Back-to-school season is a notoriously expensive time for teachers and parents alike. But for loan servicing companies, this time of year could be a moneymaker.
An Education Week analysis found dozens of posts on Facebook and Twitter targeting parents who might 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.
“Any time there are expenses that are coming up in a family’s life, whether it’s back-to-school or Christmas, we tend to see a push from lenders to try to get people to come in and use their products,” said Whitney Barkley-Denney, the senior policy counsel for the Center for Responsible Lending. “These loans are built on the premise of you taking out one loan after another after another, to keep people in that debt cycle.”
Families of K-12 students plan to spend, on average, a record $696 this back-to-school season, according to the National Retail Federation, with the most money going toward clothing and accessories, followed by electronics 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 for every student. While most teachers spend their own money on classroom supplies to supplement what parents cannot afford, back-to-school season can still be a stressful time for parents, especially those who are low-income.
“Back to school expenses have you stressing?” one Facebook ad for the Tennessee-based company Advance Financial 24/7 read. “We can help.”
Clicking on the link in the ad brings people to an application page for flex loans, an open line of credit that allows borrowers to withdraw as much cash 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 percent.
Another advertised solution to back-to-school expenses: payday loans, which are cash advances meant to be paid back on the borrower’s next payday. The loan servicer Lending Bear, which has branches in Alabama, Florida, Georgia, and South Carolina, posted on Facebook that payday loans can be an answer to “your child need[ing] school supplies.”
The interest rates for Lending Bear’s payday loans depend on state regulations. In Alabama, an example annual percentage rate is 456.25 percent for a payday loan of up to $500. (Lending Bear also charges service fees for each loan that range from $17.50 to $87.50.)
Because of the high rates, borrowers often have to renew or roll over their payday loan—meaning they pay a fee to delay paying back the loan. Charles Lee, the consumer protection director for the Mississippi Center for Justice, said the average borrower in the state takes out nine payday loans before paying off the original balance.
And communities of color and low-income areas are disproportionately hit by this type of lending, Lee said.
“I know things seem desperate to people who need money immediately, but it becomes even more desperate when they’re in debt and stay in debt because of a payday loan,” he said.
Meanwhile, the Savannah, Ga., branch of Lending Bear also posted on Facebook in 2017 and 2018 that its employees were giving out free school supplies—and “let us know if we can assist you with a title pawn to help with those back-to-school expenses!”
A title pawn uses a borrower’s car as collateral for a short-term, high-interest loan. Barkley-Denney said giveaways of school supplies or other items are a way lenders “insinuate themselves in communities.”
“I would just caution people that you’re going to end up paying for that backpack or bicycle many times over [with a high-interest loan],” she said.
Several credit unions have also posted on social media offers for back-to-school loans. These loans are often safer, experts say, but still can carry risks. 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 percent. Still, borrowers are not guaranteed to qualify for the advertised rate, and there’s a $30 application fee and a $35 loan processing fee.
An Emergency Option
About 12 million households use small-dollar loans each year, according to the Community Financial Services Association of America, which represents the payday lending industry.
“Small-dollar loans are often the least expensive option for consumers, particularly compared to bank fees—including overdraft fees and bounced checks,” CFSA said in a statement, adding that 40 percent of Americans would be unable to cover or have a hard time covering an unexpected expense of $400.
The association requires its members, which include Advance Financial and Lending Bear, to be transparent about fees and terms and make a good-faith effort to determine a customer’s ability to repay the loan. (Lending Bear and Advance Financial did not return requests for comment by Education Week’s deadline.)
Even so, many experts stress that parents should avoid these loans.
“Each one [of these ads] just seemed like they were really taking advantage of susceptible people,” said C.J. Skender, a clinical professor of accounting at the University of North Carolina at Chapel Hill’s business school who reviewed some of the back-to-school ads at the request of Education Week.
“Outrageous” interest rates in the triple digits make it exceedingly difficult for borrowers to get out of debt, he said.
For principals of high-poverty schools, hearing about parents going into debt for back-to-school expenses is upsetting. Many say they can often provide anything a parent needs.
Allison Persad, the principal of the Young Women’s Leadership School of Astoria in New York, 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 the incoming 6th graders, and local and national companies donate personal hygiene products.
“Everything 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 that a child doesn’t have what they need.”
Dave Wick, the president of the National Association of Elementary School Principals, said it’s important to build a school culture where parents feel comfortable asking for help. For example, he said, when a parent comes in to apply for free and reduced-price lunch, the secretary could mention the school has free supplies available upon request.
“That takes the pressure off parents asking or being embarrassed,” he said.
In New Stuyahok, Alaska, there’s only one small store for parents to buy school supplies, said Meghan Redmond, the vice principal of Chief Ivan Blunka School. The school also serves a predominately low-income community—so administrators order school supplies in bulk, without asking parents to chip in.
And if parents need help buying their children clothes or other necessities, Redmond said she would make sure families have what they need.
“There are so many resources that are available that it would break my heart to hear of someone taking out a loan for school supplies,” she said.
A version of this article appeared in the August 28, 2019 edition of Education Week as Payday Lenders Pushing ‘Back to School’ Loans