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A proposed list of private student loan lenders may make it easier for those enrolled in classes at the University of Maine to borrow money for school.
The system office will send out “requests for proposals” to private lending companies, which may include the Maine Educational Loan Authority and Sallie Mae. The requests will be questionnaires covering the lenders’ benefits, availability, customer service and interest rates, among other topics.
Rosa Redonnett, executive director of Student Affairs for the University of Maine System, said the list will be started at the system level, then refined at the campus level.
She said financial aid directors at each of the seven system campuses expressed a “common interest” that the system should establish a “certainty that there was a group of qualified lenders that could deal with students fairly.”
The campuses will be able to select lenders that best fit their student demographic and provide information to students, according to Peggy Crawford, director of Financial Aid at UMaine.
In 2007, the U.S. Congress passed the Student Loan Sunshine Act, which banned colleges and universities from having preferred lender lists. The act developed out of an investigation by former New York State Attorney General Andrew Cuomo in 2006.
Through that investigation, it was discovered that financial aid departments received kickbacks from private lenders in exchange for steering prospective borrowers toward their companies.
In one of the largest settlements to come out of that investigation, Syracuse University’s involvement with Citibank was uncovered. From 2003 to 2006, Citibank loaned $32.6 million to Syracuse students and paid the university’s financial aid office $164,000 in “referral fees.”
That $164,000 was disbursed to Syracuse students as part of the settlement.
Due to unethical practices such as this, the federal government barred institutions from expressing affiliation with particular lenders.
“Strong lender relationships [were developed by financial aid offices] that not only benefited the students but benefited themselves too, and that’s not legal,” Crawford said.
The Student Loan Sunshine Act also barred financial aid administrators from verbally providing information about lenders to students, which limited honest administrators’ ability to sway a student toward the best loan program for him or her. Financial aid offices that disregard the federal restriction could face penalties.
“For the past two years, we’ve all been too scared to [create a replacement list],” said Connie Smith, associate director of Financial Aid at UMaine. “It’s hard when a student calls. I just think of myself going out to find a lender. The sky’s the limit.”
Smith described situations when students would call her office seeking advice about their finances or when students would call with information about a bad experience with a lender, wanting to dissuade other students from using those organizations.
“We know, but we’re not allowed to answer that because then it looks like we’re pushing the student toward that lender,” Crawford said.
While some private lenders offer interest rates and services that fit a student’s needs, others base lending on credit scores, which can hurt a student in the long run.
“If you have good credit, you’re going to get a really good interest rate,” Smith said. “But if you have bad credit, it could be a bad interest rate. In that sense, it’s like a credit card.”
Rather than have students take out higher-interest loans, the request for proposals program will have lenders provide information that can then be transmitted to students without financial aid offices expressing preference.
“This really isn’t a ‘preferred’ list,” Redonnett said. “There’s a bunch of language that would have to be available … that inclusion on a list is not an endorsement.”
While Redonnett was not sure whether all seven system campuses previously had preferred lending lists, she said the inability to provide information about lenders after the enactment of the Student Loan Sunshine Act limited the amount of information available to students.
“Lenders can be so variable. Some provide wonderful services — some not so,” she said. “I do think this is an attempt to get information out to students once again.”
According to Smith, the UMaine Financial Aid office processed 1,434 private student loans —a total of $11.3 million — for the 2010-2011 academic year.
“Last year, student loan debt topped credit card debt for the first time ever, and now this year it will top $1 trillion,” according to a press release from Rich Williams, a higher education advocate at U.S. Public Interest Research Groups. “Just over a decade ago only a third of college graduates had to borrow money and their average debt was around $12,000. Now over two-thirds of graduates must borrow money and their average debt level is almost $25,000.”
With so many students taking out private loans to supplement federal financial aid, the need for affordable interest rates and a system of evaluating lenders is evident on campus.
“We’re feeling as though it will be safer for us to have a list,” Smith said.
Crawford said a lack of a lender list with loan interest rates can lead to variable lending. If those interest rates were published for students, she said, they would be more likely to receive consistent loan terms.
“We don’t want the student dealing with something where they have to jump through 87 hoops,” she said.
Crawford hopes to see the lender list online by mid-summer so it would be available for students to fill financial aid gaps in the fall.
