Back to school is a notoriously expensive time for teachers and parents. But for loan management companies, this time of year could be a source of income.
Analysis of Education Week found dozens of Facebook and Twitter posts targeting parents who may need a “back to school” loan. Some of these loans – which are personal loans and can be used for anything, not just school supplies – are considered predatory, experts say, with sky-high rates and hidden fees.
“Whenever there is an expense that comes up in a family’s life, whether it’s back to school or Christmas, we tend to see a push from lenders to try and get people to come and use their products, ”said Whitney Barkley. -Denney, Senior Policy Advisor at the Center for Responsible Lending. “These loans are built on the premise that you take out one loan after another, to keep people in this cycle of debt.”
Families of Kindergarten to Grade 12 students plan to spend, on average, a record $ 696 back to school, according to the National Retail Federation, with the most money going to clothing and accessories, followed by electronic devices like computers and calculators, shoes and school supplies ranging from pencils to backpacks.
Cash-strapped school districts across the country are unable to provide school supplies to every student. While most teachers spend their own money on school supplies to supplement what parents cannot afford, back to school can still be a stressful time for parents, especially those with low incomes.
“Back-to-school expenses, have you been stressed? A Facebook ad for Tennessee-based company Advance Financial read 24/7. “We can help.”
Clicking on the link in the ad takes people to a flexible loan application page, an open line of credit that allows borrowers to withdraw as much money as they need up to their credit limit and repay the loan at their own pace. But it’s an expensive line of credit — Advance Financial charges an annual percentage rate of 279.5%.
Another solution announced for back-to-school expenses: payday loans, which are cash advances intended to be repaid during the borrower’s next payday. The Lending Bear Loan Service, which has branches in Alabama, Florida, Georgia and South Carolina, posted on Facebook that payday loans may be an answer to “Your Child’s Needs.”[ing] school supplies.”
Lending Bear payday loan interest rates are subject to state regulations. In Alabama, an example of an annual percentage rate is 456.25% for a payday loan of up to $ 500. (Lending Bear also charges a service fee for each loan ranging from $ 17.50 to $ 87.50.)
Due to the high rates, borrowers often owe renew or renew your payday loan– which means they pay a fee to delay repayment of the loan. Charles Lee, director of consumer protection at the Mississippi Center for Justice, said the average state borrower takes out nine payday loans before paying off the original balance.
And communities of color and low-income areas are disproportionately affected by this type of loan, Lee said.
“I know things seem hopeless for people who need money right away, but it gets even more desperate when they’re in debt and stay in debt because of a payday loan,” he said.
Meanwhile, Lending Bear’s Savannah, Ga. Branch also posted on Facebook in 2017 and 2018 that its employees were handing out free school supplies – and “let us know if we can help you with a title pawn for you. help with those back- tuition!
A title pawn uses a borrower’s car as collateral for a short-term, high-interest loan. Barkley-Denney said gifts of school supplies or other items are a way for lenders to “creep into communities.”
“I would just like to warn people that you are going to end up paying for that backpack or that bike multiple times [with a high-interest loan],” she said.
Several credit unions have also posted back-to-school loan offers on social media. These loans are often more secure, experts say, but can still come with risk. One such ad from a Florida credit union tells parents they can borrow up to $ 1,000, with an annual percentage rate as low as 8.99%. Still, borrowers are not guaranteed to qualify for the advertised rate, and there is an application fee of $ 30 and a loan processing fee of $ 35.
An emergency option
About 12 million households use small loans each year, according to the Community Financial Services Association of America, which represents the payday loan industry.
“Small loans are often the cheapest option for consumers, especially when compared to bank charges, including overdraft fees and bad checks,” the CFSA said in a statement, adding that 40 percent of Americans would be unable to cover or have difficulty covering an unexpected expense of $ 400.
The association demands of its members, which include Advance Financial and Lending Bear, to be transparent about fees and terms, and to make a good faith effort to determine a client’s ability to repay the loan. (Lending Bear and Advance Financial did not return requests for comment before the Education Week deadline.)
Even so, many experts point out that parents should avoid these loans.
“Each [of these ads] It looked like they were really taking advantage of sensitive people, ”said CJ Skender, clinical professor of accounting at the University of North Carolina at Chapel Hill Business School, who reviewed some of the back-to-school announcements. Education Week application. .
“Outrageous” triple-digit interest rates make it extremely difficult for borrowers to get out of debt, he said.
For directors of very poor schools, hearing about parents going into debt for back-to-school expenses is overwhelming. Many say they can often provide everything a parent needs.
Allison Persad, director of the Young Women’s Leadership School in Astoria in New York City, said she spends a lot of time applying for grants and developing partnerships with businesses and nonprofits so that she can provide supplies to families in need. For example, a New York-based nonprofit donates backpacks filled with school supplies to entering 6th graders, and local and state businesses donate personal hygiene products.
“It all takes a little extra leg work, a little extra elbow grease, but… you just have to be creative,” she said. “There should never be a reason a child doesn’t have what he needs.”
Dave Wick, president of the National Association of Elementary School Principals, said it was important to create a school culture where parents feel comfortable asking for help. For example, he said, when a parent comes to ask for a free and discounted lunch, the secretary might mention that the school has free supplies available upon request.
“It relieves parents from asking or being embarrassed,” he said.
In New Stuyahok, Alaska, there is only one small store where parents can purchase school supplies, said Meghan Redmond, deputy principal of school Chief Ivan Blunka. The school also serves a predominantly low income community. Administrators therefore order school supplies in bulk, without asking parents to participate.
And if parents need help buying clothes for their children or other essentials, Redmond said she will make sure families have what they need.
“There are so many resources available it would break my heart to hear that someone has taken out a loan for school supplies,” she said.
