Student Loan Blog : Jonathan Glater

New York AG Examines Colleges’ Relationships With Health Insurers

Student Loan Girl — Tue, 18 Nov 2008 23:30:00 GMT

New York Attorney General Andrew Cuomo is investigating the relationships between colleges and the health insurance companies they do business with just two years after he launched a similar investigation that uncovered conflicts of interest between some colleges and student loan companies, The New York Times reports (“Cuomo Investigating Colleges’ Deals With Health Insurers,” Nov. 17, 2008).

Investigators will focus on determining if schools adequately disclose the policy terms and costs of their school-sponsored health insurance plans to their students, as well as whether or not insurers offer schools a monetary incentive to require that their students buy health insurance through a particular provider.

In an e-mail message, Benjamin Lawsky, special assistant to the attorney general, wrote “We are primarily focused on whether insurance companies are paying schools to push students into health coverage they don’t really need and shouldn’t really want.”

“With students and their families being financially squeezed at every turn,” he added, “colleges must ensure that they are looking out for students’ best interest first and foremost as opposed to their own financial bottom line.”

Cuomo has requested health insurance–related documents from six State University of New York schools — Binghamton, Buffalo State, Oswego, Purchase, Stony Brook, and the University at Buffalo. Investigators have asked to see copies of the schools’ requests for proposals from insurers, insurance contracts, and the information given to students about the health plans available to them, as well as statistics on the health insurance premiums paid by students.

Four institutions, Georgetown University, Columbia University, Cornell University, and Sarah Lawrence College, said they had received subpoenas.

Parents have complained that some schools require students to purchase school-sponsored health insurance, even though the student is already insured under a family health insurance policy, said James Boyle, president of College Parents of America, an association of parents of college students.

Although “the vast majority of college students” are covered under their parent’s health insurance, most campus health centers don’t accept insurance plans that aren’t affiliated with the school, Boyle added.

“Instead,” he said, “some schools force the student, as a condition of enrollment, to purchase health insurance policies offered by the school.”

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Student Loan Providers Get More Help From the Government

Student Loan Girl — Thu, 13 Nov 2008 22:39:00 GMT

In a move intended to avoid a shortfall in student loans next year, Congress has expanded the government program to buy federally guaranteed student loans from private lenders.

Under the updated loan-purchase plan, the Education Department can now buy lenders’ student loans with origination dates between Oct. 1, 2003, and July 1, 2009, The New York Times reports (“U.S. Buying More Loans to Students,” Nov. 8, 2008). The original buyback parameters only allowed lenders to purchase loans made for the current academic year and for the 2009–10 academic year.

Federal officials say that as much as $60 billion in student loans may be eligible for purchase under the new expansion.

“We were able to provide stable, reliable funding for students this school year,” said Education Secretary Margaret Spellings. Now the government is taking action to avoid problems in student loans for next year, she said.

Expanded Program May Solve Liquidity Problem

Many lenders were initially unable to participate in the student loan buyback program because the original version of the program only allowed lenders to sell loans on the secondary market that were generated prior to 2008.

The economic conditions during the current academic year have made it difficult for lenders to secure the financing needed to make new student loans that would be eligible for sale through the buyback program. Unable to sell their loans, lenders were then forced to carry their loans on their books.

“They have these government-guaranteed loans and nobody wants to fund them,” said Sameer Gokhale, a financial analyst for Keefe, Bruyette & Woods in New York. “The government is agreeing to buy more of the loans to give more liquidity.”

The Education Department hopes that the new initiative will provide lenders with the required funds to generate new federal and private loans next year, as lenders may be more likely to participate in the program once they can free up billions of dollars in loans under the new requirements of the buyback program.

“We need to do everything we can to prevent students from becoming the next victims of the financial crisis,” said Sen. Edward Kennedy, chairman of the Senate Education Committee. “Next year, we need to take a closer look at these programs to insulate them from fluctuations in the market so students’ ability to access loans is not threatened.”

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Goal Financial Reaches Agreement With New York Attorney General

Student Loan Girl — Thu, 06 Nov 2008 22:53:00 GMT

Alexandria, Virginia-based Goal Financial is the most recent student loan company to reach a settlement with the New York Attorney General’s office, whose investigation into the student loan industry revealed that several lenders used deceptive marketing practices to lure borrowers, The New York Times reports (“Another Student Loan Company Settles With New York,” Oct. 30, 2008).

The attorney general’s office found that some lenders, including Goal, led consumers to believe that their direct mail pieces were marketing low-interest federal student loans and not private student loans (“Student Loan Companies in Settlement Talks,” The Associated Press, Sept. 5, 2008). “Some of the seals [used by private lenders] looked very similar to those of the federal government,” said Alex Detrick, a spokesman for the attorney general's office.

Goal was also accused of offering incentives like gift cards, iPods, and other items to entice borrowers into taking out private student loans. In a letter sent to Goal last July, New York Attorney General Andrew Cuomo stated that the student loan company’s marketing collateral also gave “misleading examples of monthly payment amounts and annual savings,” the Associated Press reported.

Goal has agreed to adopt a marketing code of conduct created by Cuomo’s office that prohibits the use of deceptive marketing tactics and forbids student loan lenders from offering gifts as incentives to attract borrowers. The student loan company will also pay $350,000 to a fund that will be used to educate students about their financial aid options.

“In these times of increasingly tight credit, it is crucial,” Cuomo said, “that students and their parents get solid, truthful information on which to base their loan decisions.”

Eight other student loan providers have agreed to abide by the marketing code of conduct, and seven of those companies have already contributed more than $1.4 million to the financial aid–related education fund.

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Financial Industry Woes Affecting Commercial Education

Student Loan Girl — Mon, 10 Mar 2008 06:02:00 GMT

The current credit crisis, combined with recent legislation cutting federal subsidy payments to student loan companies that make federally guaranteed student loans, has begun to take a noticeable toll on commercial education companies.

The past few months have seen student loan companies pulling back on now-unprofitable federal student loans and tightening credit restrictions on their private student loans.

With investors fearful that the dwindling availability of student loan financing will lead to lower enrollment numbers, chains like ITT Educational Services, Corinthian Colleges, Inc., and Career Education Corporation have seen their shares fall between 30 and 55 percent since November, according to a New York Times article by Jonathan D. Glater (“As Lending Tightens, Education Could Suffer,” Feb. 19, 2008).

The Push and Pull of Commercial Colleges

These commercial schools, largely offering hands-on instruction in applied areas such as health care, computers, the culinary arts, and automotive repair, would typically expect to see growing enrollment during an economic slump like this one. Layoffs and a flagging job market tend to push individuals back to school, and plunging interest rates make student loans less costly for those needing to finance their education.

In the current economy, however, with lenders in every sector afraid of the kind of credit exposure that led to the subprime meltdown, consumer interest rates on everything from home loans to student loans have stayed steady, despite cuts to interest rates by the Federal Reserve totaling 1.5 points since December.

Commercial colleges typically charge higher tuition than public two-year institutions. Compounded by the fact that these schools have lower graduation rates and tend to be more likely to attract those who would be regarded as risky borrowing prospects — low-income students with poor or unestablished credit histories — potential students may not be able to get enough of the funds they need to attend one of these commercial college programs.

Since federal student loans carry borrowing limits, the higher tuition means that commercial education students must often look to private student loans to supplement their federal aid.

But with student loan companies tightening borrowing restrictions on their private student loans, and with several no longer offering federal student loans at all, these commercial ed students may find themselves increasingly unable to secure the financial aid they need.

Schools Seeking Ways to Adjust to Market Changes

As student loan companies withdraw from the federal student loan market and enforce stricter credit standards on their private student loans, the commercial college chains have begun exploring alternatives to help their students pay for classes, in order to keep their enrollment numbers from plummeting.

Corinthian, Career Education, and ITT have all announced efforts to find new lenders, make arrangements to preserve student loans, and expand their own lending programs.

These moves, writes Glater, point to “how dependent this sector of education is on student loans and how vulnerable the industry could become if credit woes continue to make it harder for lenders to raise capital.”

Lending Lockdown Could Begin to Affect More Students

Ultimately, the student loan crunch may reverberate beyond just commercial colleges.

“So far, problems have yet to be felt by most students,” Glater acknowledges. “But some in the lending industry have begun to warn that there may be fewer borrowing options, even for traditional students, in the fall.”

In the meantime, Michael Dannenberg, director for education policy at the New America Foundation in Washington, D.C., suggests that students who are already having trouble qualifying for the private financing they need for a commercial education consider less costly two-year community colleges that have open enrollment.

Or, as Glater offers, these students may look to enroll in one of the commercial schools that charges lower tuition, which could be covered entirely by federal financial aid.

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College Presidents’ Salaries Not-So-Slowly Sliding Up the Pay Scale

Student Loan Girl — Wed, 21 Nov 2007 04:09:00 GMT

It costs a lot of money to go to college. It costs even more money to run a college. And it’s costing increasingly more money to pay college and university presidents’ salaries and compensation packages, with many reaching the million-dollar mark.

According to The Chronicle of Higher Education’s most recent survey of executive compensation, salaries for presidents of private institutions has increased 200 percent over the last five years, with 81 presidents making more than $500,000 a year. Eight out of the 182 public institutions surveyed now pay salaries of at least $700,000, a jump from the two who reached that benchmark last year (“Presidential Pay is Increasing Fastest at the Largest Institutions,” Nov. 16, 2007).

In some ways, the life of a growing number of college presidents can be compared to that of a U.S. senator. In addition to their high salaries, these presidents might receive free housing, cars, travel, meals and “gifts” from friends of the institutions.

But with yearly college tuition hikes outstripping both the rate of inflation and increases in financial aid, one of the questions becomes whether rising presidents’ salaries are contributing to rising tuition costs (see our Nov. 4 blog, “Student Loan Debt Is on the Rise”).

A New York Times article by Jonathan D. Glater reports that families and lawmakers are concerned about these unfettered increases, questioning college and university presidents making millions even as students graduate with soaring levels of student loan debt (“Increased Compensation Puts More College Presidents in the Million-Dollar Club,” Nov. 12, 2007).

“The public has lost confidence in the altruistic mission of higher education,” says Patrick M. Callan, president of the National Center for Public Policy and Higher Education, in Glater’s article. “They see higher education as just another institution that’s in it for its own bottom line.”

Salaries on the Rise at Both Private and Public Schools

At private institutions, 81 college presidents earned $500,000 or more in the 2006 fiscal year, an increase of 15.7 percent from the previous year.

NOTE: Because some institutions changed Carnegie classifications, the number of institutions from which these data were collected changed from 670 last year to 654 this year. The statistics do not include special-focus institutions or the compensation of presidents who worked only part of the year.

Data and text courtesy of The Chronicle of Higher Education.

At public universities, the median total annual compensation in 2006–07 for the sample of 182 leaders was $397,349. The following chart shows how many presidents were in each of the $100,000 pay classifications.

Data and text courtesy of The Chronicle of Higher Education.

Schools and Presidents Defend Their Pay

Officials at schools with some of the highest paid presidents argue that “running a large university is increasingly similar to running a corporation,” writes Glater. In fact, the Chronicle points out, more college presidents are coming from corporate environments.

School officials, Glater explains, maintain that generous salaries are necessary both to draw presidents that can operate under the corporate mindset needed “to help build institutional wealth and prestige” and to keep them from defecting to a higher bidding school once they’ve been hired—one-third of public college presidents have no formal written employment contract, according to the Chronicle.

For fear of being ousted as the next Benjamin Lander—the former president of American University who was fired for allegedly requesting more than half a million dollars business compensation for personal expenses—some presidents themselves want to make it clear that not all college heads abuse their compensation packages and expense reimbursements. For some presidents, their greatest yearly expense comes in the form of donations given back to their schools.

In another Chronicle article, reporter Piper Fogg interviewed five college and university presidents about how they spend their money. Although all of them admitted to some personal splurging, they also pointed out the thousands of dollars they give back to the schools they work for (“With All Those Perks, How Do College Presidents Spend Their Money?,” Nov. 16, 2007).

David Hodge, president of Miami University (Ohio), earns $399,005 per year, but has donated more than $100,000 in the last year to create need-based scholarships for his students.

Lois B. DeFleur, president of the State University of New York at Binghamton, might own a Piper Comanche 260C single-engine airplane that she bought over 30 years ago, but the school only reimburses her for mileage at the automobile mileage rate—she pays for the gas, $5 a gallon, out of her own pocket. And out of her $344,500 pay package, DeFleur has donated about $100,000 over the last five years to her school, as well as the $25,000 she received for winning the McGraw Prize in Education.

If college presidents are increasingly expected to operate as CEOs, Hodge and DeFleur certainly differ from typical corporate executives in what they voluntarily give back to their employers out of their own salaries. And while college presidents’ pay is rising rapidly, the Chronicle notes that compared with the salaries of corporate CEOs, college executive salaries still lag far behind.

As long as colleges and universities stay on their current path toward functioning as corporations, presidents’ salaries will most likely continue to climb—it will be for the schools, the students, and the public at large to see if they get the corporate-level college management that corresponds to the corporate-level pay.

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