Finance

Students Need To Examine Student Loans

Written by Gaurav Bhola, MSM, Managing Editor & Community Manager on August 14, 2007 8:27 am EST

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As students and their families battle rising college and university tuition costs, a new front has opened up with the recent student loan scandal. The ensuing fall semester has many of them worried about the student loan process, can they trust it. Their confidence in the entire student loan process has been shaken to the core, especially their faith in the university financial aid officials.

Earlier this year, New York Attorney General Andrew Cuomo started an investigation into the student loan industry based on allegations raised by a full-page New York Times advertisement that questioned the ethical practices of schools and student loan lenders. No one could have foretold the national controversy the investigation would create, let alone the student loan industry and schools. For students a student loan, private student loan, or federal student loan is critical to their educational needs.

Getting a good college loan not only impacts sustenance of college education, also student finances after graduation. After graduation, the student loan becomes a personal loan, thence the original loan terms come into play. If the original terms of the student loan are unfair, it can be costly for many years to come, unless student loan consolidation or refinancing occurs.

Anyone who has applied for a student loan can understand how challenging it can be, even financial aid officials sometimes have a tough time with the complexity. With each passing day, new developments add to the process’s complexity of student lending. Initially, university financial aid officials formulated lists of preferred lenders which consisted of a half-dozen student loan lenders that agreed to provide students with favorable loan terms in return for a consistent slice of the schools’ loans.

The preferred lender list was supposed to help borrowers navigate through the confusing array of government programs, private loans, discounts, and such. Over time, things went horribly wrong, Congress failed to make adjustments in student aid and grants to maintain parity with rising tuitions costs. Alas, private financial companies filled the increasing disparity by offering various private student loans.

Currently, the student loan business stands at $85 billion. Ultimately, greed took over both sides of the student loan spectrum, the colleges and the lenders. The recent investigation has revealed, that lenders offered various bribes such as trips, meals, company stock, and other gifts in return for inclusion on the preferred lenders list. In many appalling instances, private lenders provided their own staffers to financial aid offices without they or the colleges disclosing to borrowers who they worked for. Financial aid advice is meant to be impartial, unbiased, and in the best interest of the student.

Also, schools wanted a piece of the student loan gravy train, so they partook in revenue-sharing agreements with student lenders in return for a piece of the loan. Of course, while college officials were enjoying their cozy relationships with the lenders, they were slowly relinquishing the ethical underpinnings of their relationships with students.

The evisceration of ethics, morals, and good judgment on part of schools in relation to student loans is truly breathtaking. One would hope private student loan lenders would exercise ethics and good citizenship but it is not taken for granted by the general public. But students and their families do not view colleges and universities, private or public through the same prism as private business; they take it for granted that schools and their officials maintain the highest integrity and ethical standards. They innately believe that the financial aid officials are looking out for their interest, in getting them the best and most competitive student loan.

Hence, students and their families never questioned the merits of the preferred lenders list or the accompanying recommendations of college financial aid officials. Unfortunately, greed manifested itself; colleges worked hand-in-glove with private lenders in exploiting students and their families.

So far, Andrew Cuomo has settled with the major offenders such as, Sallie Mae, Nelnet Inc., JP Morgan Chase, Citibank, and Bank of America and some colleges have already signed a code of conduct. He has recovered $19 million in settlements thus far, for student loan borrowers. This is just the beginning of a long overdue remedy and overhaul of the unethical practices in the student loan industry.

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One Response to “Students Need To Examine Student Loans”

1. recel Says:
   September 6th, 2007 at 11:59 am

   students need to examine students loan. i totally agree. the good thing here in the US is that students bound for college always have the chance to proceed schooling as loan ar available for support unlike students in philippines where there is no such thing as loans. the poor, even if they possess intellect enough for them to succeed, if they don’t have money and therefore cannot afford to go to school, have a very less chance of getting scholarships or grants. the result is many weren’t and won’t be able to finish a degree and eventually find a job. it’s sad. but having loan services here in the US, students need to be careful in their choice about this!

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