By Gaurav Bhola, MSM, Managing Editor
Wednesday, August 22, 2007
The fall semester is here and students are preparing for a brand new experience at college or graduate school. Students and their families may have been following the recent national student loan scandal and how student loan lenders and schools were involved. An investigation by New York Attorney General Andrew Cuomo into the nexus between college loan lenders and colleges found many unethical and undisclosed practices; it was discovered that lenders were giving trips, meals, sharing revenue from loans, lenders’ company stock, and other gifts to colleges and their officials.
The lender and school relationship has been laid threadbare, open finally to scrutiny by the public. Due to Cuomo’s efforts lenders and schools settled with his office, garnering more than $19 million for a national education fund his office set up. Some of the colleges adopted a new code of conduct drafted by his office. Here are the seven key elements of the code of conduct from the New York State Attorney General’s website:
|
Code |
Conduct |
|
Revenue Sharing Prohibition |
Colleges are prohibited from receiving anything of value from any lending institution in exchange for any advantage sought by the lending institution. Lenders can no longer pay to get on a school’s preferred lender list |
|
Gift and Trip Prohibition |
College employees are prohibited from taking anything of more than nominal value from any lending institution. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders
|
|
Advisory Board Compensation Rules
|
College employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution |
|
Preferred Lender Guidelines |
College preferred lender lists must be based solely on the best interests of the students or parents who may use the list without regard to financial interests of the college |
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Preferred Lender Disclosure
|
On all preferred lender lists the college must clearly and fully disclose the criteria and process used to select preferred lenders. Students must also be told that they have the right and ability to select the lender of their choice regardless of the preferred lender list |
|
Loan Resale Disclosure |
No lender may appear on a preferred lender list if the lender has an agreement to sell its loans to another lender without disclosing this fact. In addition, no lender may bargain to be a preferred lender with respect to a certain type of loan by providing benefits to a college as to another type of loan |
|
Call – Center Prohibition |
Colleges must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or provide staffing to a college financial aid office |
Some student loan lenders and schools that have signed on to
Cuomo’s program, but still proper federal and state regulations and accompanying penalties need to be instituted. Transparency in the student loan process can ensure that vulnerable students and their families are protected from further exploitation.
More transparency will not only bring ethical behavior and credibility back into the loan process but rebuild trust towards financial aid officials. Until additional national student loan guidelines regulate schools, parents and students must ask schools if they have adopted the Cuomo's code of conduct or have someting similar. Student loan lenders must realize it is a privilege to provide student loans for something as noble as higher education.
