{"id":2852,"date":"2022-07-25T14:28:25","date_gmt":"2022-07-25T18:28:25","guid":{"rendered":"https:\/\/www.skypointfcu.com\/wph\/workarea\/?p=2852"},"modified":"2022-07-25T14:28:46","modified_gmt":"2022-07-25T18:28:46","slug":"is-learn-now-pay-later-just-another-student-debt-trap","status":"publish","type":"post","link":"https:\/\/www.skypointfcu.com\/wph\/workarea\/blog\/is-learn-now-pay-later-just-another-student-debt-trap\/","title":{"rendered":"Is \u2018Learn Now, Pay Later\u2019 Just Another Student Debt Trap?"},"content":{"rendered":"\n

The \u201cbuy now, pay later<\/a>\u201d transaction is simple: Shoppers are offered an installment loan at the point of purchase, spreading the cost of the product across several payments. They\u2019re often available without a credit check.<\/p>\n\n\n\n

Buy now, pay later financing has become a go-to payment method at most major retailers for everything from clothing and cosmetics to computers and patio furniture. Now, it\u2019s gaining traction for an even bigger expense: higher education.<\/p>\n\n\n\n

Buy now, pay later is an appealing, flexible financing concept, but customers who can\u2019t keep up with payments can end up with late charges or interest they can\u2019t afford. Just as buy now, pay later can be a debt trap for the wrong shopper, education and consumer advocates fear that \u201clearn now, pay later\u201d could be a similar pitfall for students \u2014 and often with much higher stakes.<\/p>\n\n\n\n

One fundamental issue: You can\u2019t return your hours of education like you can a dress or a laptop.<\/p>\n\n\n\n

\u201cThere\u2019s this deep and fundamental incompatibility with buy now, pay later and education financing,\u201d says Ben Kaufman, director of research and investigations at the Student Borrower Protection Center, a nonprofit organization that advocates for student loan borrowers. \u201cIs there ever a worse place for that to be than higher education when there isn\u2019t even collateral underlying the product?\u201d<\/p>\n\n\n\n

The trouble with buy now, pay later to finance school<\/strong><\/p>\n\n\n\n

Buy now, pay later financing options are typically offered by schools that don\u2019t qualify for federal financial aid, such as short-term certificate programs (think truck driving and cosmetology schools) and coding boot camps offered by for-profit institutions. Student outcomes vary widely in the for-profit industry, and the worst actors have been accused of deceiving students and predatory lending.<\/p>\n\n\n\n

Kaufman says the buy now, pay later financing model \u201cfits within a long history of fly-by-night operators using ever-more toxic forms of credit to prop up what are essentially scams.\u201d The Student Borrower Protection Center found<\/a> buy now, pay later plans offered at schools ranging from unlicensed computing schools to wilderness survival instruction to training in Reiki, a form of alternative medicine.<\/p>\n\n\n\n

Kaufman argues there are too few safeguards to prevent shady schools from offering buy now, pay later financing, and it can potentially hurt students.<\/p>\n\n\n\n

\u201cThis is not a small thing; this is people taking out thousands of dollars of buy now, pay later credit that more likely than not is not going to deliver what was advertised,\u201d Kaufman says.<\/p>\n\n\n\n

The lack of regulation in both for-profit and buy now, pay later spaces has other consumer watchdogs on alert as well.<\/p>\n\n\n\n

\u201cA lot of for-profit institutions are using these products to attract the borrowers to attend, but they\u2019re not educating them on what the risks are for it,\u201d says Jaylon Herbin, outreach and policy manager at the Center for Responsible Lending.<\/p>\n\n\n\n

The federal Consumer Financial Protection Bureau is also concerned. In a Dec. 16, 2021, news release, the bureau stated that some buy now, pay later companies might not be \u201cadequately evaluating what consumer protection laws apply to their products.\u201d The bureau has since been collecting information about the risks of buy now, pay later and is expected to publish its findings this year.<\/p>\n\n\n\n

What buy now, pay later companies are offering students<\/strong><\/p>\n\n\n\n

A March 2022 report by the Student Borrower Protection Center, which characterized buy now, pay later as \u201cshadow\u201d student debt, found buy now, pay later options offered at more than 50 unaccredited and\/or unregulated for-profit schools. The companies named in the report included some major players in the buy now, pay later market: Affirm, Afterpay, Klarna, PayPal, Sezzle, Shop Pay, Uplift and Zip (formerly QuadPay).<\/p>\n\n\n\n

This is how it works with one of the major players. Affirm, as most buy now, pay later companies, is focused primarily on retail, but it partners with boot camps like Udacity. Udacity has a positive reputation among consumers, but as the Student Borrower Protection Center points out, Udacity doesn\u2019t provide signifiers that its programs will lead to success, such as historic student outcomes or job placement stats.<\/p>\n\n\n\n

Affirm can be used to pay for \u201cnanodegrees\u201d at Udacity, which typically cost less than $2,000 and are completed within six months.<\/p>\n\n\n\n

Borrowers can then pay off the Affirm loan in three, six or 12 months at rates from 0% to 30%. Interest does not compound.<\/p>\n\n\n\n

Say one borrower takes on $2,000 in buy now, pay later debt and plans to repay it in three months. Their credit qualifies for a 0% interest rate, meaning they\u2019ll pay roughly $666 per month.<\/p>\n\n\n\n

Another borrower takes out the same amount and plans to repay it in six months. But their credit history is less than stellar and they\u2019ll have a 25% interest rate. That means over six months, they\u2019ll pay $358 per month and $2,148 total.<\/p>\n\n\n\n

In either scenario, you would be expected to repay the loan before any likely potential payoff from your nanodegree.<\/p>\n\n\n\n

Affirm says consumers must apply each time they buy something and the company approves only credit \u201cthat we believe can and will be repaid.\u201d When it reports a borrower to a credit bureau, Affirm includes both positive and delinquent payments.<\/p>\n\n\n\n

Buy now, pay later doesn\u2019t always look like this. It can be even worse with a lender that charges compound interest or has shorter repayment terms. And that\u2019s in the best-case scenario where the program pays off.<\/p>\n\n\n\n

What consumers can do to evaluate financing options<\/strong><\/p>\n\n\n\n

If you are looking for training with flexible classes, your local community college should be your go-to option \u2014 their programs are typically eligible for federal financial aid, including free Pell Grants and traditional student loans.<\/p>\n\n\n\n

Consumers should always evaluate for-profit and short-term credentialing schools regarding job placement, graduation rates, accreditation and cost. This information is not always available, but it\u2019s best to inquire. If you\u2019re determined to attend a for-profit college, short-term credentialing school or boot camp, there are very few financing options available: a loan offered by the school, a credit card, a personal loan, or a buy now, pay later plan.<\/p>\n\n\n\n

If you must use buy now, pay later for school, the rule of thumb is this: If you don\u2019t have room in your budget now to make the payments, it\u2019s not worth it.<\/p>\n\n\n\n

Some of the risks to consider include:<\/p>\n\n\n\n