PayPal (PYPL) is cracking down on for-profit schools for apparently misrepresenting deferred interest loans as zero-cost loans from PayPal Credit to entice prospective students.
“We have already begun taking action against some of the entities mentioned in the letter that have been found to be using inaccurate or misleading messaging/characterization of our products,” PayPal spokesperson Joe Gallo stated, referring to the letter sent last week from the Student Borrower Protection Center (SBPC), Americans for Financial Reform, Student Debt Crisis and Allied Progress to PayPal CEO Daniel Schulman.
The move by PayPal, a $240 billion-dollar payment processing juggernaut, comes after the consumer groups behind the letter found more than 150 businesses offering educational services — ranging from rock climbing to yoga teacher training — and marketing zero-cost loans that prospective students could take out through PayPal Credit.
“PayPal is focused on ensuring that our services are used for intended purposes and we take the claims outlined in this letter very seriously,” Gallo added. “PayPal does not market PayPal Credit directly to for-profit educational institutions or other associated entities and the company has no direct relationship with entities in question regarding PayPal Credit.”
The trend seems to have been nipped in the bud: The transactions in question only represented 0.01% of PayPal Credit’s total dollar volume between 2017 and 2020, according to information provided exclusively to Yahoo Finance, and the average order value was $307.
Nevertheless, the situation more broadly highlights how the line between for-profit schools and businesses in America are becoming increasingly blurred.
“Especially when you consider that countless low-income borrowers will use this form of credit as a means to pay for costly programs at unaccredited and loosely regulated schools,” Kyra Taylor, a staff attorney at the National Consumer Law Center, told Yahoo Finance, “using PayPal Credit to pay for school is essentially financing education costs on a high-cost credit card. ... Borrowers may not realize how expensive using PayPal Credit to finance their educational program actually is.”
‘Not like buying a purse’
Since the Great Recession, for-profit schools have been marketing their courses as a way for students, especially nontraditional students, to learn new skills and increase their earning power. The surge in enrollments in 2010 and 2011 revealed how many Americans bought that idea.
“Everything we've learned through really painful lessons show how education isn't just like a normal consumer retail purchase,” SBPC Executive Director Seth Frotman, who was the student loan ombudsman at the Consumer Financial Protection Bureau until he resigned in 2018, told Yahoo Finance. “What you're seeing here are the ramifications of trying to act like it is.”
PayPal Credit is an unsecured line of credit, much like a credit card, that can be used to pay for products online. And like regular credit cards, the onus is on borrowers to make sure they read the fine print on costs associated with their loans. For-profit schools offered PayPal Credit as a way to pay for courses.
“The SBPC... found that PayPal Credit and its partner, Synchrony Bank, perpetuate many of the predatory financial practices that plague borrowers attending for-profit schools and that are seen across the marketplace for shadow student debt,” the letter stated.
Frotman stressed that paying to learn a skill “is not like buying a purse, it's not like going online and buying a pair of pants,” adding that these schools often treat their students as customers (or “clients” in the famous case of Trump University).
And like students defrauded by for-profit schools, Taylor noted, the “worst-case scenario for a borrower is that they will face years of financial hardship after being sold a fake bill of goods by their school and be unwittingly left saddled with substantial debt that quickly snowballs with interest, even though the borrower has no way to repay it.”
Before and after on school websites
Yahoo Finance found that the websites of two schools flagged by SBPC, particularly the Florida-based Academy of Real Estate and Mortgage and the Institute of Natural Health and Education in Illinois, had modified their websites to remove mentions of PayPal Credit after the August 20 letter was sent.
PayPal has also taken action on their end: While the Fashion Stylist Institute in California still carries mentions of PayPal Credit in its payment plan options section of the website, a user checking out can’t choose PayPal Credit as an option.
Gallo noted that if and when a for-profit school “is found to be using inaccurate or misleading messaging or characterization about PayPal Credit products without our prior knowledge or consent, we will quickly move to terminate the use of our services.”
Aarthi is a reporter for Yahoo Finance covering education. Follow her on Twitter @aarthiswami. If you are a student loan borrower who is struggling with your debt and would like to share your experience, reach out to her at firstname.lastname@example.org