What do you get when college loan lenders give kickbacks to universities? You get a sleazy scandal…and who pays…the student! It seems that an investigation led by New York Attorney General Andrew Cuomo into current loan practices of universities and private lenders has finally put a spotlight into this unholy alliance. The inquiry revealed that some colleges and universities were receiving bribes from private lenders in return for navigating students to their student loan programs. Many instances of financial aid officials and other university officers receiving direct kickbacks have surfaced.
A probe by The New York Times revealed that financial aid directors at University of Texas, University of Southern California, and Columbia University received stock in loan lender companies. Even the federal government wasn’t immune from the reach of the scandal. A senior U.S. Education Department official accumulated in excess of $100,000 from stock sales of a private lending firm while he was entrusted to oversee the federal student loan effort. Apparently these bribes were an open secret. So how did this controversy come to the forefront?
It all started with my rich uncle…myrichuncle.com that is. Myrichuncle is a small private student loan lender that placed a two page advertisement on July 16 in The New York Times, the ad shined a light on the lender-university loan nexus, accusing lenders of giving overt and covert financial incentives to schools in return for steering business towards their direction. These lenders were then placed on college preferred lender lists hence, the financial aid officers were looking out for the lenders’ interests not the students. Ultimately, the students paid the price in terms of higher loan interest rates instead of getting the best deal. The universities forget that they are to serve student interests, without student enrollment the university system wouldn’t exist. Under the guise of revenue-sharing agreements, the corrupt practices continued without any oversight.
Thankfully, our elected officials stepped in earlier this month to help the students. The U.S. Congress overwhelmingly passed an amended version of the Student Loan Sunshine Act. By a vote of 414-3, the bill would oblige colleges and lenders to submit to stringent codes of conduct; necessitate full disclosure of university-lender alliances; prohibit gifts from lenders to financial aid officers; and protect students from incessant marketing practices. Good job Congress, only if you can do something to protect the innocent college students from being preyed upon by credit card companies on campuses.
