New York Probe on the Student Loan Industry

Student Loan Girl — Wed, 21 Mar 2007 00:14:00 GMT

On Nov. 7, 2006 Andrew Cuomo was elected the 64th attorney general of the state of New York, and shortly thereafter launched a nationwide investigation into student loan practices at more than 400 universities across the nation, including some of the Ivy Leagues.

According to a March 15, 2007 article briefing titled “NY State Attorney General Releases Results of Probe on College Loan Industry,” that appeared in the National Council of Higher Education Loan Programs Inc.’s Daily Briefing, “Cuomo issued results of his nationwide investigation into the college loan industry that revealed ‘deceptive’ practices.”

It is important to remember that not ALL lenders or university financial aid officers have been implicated in this investigation. Although Cuomo’s office has not revealed the specific colleges it has been investigating, it has said it is focusing on Sallie Mae and Nelnet.

Preferred Lender Lists Questioned

According to the Daily Briefing, “The investigation revealed the following industry practices, which Cuomo says are ‘problematic’: Establishment of so-called ‘preferred lender’ lists without disclosing the basis for selection or the specific benefits associated with these preferred lenders; revenue sharing and other financial arrangements between schools and lenders; denials or impediments to a student or parent’s choice of lender based on the borrower’s selection of a particular lender or guaranty agency; impediments to competition in the lending industry that stifle better loan terms for students and parents.”

On the New York State Web site, http://www.oag.state.ny.us/press/2007/mar/mar15a_07.html, it is reported that “Cuomo notified over 400 colleges and universities throughout the country, including all in New York state, to end relationships with lenders that have the potential to mislead students and compromise their ability to obtain the best rate for their student loans.”

The letter also included the following points as being problematic in the student loan industry:

“Lenders pay financial kickbacks to schools based on a percentage of the loans that are directed to the lenders. The kickbacks are designed to be larger if a school directs more student loans to the lender. And the kickbacks are even greater if the schools make the lender their ‘exclusive’ preferred lender.
Lenders pay for all-expense-paid trips for financial aid officers (and their spouses) to high-end resorts like Pebble Beach, as well as other exotic locations in the Caribbean and elsewhere. Lenders also provide schools with other benefits like computer systems and put representatives from schools on their advisory boards in order to further curry favor with the schools.
Lenders set up funds and credit lines for schools to use in exchange for schools putting the lenders on their preferred lender lists.
Lenders offer large payments to schools to drop out of the direct federal loan program so that the lenders get more business.
Lenders set up call centers for schools. When students call the schools’ financial aid centers, they actually get representatives of the lenders.
Lenders on preferred lender lists agree to sell loans to a single lender so there is actually no real choice for the student.
Lenders sell loans to other lenders, often wiping out the back-end benefits originally promised to the students without the students ever knowing.”

What’s Next for the Investigation?

The Daily Briefing explained, “The Attorney General’s press statement does not indicate the future direction of their investigation, except to say the investigation is continuing.”

Students can finance their federal student loans through any lender that participates in the Federal Family Education Loan Program, including NextStudent. Make sure to look for a lender with aggressive benefits. NextStudent offers some of the best benefits in the business, including a 1 percent LOCKED interest rate reduction after the first 36 on-time payments.

Talk to the education financial advisors at NextStudent. They have all the information and advice you need on student loans. Check out www.nextstudent.com.

Also, be sure to tune in next Monday for my next blog on student loan issues in the news.

Student Loan Girl

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Student Loan Blog : Sallie Mae, Financial Aid Officers

New York Probe on the Student Loan Industry