December 1, 2007

Schools and lenders asked to account for high volume at a single lender

Posted in Legislation Affecting Students, Student Loan News at 7:11 AM by Joe From Boston

USA Today is carrying a new article on the 55 schools asked to explain why the vast majority of students borrow from one lender. Here’s an excerpt:

WASHINGTON — Dozens of colleges, universities and trade schools have been ordered to turn over documents to government officials explaining why a single lender at each school handles the majority of federally backed student loans.

The request, sent to 55 schools, comes amid concerns that some colleges might be steering students improperly to lenders who reward schools for the extra business. The schools have until Friday to give federal education officials documents dating to July 1, 2005, that include correspondence with lenders, loan policies and written descriptions of how preferred lenders were chosen.

Education officials selected the 55 schools from a list of 921, originally identified in June, where a single lender handled at least 80% of federally backed student loans.

In a recent letter seeking the documents, the Department of Education reminded officials at the 55 schools that students must be allowed to choose which lender they use when participating in the Federal Family Education Loan Program.

Officials at a handful of the 55 schools contacted by Gannett News Service said they don’t believe they’ve done anything improper.

At Faulkner University in Montgomery, Ala., Edamerica processed $12.2 million, or 87%, of $14.1 million students at the school received in federal loans during the 2006-07 school year, according to the data. The school has never steered students to that lender, said Buddy Jackson, director of financial aid at the Christian college.

But Edamerica has an advantage over its competitors: It’s the first of about 10 recommended lenders listed on the school’s financial aid website. Jackson said the company offered to update the website last year at no charge, and the school accepted.

“We just happened to be dealing with them when they offered to do it,” said Jackson. “We can use the help.”

Jackson also said he had served on an Edamerica advisory board until recently.

Education Secretary Margaret Spellings has urged schools to end such potential conflicts of interest, and legislation moving through Congress would prohibit college officials from serving on boards of lenders that do business at those schools.