NAICU Washington Update

Student Lending Issue Heats Up

April 07, 2007

In February, Sen. Ted Kennedy (D-Mass.) introduced the Student Loan Sunshine Act , S. 486, a bill 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, have worked with Kennedy's staff since the last Congress - when Kennedy introduced an earlier, more problematic version - 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, the new legislation, though not perfect, is an improvement. It is likely that some form of this legislation will make it into this year's Higher Education Act reauthorization, and so we continue to work with 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.

Cuomo's efforts have received considerable media coverage both in New York and nationally. He is particularly interested in loan arrangements between lenders and colleges - especially 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.

In late March, Cuomo sent letters to colleges, urging them to sign settlement agreements or face the possibility of subpoena (See Chronicle of Higher Education story). In addition to colleges within New York, he sent letters to colleges nationally whose students include New York residents. Although they deny wrongdoing, some colleges have signed the letters agreeing to following a "code of conduct" that he prescribes. Some have also agreed to return certain monies to students who have borrowed from the lenders with whom the school has an arrangement. In most cases the amount of money returned will be nominal.

It would be wise for all colleges to review any lending programs they have in light of 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.

For more information, contact Maureen Budetti,

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