PayPal Holdings Inc (NASDAQ:PYPL) is facing the wrath of several consumer advocacy groups that comprise Americans for Financial Reform, Student Borrower Protection Center, Allied Progress, and Student Debt Crisis. According to consumer advocacy groups, the lender is charging a higher interest of 24% for student loans against the prevailing interest of 2.75% from Stafford.
PayPal denies loans to for-profit schools
While consumer advocacy groups complained to the Currency Office and Consumer Financial Protection Bureau’s Comptroller, PayPal said it is not involved directly in offering such high-cost loans. The lender said it launched an investigation against those falsely advertising for its loans. According to consumer advocacy groups, high-cost loans leave the students in financial distress. Therefore, Americans will land in a debt of over $1 trillion over student loans, the consumer protection groups warned.
PayPal’s lending arm – PayPal Credit
PayPal offers loans to the students through Synchrony Bank using its PayPal Credit arm. It is unsecured credit, and students can avail up to $20,000 based on their creditworthiness. The annual interest rate from PayPal credit stands at 24%.
According to the letter, students who depend on these loans for higher education or classes will need to pay higher interest rates than expensive federal student loans. A publisher of SavingsforCollege, Mark Kantrowitz, said loans from PayPal Credit are most expensive compared to the private student loans and credit card loans. According to him, the loans offered by PayPal Credit are predatory financial products.
Low-interest federal student loans
The loans to students are offered at an interest of just 2.75% for undergraduate studies. It could go up to 3.5% for private students. The average interest on credit card loans stands at 16%.
The letter mentioned over 150 certificate programs and unaccredited colleges that offer loan options for the students from PayPal Credit. However, for-profit programs do not qualify for private loans or federal student loans.
Joseph Gallo, a spokesman of PayPal, said the company takes the letter’s claims very seriously. He said PayPal Credit is not marketing its loans to the for-profit educational institutions. It has no association with the colleges mentioned in the letter. Kantrowitz said PayPal denies the claim, but it greatly benefits from the colleges that use its financial products.
Students can compare the loan rates at sites like Credible and MagifyMoney before deciding to avail of financing.