State to Probe College Loan Relationships
By Mara Rose Williams, The Kansas City Star, Mo.
Apr. 19–The Missouri attorney general’s office is checking for cozy relationships between the state’s college financial aid offices and the student loan companies with which they do business.
The inquiry has prompted the University of Missouri system to examine student loan practices on its four campuses.
An investigation by the New York attorney general into college lending abuses triggered the Missouri review. The New York probe, launched last month, found that lending companies gave away trips to the tropics, money and stock in exchange for colleges putting them on preferred-lender lists and encouraging students to borrow from them.
Million-dollar settlements have resulted from that investigation. San Francisco-based lender Education Finance Partners has agreed to pay $2.5 million into a fund recently set up by the New York attorney general’s office to educate students about the lending process. Earlier this month, two other major lenders, Sallie Mae and Citibank, agreed to pay $2 million into the fund.
The Missouri attorney general’s office late last month sent requests for information to universities and colleges throughout the state, but state officials would not detail what was requested.
"We are in the initial stages of getting information on the matter, so it is impossible to say now how long this inquiry might take," said Scott Holste, spokesman for the attorney general. "We are working with other states, though."
In the University of Missouri system, university officials found that lenders had reimbursed financial aid officers for travel and meal expenses incurred in serving on technical advisory boards, but they were not paid for their participation. Lenders in some instances also have paid for clerical workers in financial aid offices and sent free cookies, pens, pencils and notepads, said Stephen Lehmkuhle, the system’s senior vice president for academic affairs.
"But if there is any perceived conflict of interest by the public, then maybe we should stop doing it," Lehmkuhle said. "The question we are asking is, ‘Do we have relationships that steer students to particular lenders for benefit to the university and the lender rather than the student?’ We do not."
The University of Missouri-Kansas City has received help from Nelnet, a leading lender, with processing loan paperwork. The University of Missouri-Rolla has received similar help with clerical work from the Missouri Higher Education Loan Authority.
UMKC also collects student loans in a portfolio and then sells the portfolio to Nelnet. That relationship has reaped more than $1 million a year for the university. Lehmkuhle said the money is put into need-based scholarships for students.
The Kansas attorney general is watching investigations in other states but has not decided to investigate practices at that state’s universities and colleges. Financial aid officials say that Kansas higher education institutions follow the National Association of Student Financial Aid Administrators’ 12 ethical guidelines.
Kansas law does not permit schools to operate as lenders, said Todd Cohen, a spokesman for the University of Kansas. Kansas institutions are allowed to create separate nonprofit corporations to serve as an eligible lender trustee. In that capacity, they process only federal Stafford loans for graduate, professional, law and medical students. KU has formed such a corporation.
Many financial aid offices on both sides of the state line say they provide college students a list of preferred lenders but don’t encourage selection of any particular lender and don’t get any inducements from lenders.
"Benefits to the borrower and service are big reasons why an institution would put a lender on a preferred list. They should be the only reasons," said Sue Armstrong, director of financial aid and scholarship services at William Jewell College.
The College Board reports that more than 9 million nonfederal loans were granted to students — graduate and undergraduate — in the 2003-2004 academic year. The U.S. Department of Education reports that about 35 percent of all undergraduates borrowed money.
With the cost of a college education rising, many students turn to private lenders to cover the expense.
"Because there are so few major private student loan lenders in the country — about 32 — most every institution in the country may be doing business with one of the lenders involved in the New York investigation," said Larry Moeder, assistant vice provost and director of student financial assistance and admissions at Kansas State University.
Moeder said that K-State’s preferred-lender list includes two lenders being investigated for kickbacks to institutions.
"We don’t give students any advice on what company to do business with," Moeder said.Cohen said that a lender once approached a KU financial aid officer and offered scholarship money if the school would guarantee the lender a certain volume of student borrowers.
"We said no, and they walked away and didn’t even want to be on our list," Cohen said.
To reach Mara Rose Williams, call (816) 234-4419 or send e-mail to mdwilliams@kcstar.com.
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Copyright (c) 2007, The Kansas City Star, Mo.
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