At some colleges that use outside companies to help service their tuition payment plans, the typical student earns no more than $20,000 a year after leaving. (Meredith Norman/The Hechinger Report)

On a muggy June morning in 2019, administrators from for-profit colleges took their seats in breakout rooms on the second floor of the Hyatt Regency in downtown New Orleans. They had arrived for the Career Education Colleges and Universities trade association’s annual convention and were getting ready to choose from dozens of breakout sessions. One promised tips on how to market to Millennials; another offered advice on how to handle legal threats from disgruntled students.

Later that evening, amid cocktails and music, exhibitors made their direct pitches to administrators, hoping to earn their business. That’s where tuition financing companies set up shop, with the aim of attracting new clients with strategies to help for-profit colleges boost their enrollment numbers and bottom lines.

These companies, such as TFC Tuition Financing and Tuition Options, have positioned themselves as crucial cogs in the for-profit education industry, playing a critical role in powering the sector financially. When students enroll and can’t pay the full tuition right away, these companies help colleges offer payment options, such as installment plans or private loans.

The arrangements create a mutually beneficial relationship: The colleges can enroll more students and make more money, while the companies can profit from fees. Moreover, for tens of thousands of low-income students at thousands of schools nationwide, these plans can seem like the only affordable way to earn a degree that leads to a good job. But advocates for students warn that they can be highly exploitative, and nothing more than an instrument that leads to additional debt.

In fact, many of the colleges the companies have worked with, such as Dorsey College in Michigan and Ohio Business College, have poor graduation rates and leave students earning no more than they would have with just a high school degree. The loans and payment plans help colleges charge more for an already expensive education, and the terms can be much more onerous than those of a federal loan. In some cases, colleges get the funds that help them stay in compliance with federal regulations, keeping them eligible for continued federal financial aid. Meanwhile, the companies facilitate billions of dollars of often burdensome private student debt, and yet they face almost no oversight from state or federal regulators.

“They are this critical component that lets the worst-performing and most predatory schools continue to exist,” says Seth Frotman, a former student loan ombudsman for the Consumer Financial Protection Bureau (CFPB).

The companies say they’re providing a service that allows students to afford college when federal grants and loans aren’t enough to cover tuition, while also relieving schools of the burden of collecting on the debt. What’s more, they add, the colleges they partner with set the terms of any loans or payment plans, and they simply act as third-party servicers or provide technical assistance. “We want to make sure that no student who wants to pursue their dreams and career goals and get their education is turned away,” says Sean Steinmarc, the CEO of TFC Tuition Financing, one of the half-dozen or so companies that provide this service.

Of the dozen for-profit schools contacted by the Hechinger Report, just two—Falcon Institute for Health and Science and Cameo College of Essential Beauty—answered questions about why they use these services; both described the same benefits as the companies did.

For-profit colleges have a long history of not living up to the promise of a marketable degree at an affordable price. Many have graduation rates below 40 percent, and their typical student makes less than $20,000 a year after leaving. Indeed, scores of former students have filed lawsuits against for-profit colleges, accusing them of deceptive recruitment; government agencies have also investigated colleges for allegedly misleading prospective students.

Now, it turns out, many of these colleges make money off students, with tuition financing companies serving as abiding partners.

Information on these privately owned companies is hard to come by, but one of them, Tuition Options, has originated and serviced more than $2 billion in loans to more than 450,000 student accounts since 2008. “If we didn’t exist and we didn’t make money, we wouldn’t be able to help students,” TFC’s Steinmarc says.

But TFC has promised to help more than students. On its website, they have encouraged prospective clients to “join thousands of schools like yours that have increased enrollment, retention and profits.”

The colleges, in turn, market these payment plans to students as a convenient way to afford school. In reality, they can add to a student’s debt load with high interest rates or interest that accrues before a student has even graduated.

Utah’s Cameo College of Essential Beauty, for example, contracts with TFC and offers plans with interest rates as high as 12 percent. (Not all the payment plans accrue interest.)

High interest rates aren’t the only problem for students. In 2016, Heather Pearce reenrolled in the Art Institute of Pittsburgh after learning that she would be able to make monthly payments to finance her education as she studied. At first, she paid installments of $116 directly to Tuition Options, she told us. Over the next two years, however, she estimated that the school changed the amount she owed five times.

“That balance kept growing and growing,” Pearce said. The Alabama native, who was an online student, insisted that she never received an adequate explanation from Tuition Options or the Art Institute, even as the monthly payments surpassed $200.

Pearce, now 37, said school officials told her that, to keep the amount from climbing further, the payments would extend for up to two years after she graduated. Only then could she receive her degree.

Kate Cavataio, the chief financial officer of Tuition Options, said in a written statement that changes to students’ payment plan terms would be made only at the direction of the school or borrower.

Dream Center Education Holdings owned the Art Institute when she was enrolled. The chain is currently owned by Education Principle Foundation; a spokesperson said she could not comment on anything that happened under previous ownership.

“This is a shell game,” Amy Laitinen, director for higher education at the progressive think tank New America, says. The colleges intentionally raise tuition above what a student’s federal aid will cover, she says, and then “the companies help them fill the hole. They’re not only increasing tuition, they’re increasing student debt.”

The tuition financing companies can help schools with more than just increasing student enrollment and easing debt collection paperwork. Some offer infusions of cash, which allow schools to comply with a federal regulation aimed at ensuring that for-profit colleges don’t make all their money from taxpayer dollars.

Under a federal law known as the 90/10 rule, no more than 90 percent of a for-profit college’s revenue can come from federal financial aid. The remaining 10 percent must come from other sources, including students’ tuition paid out of pocket.

Some colleges receive money up front either directly from or with the help of these tuition financing companies, court records and other documents show. That means schools get funds to count toward their 10 percent requirement before students pay their balances, or even if they never pay.

TFC and Tuition Options executives said that such cash advances were a small part of their business model.

Another company, Education Loan Source, in a promotional flyer, asked directly, “Does your school have 90/10 challenges?” It went on to explain that it could help colleges with cash flow.

John Weir, chief operating officer of Education Loan Source, says it removed that language from its advertising, because 90/10 compliance was not a primary concern for potential clients. But the program it promoted, TuitionFlexPLUS, remains in place; it allows schools to sell their payment plans to a “qualified purchaser,” thereby giving the schools a cash infusion.

“We believe that ELS is providing a valuable service,” Weir said in an email, noting that the company monitors clients’ retention and graduation rates to ensure that it is working with “reputable schools.”

Still, students who sign a loan contract with a college may later face increased fees and interest from the company that purchased their debt. Paramount Capital Group purchases contracts from schools, providing them with a lump sum in advance when they need it, says Mike Fadner, its chief financial officer. It then sets interest rates for the students that range from about 7 to 18 percent. Fadner told us he doesn’t think the arrangement conflicts with the intent of the 90/10 regulation. “No company is going to front that money without some strong likelihood of that student paying it back,” he said.

Scrutiny of such arrangements and these companies is rare. “Unfortunately, what you’re seeing here is really, really the Wild West,” Frotman, the former student loan ombudsman at CFPB, says. “The student loan market is, at its very core, extremely lightly regulated. This aspect of the loan market is even worse.”

Frotman argues that the CFPB should play a larger role in overseeing both the for-profit colleges that offer these types of financial aid products and the companies that provide them with the money to do so.

Frotman left the bureau in 2018, in protest over changes to the agency under the Trump administration. In his resignation letter, he described the bureau’s leadership as having “abandoned its duty to fairly and robustly enforce the law.” Instead, he explained, the CFPB prioritized protecting “the misguided goals of the Trump Administration to the detriment of student loan borrowers.”

Indeed, under the last administration, the agency was far more lenient with financial institutions. Former Director Richard Corday, an Obama appointee, resigned in 2017 and was replaced by Mick Mulvaney, who had previously been President Trump’s chief of staff. Upon his arrival, Mulvaney announced that the bureau’s “days of aggressively pushing the envelope are over.” Sure enough, once Trump appointed a permanent replacement, Kathleen Kraninger, the CFPB continued to scale back its oversight. A House Financial Services Committee report found that in the first six months of Kraninger’s tenure, the bureau recovered just $12 million for consumers, compared to $200 million in the last six months under Cordray.

Both the bureau and the federal Department of Education declined to answer questions.ff

At the same time, state agencies in charge of higher education oversight often fail to look into the payment plans that colleges are offering and the companies helping them, according to Robyn Smith, a lawyer with the National Consumer Law Center. The problem, she says, is that state agencies tend to focus more on educational quality: “They aren’t really experts when it comes to financial services.”

Still, Smith and Frotman are hopeful about signs of change at the state level. Colorado and Maine, for instance, have passed legislation to create a student finance registry, which would gather data on private student loans issued in the state, including the companies that hold them. Without such registries, they say, regulators will remain in the dark.

Pearce, the Art Institute student, was still making monthly payments to Tuition Options when her campus abruptly shut down as part of sweeping closures by the for-profit chain. She had just two classes left before graduating.

As she tried, and failed, to get answers from the college, Pearce faced another unhappy surprise from Tuition Options. “They told me to still make my payments, even though the school was closed,” she said. (Cavataio said the company reviewed all accounts with the court-appointed receiver for the Art Institute’s parent company, which determined all balance adjustments or suspension of accounts.)

After she wrote Tuition Options saying she refused to keep paying for a degree she would never earn, the company agreed to pause her account and eventually released her from the obligation.

But Pearce wishes they had done even more: “I think they should be paying me back.”

This story about college payment plans was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education.

*Clarification: Ohio Business College uses TFC Tuition Financing for student payment plans only for its truck driving program, which has had graduation rates more than 90 percent in recent years. Graduation rates across all its programs eligible for federal financial aid are much lower.

Sarah Butrymowicz

Sarah Butrymowicz received a bachelor's degree from Tufts University and an M.S. from the Columbia University Graduate School of Journalism.

Meredith Kolodner

Meredith Kolodner is a staff writer. She previously covered schools for the New York Daily News and was an editor at InsideSchools.org and for The Investigative Fund at the Nation Institute. She’s also covered housing, schools, and local government for the Press of Atlantic City and The Chief-Leader newspaper and her work has appeared in the New York Times and the American Prospect. Kolodner is a graduate of Brown University and Columbia University’s Graduate School of Journalism and an active New York City public school parent.