Can the Collegiate Lending System Right Itself?

Government intervention in the college loan system has been a hot topic lately, and for good reason. A congressional investigation led by Andrew Cuomo (NY State Attorney General) performed late last year found several questionable practices tied to college lenders and universities. One of the main issues that surfaced was the prevalence of lenders offering kickbacks to colleges and universities for pushing them as a qualified or preferred lender. Other complaints leveled at the industry as a result of the report included conflict of interest charges leveled at university administrators, bad loan practices, variable rates by student status (recruited athletes without full scholarships receiving lower rates) and much more.

The report, along with the Spellings report of late ’06, prompted lawmakers to pass the college cost reduction act, aimed at, among other things, reforming subsidized educational lending. Lawmakers on capital hill enacted drastic subsidy cuts to student lenders and called for other reforms against private lenders, though they have yet to come.

Ultimately, it’s the collegiate systems that needs to step in and take action, even if it means one school at a time. Considering some universities were accommodating lenders for kickbacks at the expense of students, it appears government intervention was necessary. Still, not all colleges were culpable. If students were better aware of the differences between university lending practices prior to the reform instituted by the Cuomo investigation, would they have boycotted certain lenders or universities?

In all likelihood, the answer is no. Students have enough on their plate and are usually concerned with getting lending, getting in and getting the classes they need in order to graduate. They rely on the colleges and universities they attend to act in their best interest, assuming that the institutions will do so. Colleges and universities rely on the students for maintaining their institution, as do educational lenders.

The financial institutions, including Sallie Mae and Citibank, have already settled as a result of the Cuomo investigation, though few colleges and universities even acknowledged their failed responsibilities to students. A handful of colleges caught in the firestorm decided to refund kickback profits to students, but most simply pointed a crooked finger at the banks.

The collegiate lending system doesn’t revolve around lenders or the government, it revolves around colleges and universities. The same colleges and universities who have made college tuition double in the last 10 years are the same colleges and universities who owe it most to students to make sure they are at least borrowing economically.

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