What About My Loan?

Financial aid offices, Congress, and the Department of Education continue to spout catchy phrases about safeguarding the interests of students (well, at least from here on out). But if you were (or are) a student, wouldnt you wonder if the loan scandals have had a personal impact on you?

National media coverage continues to focus on the broad implications of student loan corruption: some university and Department of Education officials have been operating with conflicts of interest, and thus have not fulfilled their roles as impartial intermediaries between lenders and students.

But only a few examples of students being directly hurt by these improper relationships have been reported. The New York Times revealed two weeks ago that the Pratt Institute in New York had a revenue-sharing deal with a preferred lender that was charging borrowers 15 percent in interestan extremely high, uncompetitive rate. For the most part though, the media has relied on the assumption that preferred lenders (selected by financial aid officials with conflicts of interest) did not offer the best deal to students. This may have been the case on some campuses, but it may not have been on others.

College students are starting to fill the void by launching their own investigations into the relationships between their schools and college loan providers. At the University of Texas-Austin (UT), this type of student-initiated, grassroots digging produced some shocking discoveries about inducements and preferred lender listsdirt that hit close to home and exposed the actual impact of these scandals on students.

Jessica Sondergoth is the student reporter for The Daily Texan who took the initiative and investigated the preferred lender selection process at UT. She had been following Andrew Cuomos investigation, and says that one day in late March:

I picked up The New York Times and scanned Jonathan Glaters latest article on the Attorney Generals investigation into the relationship between student loan companies and universities. On to my letter template [for Freedom of Information Act requests], I typed: “I request a copy of any and all documents pertaining to referral fees and/or a percentage of revenue received by the University of Texas at Austin from student loan companies.” That sentence produced nothing, however a second sentence asking for “all documents pertaining to the naming of student-loan lenders as preferred lenderssince 2003” produced over 100 pages.

Ten days later, Sondergoth received an acknowledgment letter from the university. After first being told that the documents would be ready by April 23rd, she finally got confirmation that she could pick up the documents on April 27th.

Annela Lopez [the public information officer] sat me down and told me I could skim the documents. I asked her if I could take them with me, she said I could choose 50 sheets. I asked her if I could pay for them and take them all. She said yes and shed have copies ready in 30 minutesIn between a game of pool, editor of the Texan, JJ Hermes, and I skimmed the documents. I lost the pool game. But between the two of us, we came across the lender list, some interesting emails and a comment made by assistant director of the financial aid office Don Davis: “Sometimes I think were crazy to even restrict the lender list.”

Sondergoths persistence produced emails and charts that document how financial aid officials at UT chose preferred lenders based on “lender treats” like lunches, dinners, and golf outings, instead of low interest rates. Longhorn students were being steered to lenders that didn’t offer the best deals, including one that offered zero interest loansand thanks to Sondergoth, they are now aware of it.

Even before the current scandals, the student newspaper at the University of Nebraska at Lincoln launched an investigation into the hidden relationships between the university and the student loan company Nelnet. The Daily Nebraskan uncovered that the Nebraska University Foundation, a nonprofit corporation that supports private fundraising activities for the university, owned almost 850,000 shares of Nelnet stock in 2004. That year, the university agreed to a controversial “school as lender” deal with Nelnet. This large, shall we say, “convergence of interests” wasnt disclosed (as required by state law)until the students started digging.

For those interested in investigating their college, Campus Progress has published a how to guide for “exposing conflicts of interests in school financial aid offices.” It includes questions for students to ask financial aid offices and a sample student government resolution for establishing a student loan code of conduct.

In fact, when creating the guide, Campus Progress came across the perfect example of a questionable preferred lender list at Florida A&M University. Language on the schools financial aid website (which has now been taken down) misled students into thinking that they had to borrow from one of two “partner” lenders, based on the first letter of their last name. This sure seems like a violation of law governing the Federal Family Educational Loan Program (as the Department of Education recently reminded colleges in a “Dear Colleague” letter: “FFEL applications and promissory notes . . . require the applicant to clearly indicate a choice of lender”). Campus Progress has initiated an open records request to find out more about the schools relationship with the two lenders.

Current clean-up efforts in Congress and on campuses are genuine and will enact real change. But Congressional and Department of Education oversight can only reach so far. We encourage college students to ask officials at their schools the tough questions about their relationships with lenders. Make sure they are working to find you the cheapest loan. And if they arent, make sure everyone knows about it. Or tell us, and we will.