Those schools with more than 70% of their loans from a single lender received a friendly warning lender from the Department of Education reminding them of their obligation to certify loans.  The letter states, in part:

“Based on information from our National Student Loan Data System (NSLDS), we note that almost all of the Federal Family Education Loans (FFEL) Program loans made for students attending your institution during the 2006-2007 academic year were made by one FFEL lender.  This letter is to remind you that the statutory and regulatory provisions governing the FFEL Program allow the borrower to choose their FFEL lender and prohibit a school from refusing to certify a FFEL loan based upon the borrower’s choice of lender or guaranty agency or coercing, directly or indirectly, a borrower to choose a specific lender.  This prohibition applies to all schools; including schools that are FFEL lenders or that participate in an eligible lender trustee relationship with an eligible lender. 

On March 29, 2007, we posted to our Information for Financial Aid Professionals (IFAP) website (www.ifap.ed.gov) a Dear Colleague Letter (DCL GEN-07-01, FP-07-0) that specifically reminded schools of their obligation to certify a FFEL loan regardless of the lender requested by the borrower.  We strongly recommend that you review that Dear Colleague Letter as well as your institution’s FFEL loan certification procedures and consumer information to ensure compliance with the FFEL Program rules.  A school’s failure to comply with the statutory and regulatory requirement that it certify a loan without regard to the borrower’s choice of lender or guaranty agency may result in the Department imposing a fine or taking other administrative actions, as appropriate.”

 NASFAA has an interesting article about this.  Read the entire article here, or read the snippet below:

“  “I respect the Department of Education’s oversight,” said Brett Lief, president of the National Council of Higher Education Loan Programs (NCHELP). “However, I don’t think it can be done solely through a process that uses NSLDS to view data from the schools from prior years. It is unclear how a federal agency can determine acceptable student loan management at 6,000 schools through a data system.”

“The Department is looking just at FFEL volume but there’s also substantial private loan volume that needs to be looked at,” said Scott Giles, vice president of policy, research & planning with the Vermont Student Assistance Corporation (VSAC). Giles points to the many borrowers in his state that may use VSAC for their federal loans, but less than 50 percent who use them for their private loans. “Without looking at the aggregate to see what that distribution is, it seems difficult to assume there’s a problem,” said Giles.

During the loans negotiated rulemaking process, many negotiators balked at the idea that large proportions of loan volume through a single loan provider should be seen as an indication of wrong doing.

“The issue is that every borrower has the right to choose a lender and the primary question is whether borrower choice is being impaired in any way,” said Giles. “The assumption is that borrower choice is only being respected through a broad distribution of loan volume. There are several problems with that,” he added.

“It’s understandable that some schools could have 70 to 80 percent of their loan volume through one lender,” said Lief, who points to many schools and loan providers that partner with their state secondary markets. Many lenders retain forward purchasing agreements with secondary markets that allow them to free up capital to make additional loans. Several states maintain nonprofit secondary markets for the purpose of buying those loans from loan providers in the states….”

You can read the remainder of the article here.