Student loan shenanigans | True or false:
Student loan firms strive to set the highest standards in the lending industry
since its customers can't shake the debt no matter what -- even if dire financial
circumstances prompt them to file bankruptcy down the road.
Answer:
Well, maybe relative to other lenders, their standards are high. But that's like
saying a coral snake is much more attractive than a boa constrictor. Both reptiles
are quite capable of killing off unwary prey. As it happens,
some student loan companies have been under fire lately for engaging in questionable
practices that ultimately hurt borrowers. The most recent allegations involve
revenue sharing agreements between lenders and financial aid administrators at
several dozen colleges and universities across the country. Revenue
sharing sounds harmless, doesn't it? Kind of like win-win, we all share the profits.
But it's actually a euphemism for kickbacks, and that's what some colleges are
getting in exchange for putting lenders on their preferred lender lists, say some
rather prominent political players. New York Attorney General
Andrew Cuomo recently sent a letter to Education Finance Partners, a student-loan
provider based in San Francisco (one of several providers under investigation),
notifying the firm of Cuomo's intentions to file a civil fraud lawsuit against
it. Cuomo unveiled a list of 12 schools that accepted payments
of various sizes from the lender in exchange for putting the firm on their preferred
lender list. That's just the tip of the iceberg. He says more than 100 public
and private schools are under investigation. For good measure, he sent a letter
to 400 colleges and universities nationwide, warning them to end relationships
with lenders if their dealings do not serve the best interests of student borrowers. Business
as usual
In one particularly egregious case, Drexel University made
Education Finance Partners its exclusive preferred private loan provider. In return,
the school received more than $100,000 over the past year. Why
does that seem so wrong? Because students tend to trust that their schools' recommendations
are based on factors such as low loan costs and high levels of service. It's estimated
that 90 percent of the students who take out loans choose a lender from their
school's preferred list. They're perceived as sanctioned lenders -- because they
are. And if borrowers don't choose from the list, they could encounter "denials
or impediments," Cuomo said in a recent press
release. But of course, as always, there is more than one
side to the story. Tamera Briones, founder and chief executive of Education Finance
Partners, said lots of schools use revenue sharing to pay for financial aid programs,
and that these arrangements don't adversely affect borrowers at all. Several college
financial aid officials defend the practice for much the same reason: The money
doesn't line their pockets, they say. It goes to defray administrative expenses
or it helps the neediest students. | 
