Education Loan Companies Are Getting Scarce: Education Loan Scandals, Andrew Cuomo and More Industry Issues

Wild West For-Profit Loan Companies and College Lending Scandal: Textbooks & College Tuitions Have Soared While College Debts Pile Up

The probe on student loans led by New York Attorney General Andrew Cuomo continues to search for the secrets held by the villains of the U.S. educational system. A large group of schools, colleges, and universities, for-profit loan companies and government officials have been implicated in this scandal that was enriching the coffers of a hidden small group of individuals. Thanks to Andrew Cuomo, parents will have a breather. The loan companies and their shark leaders will have to be revealed and stopped from sucking the blood of poor parents and students. Keep in mind that the student-loan industry is an $85 billion enterprise. No wonder that competition for students has become so ruthless over the years. These days, student loans business is not what parents used to have. The student loan companies that have established or held ongoing contracts with university's or college's financial aid offices have tried to keep others out. The companies that want to penetrate this rich industry started complaining to Congress, the U.S. department of Education and their Attorney General.

Thanks to Andrew Cuomo who listened to the plights of many parents and students, some loan companies have been put en garde. Attorney General Cuomo plans to sue Education Finance Partners, a California firm, which is alleged to have made illegal kickbacks to schools in exchange for placement on its "preferred lenders" list. The reason is that lenders on that list tend to get the bulk of the school's private loan traffic. So middle and lower-income students have been paying for or supporting student aid programs. They have also been giving lavish vacations to the directors of school's financial aid directors. Education Finance Partners wants to find a solution to the problems to keep more of its practices from being revealed to its customers, students. We are wondering why no other Attorney General has paid attention to this problem. Cuomo started the investigations into stock grants that were made to financial aid administrators at three well-known universities (Columbia, the University of Texas and the University of Southern California) by Education Lending Group. No wonder that its subsidiary, Student Loan Xpress was placed on each of these schools' "preferred Lenders" lists. The investigations even reached the U.S. Department of Education whose top official, Matteo Fontana, sold about 10,000 shares of stock in Student Loan Xpress a year ago. Mr. Fontana worked at Sallie Mae before joining the department.

Andrew Cuomo has been doing his homework. He talked to lenders who could not get into the market. Schools do not want them to join. They control the access to the students. They prevent the better products from being shown. There is a lack of competition. cozy arrangements between colleges and the companies that lend their students billions of dollars are far more widespread than even he anticipated. "It is like peeling an onion," he said. "It seems to be getting worse the more we uncover. It is more widespread than we originally thought. More schools and more lenders at the top end." So he is determined to investigate alleged kickbacks to school officials who steered students to certain lenders. His investigators have found numerous arrangements that benefit schools, financial aid officers and lenders at the expense of students. Many of these schools have set up "preferred Lenders" lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have exclusive preferred lender agreements with the companies.

What are the schools and companies that were caught red handed?

So far, the university of Pennsylvania and New York University have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing arrangements. Loan company, CIT Inc., placed three top executives at its Student Loan Xpress on paid leave. Sallie Mae which is the Nation's largest student loan provider will stop offering perks to college employees as part of a settlement. SLM Corp. or Sallie Mae agreed to pay $2 million into a fund to educate students and parents about the financial aid industry. So all expense-paid trips to exotic locations for college financial aid officers will stop. Maybe loan decisions will be made in the best interest of the students. Here is the list of those placed on leave: Matteo Fontana, official at the U.S. department of Education, Walter Cathie, assistant vice president for finance at Widener University in Pennsylvania, Timothy Lehmann, financial aid director at Capella University, a Minneapolis-based online school, Catherine Thomas, director of financial aid at the University of Southern California, Ellen Frishberg, director of student financial services at Johns Hopkins University, David Charlow, associate dean of student affairs at Columbia University, Robert deRose, vice chairman of Student Loan Xpress, Lawrence Burt, associate vice president and director of student financial aid at the University of Texas.