University Business - May 2007 - (Page 32)

FINANCIAL AID worth every minute to try and offer the best lending options available to our students.” Many students and parents don’t have the time or resources to conduct such a thorough review of the plethora of private loan options and companies. Private lenders offer an array of upfront and back-end benefits and interest rates that can vary depending on the student’s credit history, intended major, and institution chosen. Another university mentioned in the recent negative press coverage had students ask the institution to develop a preferred lender list. Students notified the Financial Aid office that they were unhappy with the multiple options for private loans because the process of choosing one was too frustrating and complex, according to a university official. Students felt that navigating the multitude of loan terms should be the Financial Aid office’s responsibility. The university decided it was in students’ best interest to identify, on behalf of borrowers, a private loan that offered the best combination of terms available. Some factors the university considered when selecting lenders for their list would never be considered by students and parents. But ultimately these factors benefit the borrower. In addition to the loan rates and benefits, the university considered questions such as: • Does the lender make FFELP loans? If so, there could be a conf lict of interest with the school’s Stafford loan volume. • What is the lender’s approval rate? It doesn’t matter what the loan terms are if a student can’t get approved. • Does the company offer a deferment option and an interest-only option for in-school periods? • Is the lender willing to discuss its tiered pricing of interest rates as it relates to credit scores? Through asking such questions, the university found lenders that met the cri32 | May 2007 teria it was looking for. In addition, these lenders offered to return a small portion of their profit to give to needy students in the form of scholarships. This is known as revenue sharing, and many higher education institutions depend on this money to compensate for stagnant local, state, and federal funding of need-based financial aid. THE QUESTION OF REVENUE SHARING Although schools generally use the funds from revenue sharing agreements with lenders to increase financial aid for students, NASFAA President Dallas Martin discourages such arrangements. ates were recently raised by only a modest amount. Students and families are often left with no choice but to use alternative loans, which have higher interest rates and fewer borrower benefits than the federal loan programs. The rates on private loans also vary depending on a borrower’s or loan co-signer’s credit score and other factors, such as if the student’s major has a higher earning potential. All this makes it harder for students and families to choose a loan company. THE HIGH PRICE OF THE TRIALBYMEDIA APPROACH The recent negative publicity of preferred lender lists may help increase transparency in the student loan industry, but at what cost? This media coverage could be undermining students’ and parents’ trust in the counseling and advice given by financial aid administrators, most of whom are scrupulously honest and forthright and take pride in their adherence to NASFAA’s Statement of Ethical Principles. This mistrust could prove harmful to students who rely on the knowledge and experience of financial aid professionals. If students and families don’t think they can turn to Financial Aid offices for guidance, they are more likely to seek advice from questionable sources such as predatory student aid consulting firms, lenders whose marketing approach encourages students to borrow as much as possible, or simply uninformed relatives or neighbors. In fact, one Chicago-based television newscast recently recommended that families consult with their mortgage broker about student loans rather than consulting the student aid office. Clearly, improving transparency in the student loan process is commendable, but using inflammatory rhetoric that implicates an entire profession only creates distrust and harms the students everyone is trying to help. universitybusiness.com One TV newscast recommended consulting with a mortgage broker about student loans rather than the student aid office. “I advise against this practice because it is hard for many in the public to understand the benefits to students that these agreements bring,” Martin says. “Since many do not know or understand the details of such agreements, the appearance of a conflict of interest may be unavoidable.” Despite that possible appearance of a conflict of interest, it is hard to criticize institutions for exploring every possible avenue to raise additional money for financial aid. “Student aid funds—whether coming from the federal or state governments— have not come close to adequately meeting the financial aid needs of students and families,” Martin says. Subsidized federal loan limits for upper-class level undergraduate students and for graduate students have not been increased in well over a decade. Loan limits for lower-class level undergradu- http://universitybusiness.com

Table of Contents for the Digital Edition of University Business - May 2007

Contents
College Index
Advisory Board
Company Index
Editor's Note
Behind the News
Viewpoint
Money Matters
Marketing
Human Resources
Financial Aid
Community Colleges
The Innocents Abroad
The Big Business of Research
What’s New in A/V
The Kids Are All Right
Designing a Unified Campus
Business Technology
What's New
Calendar of Events
Direct Connect
End Note

University Business - May 2007