Experts: Miami improperly shared student data
University officials contend sharing student data wasn't illegal, but some disagree.
By TOM MARSHALL, Times Staff Writer
Published October 11, 2007
University of Miami officials have confirmed they sent students' private data to lender Sallie Mae last summer, even though students said they never applied for a federal loan from the company.
In the school's view, students did apply for a loan when they filled out the standard form all students submit to establish eligibility, financial aid director James Bauer said.
But national experts scoffed at that interpretation of federal privacy and lending laws, saying receipt of the Free Application for Federal Student Aid FAFSA does not by itself allow schools to share student data with a private company.
"The student has not given consent to the school to disclose their information to a lender," said Mark Kantrowitz, publisher of Finaid.org. "Even if it were legal, it wouldn't be ethical. (But) they violated probably several federal laws in doing this."
Federal law prohibits schools from sharing private student information, such as Social Security numbers or birth dates, without their explicit consent. And lenders can't send unsolicited federal loan applications to students who haven't previously received loans.
About 14-million students submit the FAFSA each year, often sending it to multiple schools during the application process, according to the federal Department of Education. There is no space to indicate a lender choice.
Bauer's comments were the first by the university since the St. Petersburg Times reported Sept. 27 that the school had initiated federal Stafford loan applications on students' behalf without their knowledge.
Some incoming freshmen said they received a federal Master Promissory Note in July from lender Sallie Mae with their birth date, Social Security and driver's license numbers already filled in.
Others, who said they had never applied to the company, were told their school had initiated a "loan application" on their behalf. All that was needed to complete the process was an electronic signature.
The promissory note is commonly viewed as a loan application because it asks borrowers to choose a lender and loan amount, fill in references, and pledge to pay it back to the government.
That's what the University of Miami called it on its own financial aid Web site, referring to the note as an "application to apply for a federal Stafford loan."
Asked whether it was legal to send students an application already filled in with their personal information, both the university and Sallie Mae said the practice was fine but their terminology was in error - it wasn't a loan application after all.
"The application is the FAFSA," said Sallie Mae spokeswoman Martha Holler, saying the promissory note would now be called a contract in national documents.
She said the company sent the letters to students, and accepted personal data from the university, under the assumption students told their school they wanted a Sallie Mae loan.
Experts warned of broad privacy implications if students' personal data could legally be shared with lenders, just because students filled out the FAFSA.
"Even if it were true, which I candidly doubt, it is bad practice," said Barmak Nassirian, deputy director of the American Association of Collegiate Registrars and Admission Officers.
Stephen Burd, senior fellow at the New America Foundation, said some students fill out the FAFSA form as a hedge, even though they're not sure they'll need a federal loan.
"I would imagine that families would be extremely unhappy to find out their data is being used in this way," he said. "Having the Master Promissory Note filled out for you is obviously an effort to deny students a choice of lenders."
Other Florida schools used to initiate federal loans on students' behalf about 5 percent of the time, sometimes filling in lender names or starting loans for students who hadn't asked for one, said Bill Spiers, a spokesman for the Florida Association of Student Financial Aid Administrators.
They didn't see anything illegal in it, he said, but stopped doing so last spring after New York Attorney General Andrew Cuomo launched the first of several state and federal investigations into lenders and schools enrolling students from his state.
More than two dozen schools have paid $3-million to reimburse students for improper revenue-sharing agreements with lenders, and University of Miami officials are currently in settlement talks with Cuomo.
Under proposed federal rules to discourage dominance by a single company, schools would be barred from assigning students to lenders.
Bauer said his students will now be required to choose their own lender or select from five "preferred lenders."
He said the university's "relationship" with Sallie Mae allowed it to legally transfer student data.
But Bauer declined to describe the terms of the school's 2003 agreement with the company, which last year controlled at least 96 percent or $73-million of the university's federal loan business.
Nor would he say how much the university earned on $26.8-million in loans it issued under its own name and then resold to Sallie Mae under a federal program, beyond saying that a "very minimal amount" went toward the school's expenses and the rest went toward need-based aid.
Tom Marshall can be reached at tmarshall@sptimes.com or (352) 848-1431.