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New York Acts to Restrict Improper Influence of Student Loan Companies
PSN on April 19, 2007 - 10:07am
We highlighted the problems of predatory lending industry a few weeks ago and now, problems are coming to light with the student loan industry. In one of the more egregious examples, Student Loan Express, a student loan company that is a unit of CIT Group, Inc, is alleged to have paid more than $21,000 for Johns Hopkins University's director of student financial services to attend graduate school. Coincidentally (or not), Student Loan Express happens to be on the preferred lender list at Johns Hopkins.
And, it turns out, the problem is widespread. A recent inquiry found that the student loan industry widely engages in illegal and deceptive practices, including financial payments to colleges for directing students to specific lenders, gifts and trips from lenders to financial aid directors and staffing of university call centers by lender employees.
New York Takes Action: In response to these revelations, New York's legislature just introduced legislation that would implement strict regulations on the relationship between colleges and the companies that make tuition loans to their students. the bill would ban lenders from sharing revenue from student loans with colleges and ban lenders from offering gifts to school officials or naming them to corporate advisory boards in exchange fro being placed on preferring lender lists. The Student Lending Accountability, Transparency and Enforcement Act (Slate) was introduced in response to an investigation into the student loan industry by New York's attorney general.
While New York is the first state to introduce new legislation, several attorney generals have begun investigating the relationship between lenders and colleges, including the attorney generals of California, Illinois, Ohio, Connecticut and Minnesota. In Illinois, the Chicago Tribune reported that two top Chicago State officials are shareholders and board members of a bank the university recommends to students who need loans.
Under pressure of the investigations, Citibank has voluntarily donated $2 million to educate parents and students about student loans in response to the investigation. Sallie Mae, the nation's largest student lender, has also agreed to pay $2 million and adopt a new code of conduct on its lending practices. Under the agreement, Sallie Mae consented to discontinuing call centers or other staffing for college financial aid offices, discontinue paying financial aid officers for appearing on advisory boards and discontinue paying for any trips or travel for any financial aid officer.
The student loan industry is an $85 billion industry, so states need to follow the lead of New York to make such illicit bribing of college officials by student loan lenders illegal.