PayPal Holdings Inc (NASDAQ: PYPL) faces the wrath of several consumer advocacy groups which include Americans for Financial Reform, Student Borrower Protection Center, Allied Progress and Student Debt Crisis. According to consumer groups, the lender charges 24% higher interest on student loans compared to Stafford’s current interest of 2.75%.
PayPal denies loans to for-profit schools
While consumer groups complained to the Currency Office and the Consumer Financial Protection Bureau’s supervisor, PayPal said it was not directly involved in offering such high-cost loans. The lender said it has launched an investigation against those who mislead its loans. High-cost loans leave students in financial distress, according to consumer groups. As a result, Americans will have more than $ 1,000 billion in student loan debt, consumer protection groups have warned.
PayPal loan arm – PayPal Credit
PayPal offers student loans through Synchrony Bank using its PayPal Credit branch. This is unsecured credit, and students can qualify for up to $ 20,000 depending on their creditworthiness. The annual interest rate for PayPal credit is 24%.
According to the letter, students who depend on these loans for higher education or courses will have to pay higher interest rates than expensive federal student loans. SavingsforCollege editor Mark Kantrowitz said PayPal Credit loans are the most expensive compared to 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
Student loans are offered at an interest rate of only 2.75% for undergraduate studies. It could go up to 3.5% for private students. The average interest rate for credit card loans is 16%.
The letter mentioned more than 150 certificate programs and unaccredited colleges that offer PayPal Credit student loan options. However, for-profit programs are not eligible for private loans or federal student loans.
Joseph Gallo, a spokesperson for PayPal, said the company takes the letter’s claims very seriously. He said PayPal Credit does not market its loans to for-profit educational institutions. He has no association with the colleges mentioned in the letter. Kantrowitz said PayPal denies this claim, but greatly benefits the colleges that use its financial products.
Students can compare loan rates on sites like Credible and MagifyMoney before deciding to seek financing.