| College Lending |
| By Credit Federal |
Published
05/21/2007
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Financial News
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College Loan News
College loan lending comes under government scrutiny... Consolidate Student Loans
New York Attorney General Andrew Cuomo has been leading an investigation into the $85 billion industry that has turned up evidence that some colleges received a percentage of loan proceeds from lenders given preferred status by the schools - a practice Cuomo calls "kickbacks." He also said some college loan officers received gifts from lenders to encourage them to steer borrowers their way.
"Some of the lenders have crossed the line," said Rep. Buck McKeon, R-Calif., who sponsored the legislation along with House Education Committee Chairman George Miller, D-Calif. "We will not allow this to continue," Miller said, before the House approved the bill on a vote of 414-3. The matter now goes to the Senate, where similar legislation is pending.
The bill would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies. Lenders and schools would have to make their business dealings more transparent to borrowers, disclosing terms, conditions and any incentives involved.
If they haven't already, millions of seniors graduating from high school will turn their attention over the next few weeks to paying for college.
Scholarships and grants - which don't have to be paid back - are the best option, of course. But not everyone has the academic record for merit aid, or a great jump shot that would earn a sports scholarship. About two-thirds of four-year college students who graduate do so with some debt - typically about $19,000.
Many are confused by the patchwork of programs and options for borrowing, and get stuck with more debt than they should. And this year, there's a new wrinkle: An investigation by New York Attorney General Andrew Cuomo has exposed questionable financial arrangements - he calls them "kickbacks" - involving lending companies and universities. Cuomo also has accused the Education Department of being asleep at the switch in regulating the $85 billion industry.
The whole situation has called into question whether the advice many students get is really unbiased. The Associated Press collected advice from published resources and some independent experts on borrowing for college.
In question-and-answer form, this is their advice.
Q: Where should I look for a loan first?
A: That one's easy: Uncle Sam.
The federal government helps students borrow in several ways: through direct loans, by subsidizing interest payments, and by encouraging private lenders to lend to students. Which of these programs you qualify for depends on your school and level of need.
In virtually all cases, government loans are a better deal than private loans, so max them out before borrowing elsewhere.
Q: How do I get started?
A: Fill out the FAFSA (Free Application for Federal Student Aid) form at the Department of Education Web site. It's kind of a pain, but it's worth it. If you plan to attend next fall, and haven't yet filled out the FAFSA, you may have missed some deadlines for state aid or aid from your college. But it's not too late to get federal aid. If you're planning for college further down the line, the Education Department's Web site has a new FAFSA calculator that will estimate what kind of federal aid you're eligible for.
Q: What kind of loans will I be offered?
A: The chief federal loan program is the Stafford loan, which will let dependent freshmen borrow up to $3,500 next year (more for upperclassmen). For students with high financial need, the government pays interest on at least a portion of that while you're in school. But anyone - regardless of family income - can take out an unsubsidized Stafford, which still lets you defer payments until after graduation.
Other College Loan News...
The head of the Education Department's student loan office is stepping down amid growing criticism that the agency has been lax in overseeing the student loan industry.
Theresa Shaw is leaving her post as chief operating officer of the Federal Student Aid office, a job she has held since 2002, the department said in a statement. The office administers federal student aid programs.
The statement said Shaw told Education Secretary Margaret Spellings in February that she planned to leave the department, but not until June 1.
Shaw previously worked at student loan giant Sallie Mae, also known as SLM Corporation. Critics in Congress and student advocates have complained that the department has too many people with ties to the student loan industry in charge of overseeing that industry.
Shaw headed the office where student loan official Matteo Fontana worked until it was disclosed by the Higher Ed Watch blog that he had at least $100,000 in stock in a student loan company, an apparent conflict of interest. Like Shaw, Fontana previously worked at Sallie Mae.
The disclosure about Fontana's stock came a month after former Deputy Secretary of Education Eugene Hickok acknowledged he didn't sell stock he was supposed to sell while on the job and agreed to pay the government $50,000 as part of a settlement.
Spellings recently said two lawyers would now examine financial disclosure forms filed by department officials.
In response to questions from congressional Democrats, the department's inspector general, John Higgens, said last week that he would look into possible conflicts of interest involving department employees and lenders.
New York Attorney General Andrew Cuomo has been leading an investigation into the $85 billion student loan industry.
Cuomo says the inquiry has turned up evidence that some colleges received a percentage of loan proceeds, which Cuomo calls kickbacks, from lenders given preferred status by the schools. Cuomo also said some college loan officers received gifts from lenders.
The House is expected to consider bipartisan legislation Wednesday aimed at stopping some of the practices Cuomo uncovered.
Spellings is to testify on the issue before a House committee Thursday. She is likely to face questions about conflicts of interest and a department database that contains financial information about students and recently was put off limits to lenders out of concerns the lenders were mining it for marketing data.
Lawmakers also are expected to press Spellings about a settlement with student lender Nelnet. The department's inspector general found Nelnet improperly sought and received an artificially high rate of return on many of its loans. The department said earlier this year it would not try to recover the overpayments but made Nelnet promise to stop the practice.
Get your student credit card online. Already have a student card and ran up too many bills? Request student credit card debt assistance.
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