Student Loan Scandal

You have probably seen news stories about the preferred lender lists that most colleges have and alleged misconduct by some lenders and financial aid officers. There have been a lot of accusations and some admissions, but what does this all mean to you? What if your school is one of the ones being investigated?

The majority of people who work in the financial aid office of your school are on your side and work very hard to make sure their students receive the best loan information possible. But just like any other industry, there will always be a couple bad apples. So far 6 colleges have suspended or fired their financial aid directors over inappropriate relationships with lenders. Several lenders have agreed to pay into a fund set up to educate students and their families about their financial aid options, some of them up to two million dollars. Financial aid officers from more than 100 schools have been questioned. The general manager of the Department of Education’s financial partners services has been suspended. What exactly is all the fuss over?

Almost all colleges and universities have a preferred lender list available for their students. The purpose of the list was to give students several options of companies that the college has found to be fair and honest in their dealings. Even though you are not required to choose a lender off of the list - federal law states you may use any lender you wish - most students just picked one of the ones their school recommends. That would be fine except this investigation has shown the names on that list may not all be there because they are the best option for the student. A few financial aid officers and schools have received financial benefits from a few lenders (called inducements) for encouraging their students to use them. As an example some lenders have allegedly contributed to the school’s scholarship funds, paid for officers to travel to island resorts for “meetings”, given officers high paying consultation jobs, provided gifts and cash bonuses to officers, paid a percentage of the loans generated back to the school, given officers stock in the lender’s company. There is currently a congressional summit going on to discuss these lender inducements, preferred lender lists, and any other issues left unresolved from the last summit.

There has already been a profound effect within the higher educational community. Many schools have voluntarily ended lender agreements that could be seen as biased, adopted the new guidelines for conduct drafted by New York Attorney General Andrew Cuomo and repaid any money received from lenders to their students through scholarships and student benefits programs. The NY Attorney General’s office has announced one intended lawsuit already and several other states Attorneys General have started their own investigations. No one is sure what this will mean to individual students, but the times are definitely changing.