August 2, 2007

One company benefitting from student loan scandal

Posted in Student Loan News at 11:01 AM by Joe From Boston

The Wall Street journal has an interesting article on one student loan company that is not under investigation, and may indeed have started the fanfare that led to the investigations of its competitors. Read the whole article here.
How One Firm Mined the Student-Loan Mess
Tiny MyRichUncle Draws New Clients After Taking OnCollege Financial-Aid System
By ANNE MARIE CHAKER August 2, 2007; Page D1

In recent weeks, a small student-loan company has taken out ads in USA Today, California’s Orange County Register and other major newspapers, touting itself as “conflict free.” Those words are surrounded by a collage of headlines citing recent revelations about conflicts of interest in the student-loan industry.

The ad is by MRU Holdings Inc., better known as New York-based MyRichUncle, and it comes exactly one year after the maverick lender took out a string of strongly worded ads that some credit with having sparked investigations into questionable relationships between colleges and lenders. A number of lenders had allegedly been offering incentives to university financial-aid officials in exchange for getting on the “preferred lender lists” that schools hand out to prospective student borrowers.

Now, with families’ trust in their college financial-aid officials broken, more people are looking to alternative resources for student loans, such as Internet search engines and lenders that pitch directly to the consumer. And many of them are turning specifically to MyRichUncle.

The company says calls from customers increased 87% last month from a year earlier. A spokeswoman declined to disclose the actual numbers of queries it gets or loans it provides. But the company says originations of its main private-student-loan product more than doubled in the fiscal year ended June 30, compared with a year earlier. And federal loan applications in just the past month have more than tripled. MyRichUncle “is a beneficiary of consumers exercising their choice to shop around,” says Vishal Garg, chief financial officer.

Regulators caution that borrowers still must be vigilant and not assume they are getting the best deal by avoiding college financial-aid offices. The office of New York Attorney General Andrew Cuomo, which conducted intense probes of schools’ preferred-lender lists, says it has now begun looking into Internet-based and direct-to-consumer marketing practices, too. “We need to ensure that we rid not only the preferred-lender list of conflicts, but also eliminate any deceptive practices taking place on the direct-marketing side,” says Benjamin Lawsky, deputy counselor and special assistant to the New York attorney general, who declined to name any specific companies being targeted.

Amid all this, MyRichUncle — which says it hasn’t been contacted by Mr. Cuomo’s office — is enjoying its surge. The tiny lender, which has yet to make a profit since going public in 2004, made a name for itself in a short period of time. It had been carving out a promising niche by promoting its competitively priced products directly to the consumer. It was the newspaper ads last year targeting preferred-lender lists that brought the company national attention.

Such lists were a long-established practice whereby colleges steered students toward specific lenders. Financial-aid officers have said the practice helps whittle down the confusing array of choices in the marketplace. As a result, the vast majority of students end up borrowing from one of the listed lenders, even though they don’t necessarily offer the best deals.

Strong Words

One of the MRU ads called the relationships between schools and lenders a “racket.” Another said more pointedly, “Before you choose, ask your financial aid office about the lenders on their preferred lender list. Ask if any of these lenders offered kickbacks or incentives to get on the list.”

By taking aim at financial-aid officers, who form an important link to customers, MyRichUncle was taking a big risk. And indeed, reaction was swift and sharp. At the University of the South in Sewanee, Tenn., financial-aid director David Gelinas sent an email to a MyRichUncle representative, saying: “Please do not visit or contact me.” The University of Mississippi’s associate director of financial aid, Dewey Knight, sent an email to a MyRichUncle sales representative, saying he would “not receive or certify loan requests from your company.”

Lisa Cain, whose daughter is attending a private college in Boston, says that the school’s financial-aid office resisted when she said she was considering MyRichUncle. She had received a list of recommended lenders from the college, but decided to shop around as she began noticing headlines about schools’ cozy relationships with banks. Another parent recommended MyRichUncle to Ms. Cain, an administrative assistant in Tequesta, Fla., for their discounts on federal student loans. Ultimately, she chose MRU over the objections of the school, and says she has been pleased. “The bottom line is, this is a lot of money,” says Ms. Cain. “I need to go with the best interest rate.”

Read the whole article here.



  1. Mulan said,

    Parents: Read before you or your kids sign!!!

  2. […] Original post by moniqueleonard […]

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