Student Loan Abuse

Misleading directions steer Florida A&M students to two favored lenders.

By Pedro de la Torre III
Tuesday May 1, 2007

The financial aid office at Florida A&M University, a historically black university in Tallahassee, Fla., has been steering potential student borrowers to two “partner” lenders in a manner that could easily suggest to students that they have no other lending options. By law, schools must give students a choice of lenders.

Recently, universities and lenders across the country have been caught up in a wave of scandals involving conflicts of interest in college financial aid offices. Lenders have offered meals, vacations, staff time, revenue sharing deals, scholarship funds, stock options, and other inducements to financial aid offices or their employees, apparently in hopes of being listed as a “preferred lender” and recommended to students. Because students generally trust that their school is impartial and acting in their best interests, students overwhelmingly follow their schools’ advice.

FAMU’s website* lets potential student borrowers know that the school has “begun a transition from the Direct Loan Program to the Federal Family Educational Loan Program.”

This should raise some red flags for students and education advocates. Many lenders have used inducements to convince colleges to drop the direct loan program, even though it is cheaper for taxpayers, so that these lenders can sign up more student borrowers.

Lenders also target schools on the FFEL program with inducements in order to be placed on their “preferred lender list.” FAMU tells it students on the school’s financial aid website:

“…Florida A&M University has chosen two lending partners who bring an extensive variety of products and services to our student and parent populations. These lenders, Regions Bank and Edamerica, are committed to working with you and/or your parents/guardians in making certain that all of your educational financial needs are addressed in a timely and efficient manner.

Please visit the following website for Regions Bank to begin your loan application process for students with the last name and parents with student’s with the last name beginning with A-K [sic].

Please visit the following website for Edamerica to begin your loan application process for students with the last name and parents with student’s with the last name beginning with L-Z [sic].”

FAMU and all other colleges are required to allow students their choice of lender for the FFEL program. The Department of Education recently sent a letter to many colleges and universities reiterating this policy, although as of now we cannot be sure whether FAMU received it.

FAMU’s website seems to suggest that students have no choice when it comes to picking a lender, but must go with the loan company that corresponds to their last name. (Both loan companies have web pages co-branded with the university (1, 2). This kind of approach discourages competition for the best rates and terms in the student loan market and can only result in worse deals for students.

We don’t yet know about the specific relationship between FAMU and its two “lending partners,” Regions Bank and Edamerica. Responding to an open records request from Campus Progress, FAMU Financial Aid Director Marcia D. Boyd wrote in an e-mail:

During the 2006-2007, FAMU changed from the Federal Direct Loan Program to the Family Federal Educational Loan Program. There was also a change in management in the financial aid office. According to the former director, to minimize problems and make the process seamless to the students, two major lenders were selected. According to our records, we certified other lenders based on a the student/parent request. ... [W]e plan to make some significant changes to our process for 2007-2008, but with a new loan program and change in directors, we could not make those changes during the current academic year.

Boyd also told Campus Progress she was not aware of any records related to this decision and that she was not director at the time of the change.

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Comments
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1. It’s not entirely correct that, “By law, schools must give students a choice of lenders.”

   Schools that participate in the Federal Direct Loan Program are not required to give students a choice of lenders.

   Students who attend DL schools have only one choice for federal Stafford loans: the U.S. Department of Education.

   Only students who attend schools that participate in the FFEL Program have a choice of lenders.

   — Kevin Bruns - May 1, 03:28 PM - #
   
   

2. Bruns is the executive director of America’s Student Loan Providers, an student loan industry lobbying group: http://www.studentloanfacts.org/whoweare/

   — Pedro de la Torre III - May 2, 10:57 AM - #
   
   

3. FAMU has updated their website, see the story here.

   — Pedro de la Torre III - May 4, 03:15 PM - #
   
   

4. Information about school costs, savings plans, ways to
   pay for college, & the entire student financial aid process.

   — Paul Kallnischkies - Dec 5, 01:55 PM - #