Alerts

2007-04-01
New Scrutiny of College and Lender Student Loan Arrangements

Last December, Sen. Ted Kennedy (D-Mass.) introduced Student Loan Sunshine Act legislation to put new restrictions on the lending relationships between colleges and banks for educational loans, including private-label loans that are not guaranteed by the federal government. NAICU, along with many others in the Washington higher education community, has been working with his office to ensure that any new rules are consumer-friendly, manageable for schools to administer, and beneficial to students and parents.

As a result of these positive conversations, Sen. Kennedy introduced an amended bill in February that improves greatly on his initial December bill (www.naicu.edu/StudentLoanSunshineActFeb1ROM07166_xml.pdf). It is likely that some form of this legislation will make it into this year's Higher Education Act reauthorization, and we continue to work with Sen. Kennedy on further improvements.

Now, at least two states' attorneys general have stepped up scrutiny of these loan arrangements by taking action at the state level. The charge is being lead most aggressively by New York's Andrew Cuomo - although Attorney General Lori Swanson of Minnesota also is getting into the mix. Just moments ago, the Chronicle of Higher Education reported on settlement agreements Cuomo sent to colleges, urging them to sign by noon today or face the possibility of subpoena (http://chronicle.com/news/index.php?id=1904). In addition to sending letters to colleges within New York, Cuomo also has sent letters to colleges nationally whose students include New York residents.

Cuomo's efforts are receiving much media coverage in New York, as he investigates the terms and conditions of all types of educational loans for college students. Cuomo is particularly interested in any direct benefits colleges might have received from these loan arrangements. These direct benefits can be as diverse as financial aid officer training and travel support; revenue sharing arrangements between lenders and schools; opportunity pools; and even such mundane promotional items as backpacks with lender logos.

Beyond New York, the fact that Minnesota's attorney general also issued a surprise press release last week (www.ag.state.mn.us/Consumer/PressRelease/0703FinancialInducements.asp) indicates that other states could also join the fray.

It would be wise for all colleges to compare any lending programs they have with the standards proposed in the Sunshine Act (see link above). Presidents, financial aid officers, business officers, and college legal counsel should play a role in any internal conversations, and institutions should clearly understand how any revenue from these programs has been used to benefit students. Most colleges have negotiated these deals with banks in an attempt to provide their students with access to the best loans possible, and to secure loans with terms and conditions more favorable to students and families than they could secure without the support of their college.