While students have long suspected that loan companies and financial aid departments strike it rich at their expense, emerging evidence is proving that sentiment to be more than baseless paranoia. Recently revealed scandals implicate college financial aid officers, Department of Education staffers and college financial aid departments in unfair and possibly illegal practices. These scandals raise serious concerns about the integrity of financial aid institutions at a time when rising tuition costs have more and more students seeking loans.
- Sarah Royce
The scandals began several months ago when Nelnet, a student loan company, drew scrutiny from Congress and the media after receiving $278 million in subsidies that it was not unqualified for. Further inquiry into the company found that it had strong ties to the Department of Education as well as the financial aid departments at several universities. More surprisingly, many universities – including Wayne State University in Detroit – have their financial aid consulting done by private loan companies with their own interests to serve.
What happens when financial aid departments are outsourced to private loan companies is shady at best. Students call the financial aid office for advice, only to be connected unknowingly with representatives at private lenders. These companies can easily lead na’ve students into unfavorable loans because students think they’re speaking to a person who is on their side. It’s the rich stealing from the poor in the most literal way.
Unfortunately, the story does not end there. At Columbia University, the University of Texas and the University of Southern California, high-level aid officers have been holding significant amounts of stock in Student Loan Xpress, a “preferred lender” at all three universities. Each department actively promotes these companies, to the profit of aid officers. For example, David Charlow, executive director of financial aid at Columbia, sold his stock options in Student Loan Xpress for more than $100,000, The New York Times reported.
This financial relationship between those in positions of power and lending companies extends to the Department of Education as well. Matteo Fontana, a general manager in the Office of Federal Student Aid, is also a big investor in Student Loan Xpress and sold his stock in 2003 for more than $100,000, according to the Times.
These incidents paint a disturbing picture of the financial aid system throughout the country. Whether or not the transgressions were illegal, they represent a blatant conflict of interest between financial aid departments and the private lenders they promote. That these cases came from prominent universities and federal employees suggests that these close relationships are not especially rare. In fact, it is common for lenders to market themselves to financial aid departments and to provide their employees with benefits.
As tuition goes up nationwide and more students seek loans, they need to be assured that they are not being hoodwinked by their own financial aid office. Students ought to be able to trust the information that financial aid departments supply. For this to happen, the relationships that financial aid departments have with lenders, even at the University, need to be made more transparent with the implementation of strict codes of conduct for financial aid employees and offices.
Students should be getting what is best for them – not what enriches their universities, loan advisors or lenders.