I ain't sayin' they are gold diggers, but some universities ain't messin' with no broke lenders.
New York Attorney General Andrew Cuomo launched a two-year investigation into the student loan industry and found numerous arrangements that benefit schools and lenders over students.
In what Cuomo calls an ""unholy alliance,"" some colleges have set up questionable ""preferred lender"" lists, which establish revenue sharing and other financial arrangements with lenders. The colleges and universities steer student business to the lenders in exchange for financial incentives from student loan companies.
Universities across the country are benefiting from the agreements, while students are not receiving crucial information about alternative student loan deals. Although students are not barred from consolidating their loans elsewhere, they are denied information on all available choices.
The arrangements that investigators found include kickbacks paid to schools based on percentage of loans directed to them, all-expense-paid trips to resorts for financial aid officers, donations of computer systems and large payments offered to schools to drop out of the direct federal loan program.
The investigation involves more than 100 schools, including public and elite institutions, officials confirmed.
A university's first responsibility should be to students, and universities involved in illicit practices should be penalized. Conversely, students should treat this as a cautionary tale to take the initiative to research their options when looking to borrow or consolidate student loans.
This kink in the confusing web of financial aid should not discourage students. The percentage of universities allegedly engaged in corrupt practices is low, and the only priority of most student loan advisers is to assist students any way they can.
""We are focused on students,"" says Susan Fischer, director of student financial services at UW-Madison. ""We do what it takes to get the money in your hands.""
When asked if she would recommend private loans as a preferable option for students, Fischer said ""No, absolutely not.""
She recommends that students who require financial assistance utilize all the federal aid they can before considering private lenders, calling the federal aid program ""a much better deal.""
In fact, UW-Madison does not employ a preferred lender list. The result is the drop-down menu on the University's financial aid web site listing a hefty 280 lenders. Although this site is not the most useful tool for choosing a lender, students can use it to avoid problematic questions about the merits of preferred lender lists.
So how is a student to navigate through the massive list and find a lender that is right for them?
Perhaps there is merit in preferred lender lists, so long as universities include corresponding public disclosures. Universities should be required to make public disclosures about the rationale behind their preferred lender choices.
Students can make informed decisions on how much to trust lenders if they know the reasons for which the universities selected them.
Susan Fischer says UW-Madison would consider a bid process for preferred lenders only to get the best deal.
""Our focus would be on customer service and the best rates possible,"" says Fischer.
Students must take the initiative to research student loan types and pay close attention when choosing lenders. It is crucial to know the final cost of a loan, including interest payments.
When weighing options, students should look for deals such as discounts for on-time payments or electronic transfers. Repayment options vary and can make a big difference for money paid over time. Some students opt for private lenders in an attempt to avoid the dreaded Free Application for Federal Student Aid.
The overwhelming research and comparison-shopping are worthwhile since students spend years paying back loans. In the meantime, students can take solace in the fact that students only have two years left to cope with the other ""unholy alliance.""
For tips on filling out the FAFSA and sorting out student loan options, visit www.finaid.org. Students can also contact the UW-Madison Office of Student Financial Services for assistance, at 608-262-3060 or finaid@finaid.wisc.edu.
