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BUSINESS Tuesday 21 July 2020
'Shadow' lenders can leave college students in the dark

By RYAN LANE of NerdWal- of schools that shade their
let statistics," says Robert Shire-
A new high school gradu- man, director of higher
ate may take out about education excellence and
$37,200 in student loans for senior fellow at progressive,
college, according to a re- independent think tank The
cent NerdWallet study. Century Foundation.
And for many of them, that Be extra vigilant if you're
won't be enough. returning to school to add
Thirty-eight percent of stu- skills due to the economic
dents borrow additional effects of the coronavirus.
money for college via Shireman worries that for-
credit cards, home equity profit schools will exploit
loans and other non-stu- the pandemic, becoming
dent loans, according to a more aggressive with their
May 2020 report from the marketing and lending.
Federal Reserve. "We see virus and unem-
The Student Borrower Pro- ployment, and they see
tection Center, a Washing- dollar signs," he says.q
ton, D.C.-based nonprofit,
has dubbed this the "shad-
ow education finance mar-
ket" because these options
can lack transparency. In this Friday, June 1, 2018, file photo, graduates are silhouetted against the green landscape as
"A lot of these entities are they line up to receive their diplomas at Berkshire Community College's commencement exer-
operating with very little ac- cises at the Shed at Tanglewood in Lenox, Mass.
countability or oversight," Associated Press
says Seth Frotman, execu-
tive director of the SBPC. double-digit fees and loans thews, executive director ers at for-profit institutions."
If you need loans to cover that don't require a credit of the Distance Education If you're attending such a
unexpected costs or at- check. And make sure pay- Accrediting Commission. school, make sure you not
tend a school that doesn't ments will be affordable. "And then (the school) dis- only understand what type
qualify for traditional loans, "Some (lenders) are really appears." of debt you're taking on,
here's how to make sure good at obfuscating the Federal loans can be dis- but also if you'll get your
you understand what risk," Frotman says. charged if a school closes money's worth.
you're borrowing — and CHECK YOUR SCHOOL'S while you're enrolled. But "There are good and bad
whether the investment will CREDENTIALS you'd likely still owe other schools in every sector of
be worth it. Students should exhaust debt borrowed to attend higher education," says
SPOT UNFAVORABLE LOAN federal aid before turn- the school. Steve Gunderson, presi-
TERMS ing to private options. But You can see if an entity is dent and CEO of Career
The line between student you may need to explore accredited via the Data- Education Colleges and
loans and loans marketed alternatives if you want to base of Accredited Post- Universities, a national
toward students can be attend a non-accredited secondary Institutions and membership organization
murky. Frotman says the lat- school or program. Programs. For non-accred- for career schools. "What
ter are often just personal Accreditation is a process ited options, look for other matters is outcomes."
loans. in which a third party re- independent vetting — for You can find those in the
You could pay much more views an institution or edu- example, if your state de- Department of Education
if you can't tell the differ- cational program — from partment of education has College Scorecard. Look
ence. its enrollment procedures approved a career-based at information like median
For example, if you bor- to its curriculum and more training program. salary and median debt to
rowed a $2,000 personal — to ensure its quality. Only "Non-accredited options help you better understand
loan at 20% interest, you'd accredited programs can (aren't) bad or horrible; the potential value of a
repay $3,179 over five receive federal student aid. there's lots of good quality program.
years. A private student If a school or program isn't out there," says Matthews. If your program isn't in the
loan at 10% — roughly accredited, be cautious But students must do their College Scorecard, be
the highest current rate — about taking on debt to at- research, she says. mindful of data that comes
would save you more than tend it. DETERMINE THE EDUCA- directly from a school
$600 over the same time "The inexperienced learner TION'S QUALITY around things like job
frame. may hand over their credit In an April 2020 report, the placement — especially
The easiest way to avoid card, and next thing you SBPC says alternative lend- if the numbers sound too
the shadow market is to know, their bill is thousands ing products are "frequently good to be true.
borrow from the federal of dollars," says Leah Mat- marketed toward borrow- "There are numerous stories
government. You can ap-
ply for federal loans by
completing the Free Appli-
cation for Federal Student
Aid, or FAFSA.
But if federal loans won't
cover everything, closely
read any alternative loan's
paperwork. Beware fea-
tures like high interest rates,