Report Reveals Iowa Student Loan Agency’s Strategy to Achieve “Hypergrowth”

Officials at the Iowa Student Loan Liquidity Corporation, the state-affiliated nonprofit student loan provider, have never been shy in their quest to expand their market share and reap financial rewards. In internal company e-mails obtained by The Des Moines Register last year, agency officials said their aim was to achieve “hypergrowth,” by pursuing “an aggressive, offensive strategy to bring in new loan volume.”

A new report released last week by Iowa Attorney General Thomas Miller provides an illuminating – if somewhat incomplete – account of how Iowa Student Loan, also known as ISL, put this strategy into motion. The document shows that the loan agency consistently steered borrowers to its most expensive private student loan products. These revelations are particularly disturbing because Iowa college students graduate with the highest level of debt in the nation.

“The future of many Iowa students is burdened by a mountain of student loan debt,” Miller wrote in his report. “It appears that ISL unduly elevated the goals of increasing its competitive advantage, market share, and loan portfolio size over its mission of always striving to do the best for its student borrowers.”

Among other things, the report – which is based largely on an investigation conducted by Mark Kantrowitz, publisher of Finaid.org, a financial aid information website sponsored in part by Citibank – found that officials at the Iowa agency did the following:

• Provided financial rewards to their employees based on the number of borrowers they secured.
• Paid bonuses to staff members at the college access centers they managed based on the number of borrowers they brought in.
• Provided kickbacks to colleges that recommended its private “Iowa Partnership Loans” to their students. The agency said that the payments, which totaled about $1.5 million to 50 colleges over five years, were meant to reimburse schools for the cost of administering the private loan program. But as the report points out, the types of activities for which the colleges were “reimbursed” – such as “counseling borrowers, certifying loan applications, and disbursing loans” – are “all functions that are normally considered part of a college’s administrative capabilities.”
• Falsely advertised its private loan products as the “lowest cost” options even though its competitors often offered better deals.
• Failed to routinely advise students and their families to exhaust their federal student loan eligibility before taking out private loans.
• Misled students into thinking they could reduce their debt by taking out federal consolidation loans, when in fact refinancing almost always causes borrowers to spend more to pay off their loans.

The Attorney General did not charge any of the agency’s officials with criminal conduct. In fact, he went out of his way to dismiss such allegations – asserting at one point that these officials “were Iowans of good character acting in good faith.” We’re not as confident that the evidence merits such a characterization (at least the “acting in good faith” part). We are also surprised that the report doesn’t include any discussion of how the agency obtained improper 9.5 percent subsidy payments from the federal government and aggressively used the money to try to improve its competitive position. This is an area of great interest to us (see here and here) and we hope to explore more about it in the near future.

But despite these qualms, we full-heartedly agree with the Attorney General’s conclusion that the nonprofit agency “went off track” by “acting less like a nonprofit corporation with special ties and responsibilities to the State of Iowa and more like a for-profit business.”

“It appears that ISL unduly elevated the goal of increasing its competitive advantage, market share and loan portfolio size over its mission of always striving to do the best for its student borrowers,” the report states. “ISL fell short in achieving the high standards of conduct which we think Iowans expect and deserve.”

In this respect, we hardly think that the Iowa agency is alone.