Col­lege Loan Pro­grams That Flunk Ethics

The Washington Post Sunday - - Sunday Briefing -

We’ve known for years about the “iron tri­an­gle” of col­lege fi­nance, the al­liance among univer­si­ties, lenders and fed­eral ed­u­ca­tion of­fi­cials that seeks to con­stantly ex­pand the col­lege loan pro­gram. But it is only now that we are learn­ing about the myr­iad of eth­i­cally ques­tion­able prac­tices that have held the tri­an­gle to­gether.

Let’s start with the fees or spe­cial lend­ing fa­cil­i­ties that stu­dent loan orig­i­na­tors of­fer to col­lege fi­nan­cial aid of­fices for des­ig­nat­ing them as “pre­ferred providers” or send­ing them a cer­tain vol­ume of busi­ness. And the call cen­ters to ad­vise stu­dents and par­ents on tu­ition fi­nanc­ing op­tions that ap­pear to be run by the col­lege but in fact are run by the lenders.

Of course, be­cause you wouldn’t want col­lege loan of­fi­cers to be unfamiliar with the prod­ucts they are rec­om­mend­ing, the lenders were gen­er­ous enough to pay their way to con­fer­ences and sem­i­nars where they were wined and dined and en­ter­tained. And from there, it was only an eth­i­cal hop and a skip to pay­ing con­sult­ing fees, pay­ing tu­ition for grad­u­ate cour­ses taken by col­lege fi­nan­cial aid of­fi­cers, or invit­ing univer­sity of­fi­cials to serve on the lender’s board of direc­tors. Some of those of­fi­cers were so im­pressed that they de­cided to buy stock in the lenders whose ser­vices they were rec­om­mend­ing.

The fed­eral gov­ern­ment, of course, has rules about such con­flicts of in­ter­est, like re­quir­ing its em­ploy­ees to dis­close fi­nan­cial hold­ings an­nu­ally. But we learned last week that even when of­fi­cials fill out those forms and dis­close how much they have prof­ited by in­vest­ing in the stu­dent loan in­dus­try they are os­ten­si­bly sup­posed to reg­u­late, noth­ing hap­pened be­cause no­body both­ered to read them.

Out in Re­ston, our own Sal­lie Mae has agreed to pay $2 mil­lion and end sev­eral ques­tion­able mar­ket­ing prac­tices to settle its part of an in­dus­try-wide in­ves­ti­ga­tion by New York’s at­tor­ney gen­eral. Its state­ment an­nounc­ing the deal last week was a model of Or­wellian spin:

“We are pleased that At­tor­ney Gen­eral Cuomo has rec­og­nized Sal­lie Mae’s lead­er­ship in the stu­dent loan in­dus­try and our eth­i­cal mar­ket prac­tices. . . . Sal­lie Mae has co­op­er­ated with this in­quiry since its in­cep­tion and, as the in­dus­try leader, we have been con­fi­dent through­out that our poli­cies and pro­ce­dures would stand tall.”

Tall enough, any­way, for the Black­stone Group to con­sider of­fer­ing $20 bil­lion for Sal­lie, even be­fore Congress com­pletes it own in­ves­ti­ga­tion of the in­dus­try and rewrites the rules on col­lege lend­ing.


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