By Gaurav Bhola, MSM, Managing Editor
Friday, August 17, 2007
It is that time of the year again when college and university enrollment starts for the fall semester. Students and their families are gearing up for the student loan process, some oblivious to the recent student loan scandals. The cloud of the scandal gave rain this spring with the investigation by New York Attorney General Andrew Cuomo into the nexus between the colleges and student loan lenders. It was discovered that the school financial aid officials were receiving kickbacks of several hues to promote certain student loan lenders. Student loan lenders were providing trips, meals, stock in their companies, revenue sharing agreements, and other enticements to get their names on the preferred lenders lists.
The preferred lenders list is provided to students and their families during student loan consultations; lenders on the lists get immediate informal benefaction from the university. Hence, the students and their families trust the lists and the financial aid officials to be impartial. But they don’t realize that the universities and financial aid officials have betrayed that trust by looking out for lenders’ interests and not theirs.
The job of financial aid officials is to provide students with the most competitive loans, not to hold student loan choices hostage to select few lenders who they receive kickbacks from. Fortunately, this nexus has been exposed. The lucrative $85 billion-a-year student loan industry has been growing in recent years as congress has cut student loan programs. Due to restrictions on federal student aid and loan programs, private student loans have filled the void for many students.
The private lenders have no cap on the interest they charge students or are obligated to provide the best loan terms. So far, the private loan industry has been operating without boundaries and proper oversight. Thankfully, Cuomo’s investigation has produced results; settlements with twelve private lenders such as Sallie Mae, Nelnet Inc., JP Morgan Chase, Citibank, and Bank of America and some colleges have resulted in approximately $13.7 million for a national education fund.
Many colleges and student loan lenders have agreed to sign a code of conduct that will stop the cozy kickback relationships. However, Cuomo is now looking into relationships between college athletic departments and private lenders. Last week, Cuomo served subpoenas and records requests from forty college athletics departments and Florida based University Financial Services (UFS), a student financial service company.
His office is looking into whether athletic departments, teams, and mascots endorsed UFS as a preferred lender and if so, was anything provided to the athletic departments by UFS for that privilege. Lenders should be reminded that it is a privilege for them to provide loans for something as sacred as education. Alas, it took states and congress to reign in abuses by banks and corporations.
Earlier this month the Senate voted to require lenders to provide detailed information about student loans and forbade them from entering into revenue-sharing arrangements with schools. Nevertheless, these are small steps towards rooting out corruption in student lending and student loan consolidation programs, but more needs to be done to stop exploitation of students and their families. Only continued vigilance by the government will thwart any future corruption, illegalities, and exploitation in the student loan industry.
