Student Loan Blog : preferred lender lists

All Dried Up: Student Loan Provider Files for Bankruptcy

Student Loan Girl — Thu, 18 Dec 2008 22:11:00 GMT

Education Finance Partners, a San Francisco-based student loan company, has filed for Chapter 7 bankruptcy protection, saying it has less than $1 million in assets and between $10 million and $50 million in liabilities (“Student Loan Company Files for Bankruptcy in Austin,” The Austin American-Statesman, Dec. 18, 2008).

According to the bankruptcy filing, the student loan company owed the New York attorney general’s office $2.5 million, an amount Education Finance Partners had agreed to pay in order to resolve an investigation that accused the lender of offering more than 60 schools monetary compensation in return for placing the lender on preferred lender lists.

Education Finance Partners also owed $1.2 million to the Brazos Higher Education Service Corp., a nonprofit student loan services provider, for pending arbitration in a lawsuit filed in California as well as $750,000 to both Morgan Stanley and NBF International Holdings Inc.

The ailing student loan lender has been crippled by the credit crisis for months. Unable to secure new financing, the lender was forced to shut down its main office in San Francisco as well as a second office in Austin, Texas in September, a month after it announced that it would stop making student loans and that it would have to lay off 113 employees.

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NY Attorney General To Sue Student Loan Lender For Deceptive Marketing

Student Loan Girl — Mon, 08 Sep 2008 21:18:00 GMT

New York Attorney General Andrew Cuomo plans to sue student loan provider Goal Financial, LLC for using deceptive marketing practices to attract new business, according to a CNNMoney.com article (“Student Lenders Under Scrutiny,” Sept. 5, 2008).

Eight other lenders being investigated for misleading borrowers are currently negotiating settlements with the New York Attorney General’s office. Unlike these lenders, Goal Financial did not indicate a willingness to make needed reforms to its marketing practices after Cuomo’s office sent a letter in July informing the lender of the attorney general’s intent to sue.

In the letter, Cuomo indicated that, in addition to using deceptive marketing materials, Goal Financial gave borrowers misleading information about what their monthly student loan payments and annual savings could be, and illegally offered incentives, like iPods or gift cards, to students who convinced other students to apply for Goal Financial’s student loans.

Cuomo’s office also accused the Virginia-based student loan company, which was the sixth-largest lender of consolidated student loans in 2006, of referring borrowers to a student loan comparison Website that Goal Financial owned, without disclosing that the comparison site only listed lenders who paid Goal Financial to include them on the site.

The eight other lenders in Cuomo’s investigation are accused of deceptively marketing private student loans so that they appeared to be federal student loans. The lenders allegedly e-mailed or mailed potential borrowers marketing material about private student loans that closely resembled the government’s marketing material for federal student loans.

“Some of the seals [used by lenders] looked very similar to those of the federal government,” said Alex Detrick, a spokesperson for the attorney general’s office.

These findings come on heels of an investigation conducted last year by the New York Attorney General’s office that found colleges and universities across the country were including certain student loan providers on their “preferred” lender lists in exchange for kickbacks. Schools issue preferred lender lists to their students to help them find a lender for their federal student loans, a practice that Cuomo argued may have sent a disproportionate amount of student loan borrowers to certain lenders.

Since the investigation, at least 22 schools have adopted new codes of conduct and have agreed to overhaul the way in which they do business with student loan lenders.

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Financial Aid Administrators Oppose New Preferred-Lender List Rule

Student Loan Girl — Thu, 24 Apr 2008 01:01:00 GMT

The National Association of Student Financial Aid Administrators has asked the Department of Education to reconsider its interpretation of a new rule that requires colleges to have at least three student loan lenders that are not affiliated with each other on their preferred-lender lists, according to an article by Kelly Field in The Chronicle of Higher Education (“Aid Administrators Urge Reconsideration of Rule on Preferred-Lender Lists,” April 28, 2008).

In a letter sent to the Department of Education, NASFAA President Philip Day, Jr., expressed members’ concerns that the rule is being interpreted too broadly and “could not come at a worse time.”

Financial aid officers are presently dealing with the uncertainty about access to student loans and many have already created their preferred lender lists, which under the Education Department’s new three-lender rule would have to be revised.

With peak student loan processing season currently underway, financial aid administrators fear that the rule, expected to go into effect in July, would severely limit students’ borrowing options.

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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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