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business Saturday 25 June 2022
Is ‘learn now, pay later’ just another student debt trap

By ANNA HELHOSKI of always look like this. It can
NerdWallet be even worse with a lend-
The " buy now, pay later " er that charges compound
transaction is simple: Shop- interest or has shorter re-
pers are offered an install- payment terms. And that's
ment loan at the point of in the best-case scenario
purchase, spreading the where the program pays
cost of the product across off.
several payments. They're WHAT CONSUMERS CAN
often available without a DO TO EVALUATE FINANC-
credit check. ING OPTIONS
Buy now, pay later financ- If you are looking for train-
ing has become a go-to ing with flexible classes,
payment method at most your local community col-
major retailers for every- lege should be your go-to
thing from clothing and option — their programs are
cosmetics to computers typically eligible for federal
and patio furniture. Now, financial aid, including free
it's gaining traction for an Pell Grants and traditional
even bigger expense: high- student loans.
er education. Consumers should always
Buy now, pay later is an evaluate for-profit and
appealing, flexible financ- short-term credential-
ing concept, but custom- ing schools regarding job
ers who can't keep up with placement, graduation
payments can end up with Graduates of the University of Texas Rio Grande Valley attend their commencement ceremony at rates, accreditation and
late charges or interest the schools parking lot on Friday, May 7, 2021, in Edinburg, Texas. Associated Press cost. This information is not
they can't afford. Just as always available, but it's
buy now, pay later can be accused of deceiving stu- for Responsible Lending. positive reputation among best to inquire. If you're de-
a debt trap for the wrong dents and predatory lend- The federal Consumer Fi- consumers, but as the Stu- termined to attend a for-
shopper, education and ing. nancial Protection Bureau dent Borrower Protection profit college, short-term
consumer advocates fear Kaufman says the buy now, is also concerned. In a Dec. Center points out, Udac- credentialing school or
that "learn now, pay later" pay later financing model 16, 2021, news release, the ity doesn't provide signifiers boot camp, there are very
could be a similar pitfall for "fits within a long history of bureau stated that some that its programs will lead few financing options avail-
students — and often with fly-by-night operators us- buy now, pay later com- to success, such as historic able: a loan offered by
much higher stakes. ing ever-more toxic forms panies might not be "ad- student outcomes or job the school, a credit card,
One fundamental issue: of credit to prop up what equately evaluating what placement stats. a personal loan, or a buy
You can't return your hours are essentially scams." The consumer protection laws Affirm can be used to pay now, pay later plan.
of education like you can a Student Borrower Protec- apply to their products." for "nanodegrees" at Udac- If you must use buy now,
dress or a laptop. tion Center found buy now, The bureau has since been ity, which typically cost less pay later for school, the
"There's this deep and fun- pay later plans offered at collecting information than $2,000 and are com- rule of thumb is this: If you
damental incompatibil- schools ranging from unli- about the risks of buy now, pleted within six months. don't have room in your
ity with buy now, pay later censed computing schools pay later and is expected Borrowers can then pay off budget now to make the
and education financing," to wilderness survival in- to publish its findings this the Affirm loan in three, six payments, it's not worth it.
says Ben Kaufman, director struction to training in Reiki, year. or 12 months at rates from Some of the risks to consid-
of research and investiga- a form of alternative medi- WHAT BUY NOW, PAY LATER 0% to 30%. Interest does not er include:
tions at the Student Bor- cine. Kaufman argues there COMPANIES ARE OFFERING compound. — Timing of repayment.
rower Protection Center, a are too few safeguards to STUDENTS Another borrower takes The promise of an educa-
nonprofit organization that prevent shady schools from A March 2022 report by the out the same amount tion program, especially
advocates for student loan offering buy now, pay later Student Borrower Protec- and plans to repay it in six one focused on short-term
borrowers. "Is there ever financing, and it can po- tion Center , which charac- months. But their credit his- career training, is usually
a worse place for that to tentially hurt students. terized buy now, pay later tory is less than stellar and a job and a boost in in-
be than higher education "This is not a small thing; this as "shadow" student debt, they'll have a 25% interest come. While student loans
when there isn't even col- is people taking out thou- found buy now, pay later rate. That means over six usually require borrowers
lateral underlying the prod- sands of dollars of buy now, options offered at more months, they'll pay $358 per to start making payments
uct?" pay later credit that more than 50 unaccredited and/ month and $2,148 total. six months after leaving
THE TROUBLE WITH BUY NOW likely than not is not going or unregulated for-profit In either scenario, you school, buy now, pay lat-
PAY LATER TO FINANCE to deliver what was adver- schools. The companies would be expected to re- er timelines are typically
SCHOOL tised," Kaufman says. named in the report in- pay the loan before any much shorter.
Buy now, pay later financ- The lack of regulation in cluded some major players likely potential payoff from — The total cost. What
ing options are typically of- both for-profit and buy in the buy now, pay later your nanodegree. makes buy now, pay later
fered by schools that don't now, pay later spaces has market: Affirm, Afterpay, Affirm says consumers must plans alluring is also what
qualify for federal financial other consumer watch- Klarna, PayPal, Sezzle, Shop apply each time they buy makes it hazardous: It's
aid, such as short-term cer- dogs on alert as well. Pay, Uplift and Zip (formerly something and the com- easy to overextend your-
tificate programs (think "A lot of for-profit institutions QuadPay). pany approves only credit self on a large purchase
truck driving and cosmetol- are using these products to This is how it works with one "that we believe can and because the broken-up
ogy schools) and coding attract the borrowers to at- of the major players. Af- will be repaid." When it re- payments seem more af-
boot camps offered by for- tend, but they're not edu- firm, as most buy now, pay ports a borrower to a credit fordable. Depending on
profit institutions. Student cating them on what the later companies, is focused bureau, Affirm includes what you qualify for, high-
outcomes vary widely in risks are for it," says Jaylon primarily on retail, but it both positive and delin- interest rates can make the
the for-profit industry, and Herbin, outreach and poli- partners with boot camps quent payments. amount you pay over time
the worst actors have been cy manager at the Center like Udacity. Udacity has a Buy now, pay later doesn't even more expensive.q