Friday, June 1, 2007
Mevish Jaffer, contributing editor
After receiving complaints of deceptive marketing by student loan lenders, the Federal Trade Commission has opened a full-fledged investigation. The involvement of the FTC only serves to widen the scale of ethical practices into the $85 billion-a-year student loan industry. According to a letter written by chairwoman Deborah Platt Majoras to US Representative George Miller, the FTC is currently in the process of “actively assessing” deceptive claims made against student loan lenders. The review was requested by the California Democrat.
Majoras went on to say that the commission is specifically reviewing complaints made against two closely held corporations and inquiring into others for possible breaches of telemarketing, debt-collection or other related laws. Investigations by Miller, US Senator Edward Kennedy, New York Attorney General Andrew Cuomo, and other expert officials revealed that college financial-aid officers are giving in to bribery, accepting payments and gifts from student loan lenders that schools suggested to potential borrowers.
In a letter released by Miller’s office, Majoras said, “Some consumers have complained that lenders are using deception or other unlawful acts and practices. Law enforcement will be a critical part of the FTC’s response.” The Web site of its general counsel tells us that the FTC, including the bureau of consumer protection is responsible for conducting civil investigations and has the power to issue injunctions in order to thwart infringements or impose fines of as much as $11,000 a day per violation.
On the other end of the spectrum, Columbia University was also in agreement with Cuomo to implement a student loan code of conduct which also includes putting $1.13 million towards a national education fund. This came 10 days after terminating the employment of a financial aid director who held stock in a lender recommended to students. Additionally, the university also concurred to the suggestion of financial-aid monitoring procedures that will be managed by Cuomo’s office. According to Cuomo, the National Association of Student Financial Aid Administrators who also represent officers at 3,000 schools agreed to implement a stricter ethics code after a previous rejection to a prior version.
Also investigating questionable student loan practices is the House Education and Labor Committee, overseen by Miller. In a letter written on May 2, Miller asked Majoras to look into lenders and referred to two specific cases where fraudulent San Diego student loan companies tried to influence borrowers to consolidate their student loans in marketing letters.
The two companies, College Debt Corp. and Education Loan Funding took it upon themselves to tell borrowers that they could experience higher interest rates if they did not consolidate their loans. According to Miller, the purpose of these campaigns, which were made to look like government communications were meant to scare students in exchange for profits. As for comments from the two companies, a recent phone call made to officials at College Debt Corp wasn’t returned right away and calls made to Education Loan Funding revealed a number that was no longer in service or not returned.
Recent news of financial aid director for the University of Southern California, Catherine C. Thomas’s retirement is the fourth US higher-education official to lose employment in the midst of investigations of questionable student loan practices by education lenders.
