the date of origination and added to the balance of the debt. SBPC has previously raised concerns about PayPal Credit, which did not respond to requests for comment.
Indiana University spokesman Chuck Carney said PayPal Credit is not offered as a preferred form of payment and is one of several commonly used options offered by the business school, including credit cards, employer reimbursement and deferred payment.
“A very small percentage of those enrolled in the executive certificate programs utilize PayPal, as requested by them as a convenience to them,” Carney said. “It is not offered to any undergraduate or graduate degree students anywhere at IU.”
Other schools made a similar distinction of saying specialty financing listed on their websites is not directed at undergrad or graduate students. That’s because federal regulations require colleges to disclose the rationale behind a preferential relationship with private lenders, rules some schools insist only apply to academic programs that grant credentials.
Virginia Tech spokesman Mark Owczarski said the so-called preferred-lender list disclosures are not applicable to its boot camp, which is run by Fullstack.
“With all new programs, we are evaluating all aspects of the program with our partner, and will assess its merits through participant evaluations and impact on area workforce needs and demographics,” Owczarski said.
Frotman disputes Virginia Tech’s position on the parameters of the regulation, arguing the rules apply regardless of the program in which the borrower is enrolled. He said the Education Department has failed to enforce the law for more than a decade, leading colleges to have a limited understanding of the regulations.
“Despite laws intended to stop colleges and financial institutions from teaming up to make a quick buck at the expense of students, it’s clear those in power have spent the last decade looking the other way,” Frotman said.
Education Department spokeswoman Kelly Leon said the federal agency is “committed to … supporting good practices that protect loan borrowers so students don’t graduate under mountains of debt.”
She added: “Colleges that endorse private loan products are required to advocate for their students’ best interests, including publicly documenting why they endorse a particular private loan and commit to a code of conduct that prohibits revenue sharing.”
The Consumer Financial Protection Bureau, which shares jurisdiction over preferred lending arrangements, did not immediately provide comment.
In advertising Virginia Tech’s boot camp online, Fullstack says it partners with Climb Credit and Ascent to help students finance the $11,910 tuition. SBPC says the promotion reads as an endorsement and prospective students could assume the university has vetted the products as the best or the only financing options available.
The advocacy group raised similar concerns about Promineo Tech’s promotion of Climb Credit to finance an 18-week coding boot camp at Sierra College Community Education. While the marketing material highlights the low fixed interest rates of the loan, researchers say the loan carries an annual percentage rate of 14.44 percent with a 5 percent origination fee. Most private lenders don’t add such fees to education loans and borrowers can find better terms, according to the report.
Climb Credit chief executive Angela Ceresnie accused the advocacy group of cherry-picking an individual APR example of one program. She said the company’s interest rates start at 5.99 percent, are generally below the cost of credit cards and have lower monthly payments than many other payment options.
“What is noticeably missing in this discussion is the importance of providing people with fair access to skills and training programs that can help advance careers, drive economic mobility,” Ceresnie said. “Instead of students having to rely on high-interest credit cards to access popular training programs, Climb is used by students seeking a more affordable option.”
Sierra College spokesman Josh Morgan said the community college in Rocklin, Calif. did not authorize the usage of its name by Promineo, which created the webpage marketing the program.
“We have communicated to the contractor they should immediately discontinue this unauthorized use of the Sierra College name and logo in association with any financing options,” Morgan said.
Promineo President Nick Suwyn said the company takes the advocacy group report seriously but noted that less than 5 percent of its students use financing because its programs cost about $3,500.
Similarly, 2U, the parent company of Trilogy, said only 15 percent of students enrolled in its boot camps take out private loans and those who do are provided clear disclosures. The company said it prides itself on transparency, but Frotman contends the level of disclosures provided fall short of what the law requires.