University Business - July 2007 - (Page 52)

part, “We are particularly concerned with allegations that some lenders and guaranty agencies have attempted to hide or disguise an impermissible oﬀer.” Two years later, Jon Oberg, then with the Institute of Education Sciences within the DOE, wrote a memo that raised questions about private lending to low-income students. Oberg’s research also showed that some lenders had overcharged the government for subsidies on loans. Rather than act on his ﬁndings, Oberg’s supervisors told him to end his research and concentrate on other work. Oberg was transferred to another department tasked with overseeing grants and contracts, a move he believes was perpetrated to keep his research from continuing or from being made public. “The Education Department is controlled very heavily from the top,” he says, “so the way they chose to minimize the risk of unwelcome research coming out of IES was to prohibit its researchers from doing any.” Cuomo’s 'College Loan Code of Conduct' 1. Revenue Sharing Prohibition. Colleges are prohibited from receiving anything of value from any lending institution in exchange for any advantage sought by the lending institution. Lenders can no longer pay to get on a school’s preferred lender list. 2. Gift and Trip Prohibition. College employees are prohibited from taking anything of more than nominal value from any lending institution. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders. 3. Advisory Board Compensation Rules. College employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution. 4. Preferred Lender Guidelines. College preferred lender lists must be based solely on the best interests of the students or parents who may use the list without regard to financial interests of the college. 5. Preferred Lender Disclosure. On all preferred lender lists, the college must clearly and fully disclose the criteria and process used to select preferred lenders. Students must also be told that they have the right and ability to select the lender of their choice regardless of the preferred lender list. 6. Loan Resale Disclosure. No lender may appear on a preferred lender list if the lender has an agreement to sell its loans to another lender without disclosing this fact. In addition, no lender may bargain to be a preferred lender with respect to a certain type of loan by providing benefits to a college as to another type of loan. 7. Call Center Prohibition. Colleges must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or provide staffing to a college financial aid office. Leaders at The University of Texas System were forthcoming about the results of its investigation, which shed light on an often-confusing subject. And then there was MyRichUncle, a three-year-old private lender that said it was being shut out of competition by the stranglehold that other lenders had on the loan market. In a wideranging ad campaign last summer, MyRichUncle denounced the “cozy” relationship between private lenders and ﬁnancial aid oﬃces. “Our goal was to inform consumers they have choice, and in doing so, to provide student loans directly to students and their parents,” says Raza Khan, president and cofounder of the lender. “The campaign developed into providing information that we offer our loans free of the conﬂicts-of-interest that have plagued student lending.” Within the ﬁnancial aid community, the ads were met with outrage. Financial aid administrators denied the claims, and lenders such as Sallie Mae attacked both the ads and the company on television and in print. But, to paraphrase Shakespeare, the lender doth protest too much. “We were genuinely surprised by the reactions of ﬁnancial aid administrators,” says Khan. “The questions we asked were very simple, yet not one ﬁnancial aid administrator would answer them,” he says. “With the revelations of the recent investigations, it is interesting to see that some of the most vocal critics of MyRichUncle were also guilty of engaging in the alliances that the investigations uncovered.” Congress Weighs In Congressional Democrats have pointed to the Bush administration’s laissez-faire style as one reason the situation has gotten as bad as it has. Rep. George Miller (D-Calif.) and Sen. Edward Kennedy (D-Mass.) are among those who have joined Cuomo—the former 52 | July 2007 HUD secretary under President Clinton—in charging the administration with being “asleep at the switch” as the loan industry spun out of control. “The practices we have uncovered were not undiscoverable until now. Rather, the entity charged with maintaining the integrity of the student loan market failed,” Cuomo said. “The failure of the Department [of Education] to pass adequate regulations is disappointing and irresponsible.” The law at the heart of the controversy is the Higher Education Act, which, though intended to be renewed every ﬁve years, has languished in Congress since 1998. The HEA itself set the stage for many of the improprieties that have come to light. For example, the law permits private lenders to provide free software that can be installed in a university’s ﬁnancial aid system, presumably to help the institution defray the cost of building its own applications. On the surface there seems to be universitybusiness.com http://universitybusiness.com

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

Contents
College Index
Company Index
Advisory Board
Editor's Note
People Watch
Sense of Place
Marketing
Viewpoint
Human Resources
Money Matters
Financial Aid
Community Colleges
Seeds of Scandal
Controlling the Flow
Special Delivery
Presidential Progress
Best Foot Forward: SOX and Financial Standards
Business Technology
What's New
Calendar of Events
Direct Connect
End Note

University Business - July 2007