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Cozy loan deals deserve scrutiny
By A TIMES EDITORIAL
Published May 14, 2007
Given the growing evidence of improper relationships between universities and student loan companies in New York and other states, Florida Attorney General Bill McCollum is taking a prudent step to start asking questions here.
No one is alleging yet that any Florida university officers have received kickbacks for referring students to loan companies, but there are indications of dubious institution relationships. At a minimum, students need to know if their university is benefitting from the loans it recommends.
"The bottom line is most unfair trade practices involve a failure to make proper disclosures to consumers, or misleading consumers, " McCollum said. "Either one would be a violation of the law, in our view."
New York Attorney General Andrew Cuomo has turned this light on universities, and he has uncovered some startling practices. Financial aid directors at six different universities have been suspended for allegedly holding stock or accepting consulting fees from preferred lender Student Loan Xpress. Also, eight schools have paid $3-million to reimburse students who weren't told about revenue-sharing agreements.
In Florida, the St. Petersburg Times' Tom Marshall already has reported on one public university, Florida State, that marketed $20-million in loans to graduate students last year without disclosing that the loans were being resold at a profit. Marshall also reported that Florida A&M University students were being steered to one of only two preferred lenders and that financial aid directors at more than one university have served on the advisory boards of companies with preferred lending status.
The most serious question McCollum will face in his investigation is whether any university officials are profiting personally from steering students to certain companies. Beyond that, he and university system chancellor Mark Rosenberg will need to examine whether universities are steering students in an attempt to help them get the best deal or to enrich the university or the lending company.
FSU, for example, says it uses loan profits to help supply need-based grants to deserving undergraduates, which is a commendable approach. But students who would subsidize these grants have a right to know, and the university needs to make sure that's how the money is spent. In the past two years, unfortunately, only about a fourth of the $2.4-million in loan income has made its way to student grants.
Some serious questions need answers here, and McCollum is right to be asking.