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Loans no bargain

By A TIMES EDITORIAL
Published April 14, 2007

The cozy relationship between some universities and lending institutions is costing both the students and their schools - the former in interest charges and the latter in credibility. If higher education won't police this unseemly practice, then state and federal officials must.

Already, New York Attorney General Andrew Cuomo has uncovered a pattern of troubling business practices at some 60 universities. He is finding campuses that direct their students to "preferred" lending institutions chosen not for low rates and quality service but for the financial rewards the companies bestow on the universities. Sometimes the universities are paid a fee for each loan. Sometimes the lending institutions provide free services instead, including call centers that lead students to believe they are talking with university financial advisers.

As Cuomo puts it: "A preferred lender list ought to mean that the lender is preferred by students for its low rates, not by schools for its kickbacks."

Unfortunately, it gets worse. Cuomo also has found a U.S. Department of Education official and three directors of financial aid - at Columbia University, the University of Texas at Austin and the University of Southern California - who have traded in lending company stocks. David Charlow, of Columbia, apparently made $100,000 from special stock trades with a "preferred" lender named Student Loan Xpress. Matteo Fontana, who is a manager in DOE's Office of Federal Student Aid, also owned roughly $100,000 in Loan Xpress stock at one point.

On Monday, CIT Group Inc., the parent company of Loan Xpress, put three of the executives on paid leave.

Florida universities have not been under the same prosecutorial microscope as those in New York, but students here deserve answers as well. Florida International University, for example, has included lenders on its preferred list because they agree to make telephone calls or hold workshops. Lenders have printed financial aid brochures for the University of Central Florida. One of the 11 preferred lenders listed at Florida State University, Sallie Mae, also has a business relationship with FSU.

This is an $85-billion-a-year industry that thrives from the continuing growth in tuition and fees, and the least that universities can do is to make sure their students are getting the best loans possible. Congress and the U.S. Department of Education have joined Cuomo in his search for the truth, and Florida's university Board of Governors should want their own answers.

If university financial aid officers can't give their students informed and impartial advice, they are working for the wrong team.

[Last modified April 13, 2007, 21:36:21]