Colleges and universities across the country may be receiving financial incentives from student loan companies, according to an announcement made Friday by New York's Attorney General.
In a letter obtained by The Badger Herald, New York Attorney General Andrew M. Cuomo described the problematic practices uncovered in his review of the current relationship between educational systems and loan companies. Cuomo pointed especially to the establishment of preferred-lender lists.
Under the current system, a preferred-lender list is a financial relationship that provides financial benefits to universities in exchange for inclusion of the company on their list.
The problem, Cuomo said in the letter, is the preferred-lender lists do not disclose to students and parents the basis for the selection of the loan companies, like competitive up-front rates and repayment benefits or services. Cuomo said this lack of communication misleads students and parents, implying they are required to use only companies on the preferred-lender list.
"There is an unholy alliance between banks and institutions of higher education that may often not be in the students' best interest," Cuomo said in a release. "The financial arrangements between lenders and these schools are filled with the potential for conflicts of interest."
But Michelle Curtis, associate director of student financial services at the University of Wisconsin, said UW does not partake in such practices, adding she has yet to know of a school that has any financial arrangement benefiting the school.
"We do not have a preferred-lender list," Curtis said. "We use the top 90 percent of our volume, which is driven by student choice."
UW is not a priority school that makes money for profit, Curtis said, adding she is unsure as to what schools in particular Cuomo was referencing in the letter.
If a loan company exceeds a certain amount of business from a particular school, Curtis said some companies may put money back into a scholarship program as a way to give some money back to the schools.
"It is intended to be positive reinforcement," Curtis said. "I can't imagine a professional taking a trip to Hawaii on this deal."
But according to The New York Times, Education Finance Partners, a loan company that has a particular arrangement with Drexel University in Philadelphia, Pa., pays a percentage of private loan volume to the university.
"Education Finance Partners is, of course, cooperating with the Attorney General's office in this matter," Education Finance Partners spokesperson Jeff Dillow said in an interview with The Badger Herald. "At the core of our company's mission is to give back to the students we serve and help provide greater access to education."
Yet, Curtis said, across the country schools are no longer using public preferred-lender lists, and added this issue is not widespread in public universities. Action by the Attorney General, Curtis said, might actually cause universities to avoid arrangements with lenders altogether.
"What I think they are going to do is to scare schools into not listing any lenders," Curtis said. "Schools will be afraid because of liability."
