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Who's picking student loans?
In Florida, as around the country, financial aid offices offer the lenders they prefer.
By TOM MARSHALL
Published May 7, 2007
It seemed like a fine idea at the time.
But at college financial aid offices across the nation, officials are discovering there's a downside to directing students toward particular banks, earning money on student loans, or allowing lenders to fly them to sometimes-lavish advisory board meetings.
Over the last month, Congress, federal agencies and a growing number of states have been investigating revenue-sharing agreements and other links between universities and the companies that lend money to their students.
A review of arrangements at a handful of campuses by the St. Petersburg Times shows some of the practices under scrutiny are alive and well at Florida colleges and universities:
- At Florida State University, the financial aid director sits on the advisory board of preferred lender Student Loan Xpress, which has seen nearly half of its board members suspended by their schools recently for allegedly accepting hefty consulting fees or owning stock.
- With thousands of competing lenders to choose from, Florida A&M University students were, until recently, directed to use one of two lenders based on the spelling of their last name.
- The Stetson University Law School financial aid director sits on the advisory board of a preferred lender that last year controlled 70 percent of the school's $31-million loan business. Now, officials say they will no longer accept free travel and lodging if the director attends further meetings.
New York Attorney General Andrew Cuomo has been issuing subpoenas to schools and lenders across the nation, threatening lawsuits for fraud or deceptive practices involving students from his state. This past week, he fired off 90 more, including some to Florida schools, seeking information on revenue-sharing links between alumni associations and Nebraska-based Nelnet.
Mark Rosenberg, chancellor of Florida's state university system, called the news from other states worrisome. "I think we need to look at how we do our business with financial aid lenders. I am very concerned about it."
Student Loan Xpress is one of 11 preferred lenders at FSU. Last year, it did more business there - $27-million worth, in the form of more than 9, 000 federally backed loans - than any campus in the nation but one, according to federal reports compiled by the Student Marketmeasure data service.
FSU financial aid director Darryl Marshall has served for five years on that company's advisory board, and said he has accepted reimbursement for travel and lodging to attend three meetings.
Six other members of that board - including financial aid directors at the University of Texas, Columbia University and Johns Hopkins University - have been suspended by their schools for allegedly holding up to $100, 000 in stock or accepting fees of up to $80, 000 from the company.
Marshall said he was also reimbursed for two trips as an advisory board member for USA Funds, the nation's largest loan guarantor, and one trip for Elm Resources, a nonprofit run by lenders.
FSU officials said Marshall has received no improper payments from the lenders.
"As an advisory board member, Mr. Marshall does not receive a salary, stipends, consulting fees or offers of stock from those companies or any of their affiliates, " FSU spokeswoman Browning Brooks said in an e-mail.
She said the university used its preferred-lender list to "streamline" a complex process for students.
Officials at Florida A&M said their list of just two lenders made life easier for financial aid advisers, who have to process federal loans differently for each company.
Students visiting their Web site were directed to one of two lenders based on the first letter of their last name. The lenders - Sallie Mae "lending partner" Regions Bank and Edamerica - each held about $27-million in lending business last year at FAMU.
"These are our lenders, but students are told they have a choice, " said Marcia Boyd, director of financial of aid. "We do business with hundreds of banks."
But aside from another $26-million in the Federal Direct Loan Program, which FAMU is abandoning, just two other banks issued federal loans last year to FAMU students, according to federal figures. They handled three loans worth a total of $10, 300.
Officials said they don't earn any money from preferred lenders.
The FAMU financial aid Web page was taken down last week following media queries.
At Stetson University College of Law, all financial aid arrangements, including preferred-lender lists, are under review, said Frank Klim, executive director of communications. Stetson will now pay all travel expenses for financial aid director Emily Attridge to attend advisory board meetings for preferred lender NorthStar Capital Markets, if she continues to serve on its advisory board, he said.
NorthStar, one of three preferred lenders, paid air travel and lodging "up front" for Attridge to attend six meetings since 2003. Last year it handled more than $22-million of the school's $31-million in loans.
Klim said the lender was chosen for its low fees, and neither the school nor Attridge accepted payments or revenue in exchange for the listing.
Under federal law, lenders can't provide inducements to colleges in return for a share of loan volume.
Revenue and treats
Eight schools, including New York University and the University of Pennsylvania, have agreed to reimburse more than $3-million to students as part of the New York investigation, after failing to disclose they were earning money from each loan in revenue-sharing agreements with lenders.
Other arrangements have been edible. Lenders plied the University of Texas financial aid office with free lunches, happy hours and other treats, according to documents obtained by the Daily Texan student newspaper.
FSU has earned more than $2.4-million over the last two years by issuing Stafford loans to graduate students under the federal school-as-lender program. Last year it issued more than 4, 000 of those loans worth $20-million.
Under the program, FSU draws from a $50-million Sallie Mae credit line to issue loans under its own name, then sells them back to the company within 90 days of disbursement, according to a state audit. That means students who take out a year's worth of loans in the fall see them sold, at a profit to the university, by April.
Students visiting the financial aid Web site learn nothing about those arrangements with Sallie Mae, but are promised "excellent savings opportunities."
Officials told the Times they used income from the FSU loans to issue need-based grants to undergraduate students. But university figures show $670, 622 of the $2.4-million in revenues was spent on grants, with the remainder going toward program and administrative costs.
Dozens of colleges, as well as lenders like Sallie Mae and Citibank, have signed on to a New York lenders' code of conduct that requires college officials to tell students of any agreements to resell their loans, and bans revenue-sharing, free travel or other perks.
FSU spokeswoman Brooks said the university was under no legal obligation to disclose revenue-sharing details to students.
But other Florida financial aid officials worry that undisclosed revenue sharing could undermine student confidence in their advice.
"Did my financial aid director tell me to take this loan because they're getting a kickback at the school?" said Donna Burdzinski, associate dean of student enrollment and retention at Pasco-Hernando Community College. "A student shouldn't be graduating from college and saying, 'I wonder if my college made money from me.' "
Crafted by New York Attorney General Andrew Cuomo, the code has been adopted by five lenders and dozens of college campuses.
Ban on financial ties. Lenders are prohibited from giving anything of value to any college in exchange for any advantage sought by the lender.
Ban on payments for preferred lender status. Lenders may not pay or give colleges any financial benefits whatsoever to get on a college's preferred lender list.
Gift and trip prohibition. Lenders are prohibited from giving college employees anything of more than nominal value. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
Advisory board rules. Lenders are prohibited from paying college employees anything of value for serving on the advisory boards of the lenders.
Call-center and staffing prohibition. Lenders must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or providing staffing assistance a college financial aid office.
Disclosure of range of rates and defaults. Lenders must disclose to any requesting school the range of rates they charge to students at the school, the number of borrowers at each rate at the school, and the lender's historic default rate at the school.
Loan resale disclosure. Lenders shall fully and prominently disclose to students and their parents any agreements they have to sell loans to any other lender.
A world of choice
Students at U.S. colleges face a dizzying array of loan choices. Among the most prominent:
Federal family education loans: Since the 1960s, the main program for issuing federal Stafford loans, backed by the U.S. government but issued and administered by private lenders.
School-as-lender: A federal program that allows universities to issue government loans under their own names, often with a lender's backing, and resell them at a profit. Congress, concerned over the potential for schools to profit from their students' debt, last year placed a moratorium on new schools joining the program.
Direct loan program: An initiative to allow students to borrow directly from the federal government, eliminating private lenders.
Private loans: Alternative financing from private lenders without government backing, often with higher interest rates or fees.
Financial Aid 101
Finding the best financial aid package is never easy. But experts say there are things students and families can do to minimize their debts and avoid problems.
1. Get free money first. Look for grants and scholarships before you assume debt, and don't be shy about asking financial aid staff for help.
2. Use cheaper federal loans before you turn to other forms of debt. Some lenders may encourage you to take out private loans that aren't backed by the U.S. government, but they're typically more expensive than Stafford or Perkins loans.
3. Know yourself. If you're unlikely to pay your bills on time every single month, seek loan discounts - for electronic payments or the waiving of origination and default fees - that don't disappear if you miss a payment.
4. Ask questions and read the fine print. Make sure all the benefits you've been promised will stay with the loan forever, even if it's sold to another company.
5. Make lenders fight for your business. Don't take the first offer you get - ask other lenders if they can beat it. Compare total costs over the life of the loan.
6. Ask other students and your financial aid office about customer service. Find out which lenders are easiest to reach and negotiate with when there's a problem.
7. Remember: You have choices. Be wary of lenders or aid staff who say you don't.