Do Teachers Use Payday Loans?

Inside Subprime: Feb 4, 2019

By Grace Austin

While educating youth is an extremely important career, most teachers only make a modest salary. The average starting teacher salary nationwide is $38,617, according to the National Education Association, with some states paying as little as $30,036 to teachers their first year. And since a teacher’s license requires a four-year degree, many teachers leave college with student loans to pay off. The starting salary for teachers is much lower than the average starting salary for college graduates, putting teachers in an especially tight bind when they graduate. What’s more, almost all public school teachers (94 percent) dig into their own pockets when purchasing supplies for their classrooms. And the federal tax deduction of $250 doesn’t cover what most teachers spend (almost $480 on average). With a limited income on top of student loan payments and other expenses, it’s no wonder some teachers turn to payday loans in a time of need.

That’s what happened to Deborah, a member of one of Pew’s focus groups, when she needed more money than her credit cards, bank loans, and student loans could provide. A full time teacher and mother, Deborah was studying for a graduate degree, and found herself short on cash. Desperate, Deborah turned to a payday loan provider. “I was scared when I went in there, but I needed the money, and I knew it was a fast fix,” she said. After borrowing a couple hundred dollars, she found herself trapped in a cycle of debt. Unable to pay off the loan in addition to her expenses, Deborah renewed the loan for nearly six months until her tax return allowed her to pay it off.

What is a payday loan?

A payday loan is a short-term, small-dollar loan that is commonly advertised as a fast and easy solution to an emergency need for cash. A borrower submits proof of income and a bank account along with identification to obtain a payday loan. A credit check is not needed, which makes this type of loan appealing to people who lack established credit history or have a low credit score. But these loans carry average annual interest rates of almost 400 percent, making them difficult for teachers on a modest salary to pay back while keeping up with everyday costs. While payday loans are intended to be paid back in two weeks, four out of five payday loans are renewed or rolled over. These risky loans can quickly make matters worse for cash-strapped teachers.

How can teachers avoid payday loans?

It’s important that teachers explore all other options before taking out a payday loan. If you’re considering professional development but don’t have the funds, try applying for a grant. There are also grants available for classroom enrichment from a variety of funding sources. And if you need money for classroom supplies or other projects, you might find parents or other members of the community that are willing to help. Utilize crowdfunding to raise money for your classroom, rather than putting your own money towards needed supplies.

Teachers who can’t avoid borrowing should consider less costly options, such as a lower-interest loan from a bank or credit union. Those with bad credit should look into taking out an installment loan. No credit check is required, but these loans have lower interest rates and longer terms than payday loans, which make them a more responsible choice for teachers struggling to make ends meet.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including FloridaIndiana, Illinois, KansasKentucky, MissouriOhio, Texas and more.