By Steph Mostaccio
It’s no secret that many college students rely on loans to finance their education. Last year alone, $85 billion in loans were taken out, according to The New York Times.
But New York Attorney General Andrew Cuomo found that many of these loans involved unethical practices between the student lending industry and college financial aid officers.
In an ongoing nationwide investigation, Cuomo discovered that many colleges were receiving thousands of dollars in rebates from private lending companies if the schools placed them on their list of preferred lenders. Gifts and trips from private lenders to financial aid officers were also common. Private lenders are for-profit organizations that provide loans that are not backed by the federal government.
Mark Kantrowitz, publisher of FinAid.org, said that about 50 percent of colleges have preferred lender lists. Rider is part of that 50 percent. According to the University Web site, there are currently four preferred lenders, which include Citibank, College Loan Corp., Student Capital Corp. and Collegiate Solutions.
According to John Williams, Rider’s director of Student Financial Services, Rider does not receive any payments, gifts or stock options from its preferred lenders for its business.
“Outside entities do not influence our dedication to offering the best borrowing options to Rider students,” he said.
Rider’s preferred lenders describe their benefits for Federal Stafford Loans. Their interest rates cannot go higher than the rate set by the federal government. All lenders must comply with this rate, which is currently fixed at 6.8 percent. Federal loans come from private lenders and are backed by the federal government.
Students could also use one of the University’s preferred lenders for alternative loans, according to Williams. But he cautioned that private loans could have any interest rate. Links to the preferred lender Web sites are available on Rider’s financial aid Web page.
According to reports by The New York Times, Career Education Corp., a for-profit higher education facility in Illinois, is only one of the many schools involved in the scandal uncovered by Cuomo. It received $21,200 from Wachovia and Sallie Mae, two of its preferred lenders.
Career Education has agreed to donate its rebates to a fund that will educate people about student loans. Other universities have also agreed to return their rebates to students, including DeVry, NYU, Syracuse, Fordham and the University of Pennsylvania.
James O’Hara, Rider’s vice president of Enrollment Management, said Cuomo’s findings were astonishing.
“We’ve been surprised at some of the things that have been uncovered,” he said. “That was a huge blow to our credibility as higher education professionals. You don’t want that.”
Rider chooses its lenders based on staff research, as well as periodic visits and presentations from lenders.
The University’s preferred lenders are advantageous to students because Rider recommends companies with “the very best loan out there,” according to Williams.
“Rider students benefit by having superior customer service, lower rates and fees, easy loan certification and better borrower benefits for repayments,” he said.
According to Williams, there are many scams that “prey on consumer confusion and fears.” He pointed to “Direct to Consumer Loans” as an example. Companies that use these loans go directly to the consumer without the school’s knowledge, which could be dangerous for borrowers.
“Consumers don’t know what is being presented to them, and a lot of times it has to do with hidden fees and very harsh repayment terms,” said Williams.
O’Hara compared “Direct to Consumer Loans” to credit card companies, which often attract customers with low interest rates for the first six months.
“It tends to be more market driven, trying to get people’s attention,” he said. “Some direct consumer appeals end up being quick fixes for students, but in the long run, they sack ’em with the fine print.”
According to O’Hara, if a preferred lender changes its service in a way that would harm students, the University will no longer recommend it.
“If there is a company that gets caught up in what is not best for the students, they are going to be off the list,” he said. “They are going to be off the radar.”
However, students are not obligated to use recommended lenders.
“A preferred list does not mean a required one,” said O’Hara.
Kantrowitz said it is important that students shop around and look at lenders on and off the list.
“Students often think the choice of a lender doesn’t matter, so they just pick the first lender on the list,” he said. “But it does matter, as loan discounts can save you hundreds or thousands of dollars over the life of a loan.”
It is essential that students learn how to choose the loan that is best for them, according to Williams. He said that President of Syms Department Stores Marci Syms’ motto, “An educated consumer is our best customer,” holds true for student borrowers.
“The University strives to educate the student borrower,” said Williams. “We try to provide the best options to students and help them to understand that foolish borrowing is not a wise decision.”
However, students might not have to worry about choosing between a preferred lender or an outside lender in the future. Sen. Edward Kennedy, D-Mass., head of the Senate education committee, and Rep. George Miller, D-Calif., head of the House Committee on Education and the Workforce, are pushing Congress to take action. Last Wednesday, Miller asked the Education Department to temporarily ban colleges from using preferred lender lists.
But Williams said he doesn’t think preferred lender lists will become obsolete.
“Congress and the Department of Education are well aware of direct to consumer problems and will continue to rely on the schools to direct and assist students and families in making wise decisions,” he said.
Williams added the absence of recommended lenders would do more harm than good.
“Legislation banning preferred lender lists may make it more difficult for students and families to identify safe and cost-effective loan products and services,” said Williams.