Schools Paid Off To Steer Student Loan Applications To Preferred Lenders?!
(UPDATE: January 25, 2008 - Class Action filed claiming students face race bias in loan rates implicating Sallie Mae.)
(UPDATE: April 19 - U.S. News World Report compilation of all articles referencing Student Loan Scandal
(UPDATE: April 19) Department of Education contaminated with the Bush Virus.
"The Bush administration rewarded lenders with prominent positions throughout the department."
(UPDATE: Wednesday, April 11 U.S. News & World Reports: Sallie Mae kicking in $2 million to settle claims they steered business their way.
(UPDATE: Monday, April 9 CIT Chief Executive Officer and others on leave pending investigation.)
(UPDATE: Saturday, April 7 Washington Post. The termites have infested the wooden structure of higher education's student financial aid. Calling in congressional pest control.)
(UPDATE: Friday April 6, 2007. This story is getting worse. NY Times today Federal Official caught up in scandal surrounding students loans. One person in charge of overseeing the lenders was a shareholder in the lending companies the student loan officers were steering students to borrow from!)
(UPDATE: The plot thickens. Student Loan Officers holding shares in the lending companies they are steering their students to borrow from? Columbia, University of Texas and University of Southern California. This abstract from an article published in October 2006:
Private student loans have become big and increasingly competitive business; with rising tuition and lagging government aid, students took out nearly $13.8 billion in private loans in 2004-5, more than 10 times amount borrowed decade ago; key to this business is university financial aid offices, which compile lists of 'preferred' lenders; students rarely comparison shop and rely on those lists; financial aid administrators claim they pick lenders with most competitive terms, but some question whether students are getting best deals; note incentives and giveaways offered to college and university officials by private loan companies; cite possible conflict of interest; it is hard to determine how widespread incentives are, because neither universities nor lenders dislcose arrangements; law making it illegal for lenders to use inducements to get applicants for federally backed students loans does not apply to private loans.)
Why doesn't this surprise me? Disgust me, yes. Well, then you have one of this country's largest lenders involved in yet more raping and pillaging of the masses. Why? It's good business for them. Student loans cannot be discharged in bankruptcy. Schools benefit because they can guarantee their students will get student loans and eventually Citibank is pulling the strings. (But apparently there are many others.)
But now universities such as University of Pennsylvania, St. Johns, Syracuse are complicit? Mind you, they have admitted to no wrongdoing. And will give back the money the banks paid them as well as the students. In their world, I guess this makes it OK. Got caught with their hand in the piggy bank of struggling middle class families. In my world, it is just another mob-style loan sharking activity.
"Citibank, which provides loans at more than 3,000 colleges nationwide, agreed to pay $2 million into a fund to educate students and parents about the student loan industry. New York University, Syracuse, St. John’s, Fordham and the University of Pennsylvania will together repay more than $3.2 million to students who borrowed from companies that paid the academic institutions to steer students their way.
The universities also agreed to adopt a code of conduct governing their relations with student-loan providers. Neither the universities nor the bank admitted any wrongdoing."
“With one agreement, millions of dollars will be returned to thousands of students,” Mr. Cuomo said at a news conference today in Manhattan.
The deal follows an investigation of the relationships, often undisclosed, between universities and the student loan companies that help students raise the money to pay for college.
In some instances, loan companies made payments to the institutions linked to the number of students who borrowed. One lender invited university officials to an all-expenses-paid Caribbean retreat. At several institutions, students’ questions about financial aid were fielded by call centers that, unknown to the students, were set up and operated by loan companies. Each arrangement, critics say, embodies a conflict of interest.
Lawyers in Mr. Cuomo’s office are in various stages of negotiations with scores more colleges and universities, and with other lenders, seeking compensation to students and signatures on the code of conduct, according to officials in Mr. Cuomo’s office.
Under today’s agreement, N.Y.U. will distribute to students nearly $1.4 million that it received from Citibank over five years. The University of Pennsylvania will distribute $1.6 million that it received over two years. The amounts for the other three universities are much smaller: $164,084 over two years at Syracuse, $80,553 over one year at St. John’s University, and $13,840 at Fordham.
Three more universities have agreed to adopt the code of conduct, but are not making any payments under the agreement: the State University of New York system, St. Lawrence University and Long Island University.
Relationships between loan companies and universities are under increasing scrutiny. Lawmakers in Washington have asked for information from loan companies about their ties to academic institutions. Lori Swanson, the Minnesota attorney general, has sought similar information and has called on colleges and universities to disclose payments or other benefits received from student loan companies.
Mr. Cuomo has announced his intention to file a civil lawsuit against one loan company, Education Finance Partners of San Francisco, for paying institutions a fraction of the amount borrowed by students.
The federal Education Department is weighing new regulations that would govern how colleges assemble and present their lists of recommended, or “preferred,” lenders. College students usually rely on the lists, rather than shopping around more widely; the payments and other benefits that lenders provide to universities are in exchange for inclusion on the lists.
You can read the rest of this New York Times article here.
I remember when I attended University of Bridgeport (eventually Quinnipiac University School of Law) one semester my financial aid officer told me they needed to be paid by a certain date. I knew my Stafford Loans would not come in until about two weeks after the due date. She told me then I would have to get private loans or I would have to withdraw from the semester. Well if you haven't figured out my personality by now....I told her very politely, "you will either wait an additional two weeks for your money coming from the lender of my choice or I will withdraw myself right now." They relented and I got to borrow my financial aid and incur debt on my terms. I refused to be pushed into private loans.
Financial aid officers are there to protect the school's interest as a creditor. You are a debtor. This relationship has a natural tension. Financial Aid Officers can be very informative, helpful and nice. But they work for and are loyal to the creditor and it would serve you well to never forget this.