October 11, 2007
Erie Processing, a student lender in Largo, Fla., has offered cash rewards to loan applicants.
Elite Financial Group, a lender in San Diego, has solicited business with letters from its “Federal Loan Division” on stationery with an eagle logo that looks very much like something the federal government might use. The letters warn that “failure to respond could result in higher interest rates and increased payments.”
Academic Loan Group, also of San Diego, has sent prospective customers “checks” that look as if they could be cashed, but cannot, unless the recipients take out loans with the company.
Marketing tactics like these aimed at students are the latest focus of the continuing inquiry into the student loan industry by Andrew M. Cuomo, the New York attorney general.
Mr. Cuomo’s office sent subpoenas and document requests yesterday to the three lenders, as well as to dozens of others nationwide, lawyers in his office said. Federal law forbids lenders from offering inducements to students applying for federal loans.
“The practices we have found in the direct marketing of loans to students are surprisingly blatant and even involve some companies who portray themselves as arms of the federal government,” Mr. Cuomo said in a statement. “Unfortunately, it appears that the Education Department has once again failed to adequately police the student loan industry.”
Margaret Spellings, the education secretary, has defended the department’s enforcement of federal law.
Representative George Miller, the California Democrat who is chairman of the House education committee, has also raised concerns about direct marketing by student lenders. Rachel Racusen, a spokeswoman for Mr. Miller, said his committee was looking into such practices.
The subpoenas from Mr. Cuomo’s office are a shift from ties between lenders and college financial aid offices to marketing aimed at students.
Read the whole article here.