Are state's colleges too cozy with loan providers?

Recent charges that colleges across the country are taking kickbacks from lenders as a reward for steering students toward their loan programs has caught the attention of Congress and touched schools in at least 18 states in recent months.

On Friday, Minnesota Attorney General Lori Swanson joined the chorus of leaders concerned about "preferred lender" lists.

In a letter to about 350 of the state's colleges and universities, Swanson asked the presidents to disclose any inducements, fees or other perks that the school might be receiving from banks.

She also asked them to end all "questionable practices" associated with preferred lender lists in the future.

Though she didn't single out specific schools, Swanson acknowledged hearing from concerned parents.

"It's uncertain exactly what's going on in Minnesota," she said. "One of the problems with these inducements is that, by nature, they're undisclosed."

Swanson has subpoenaed an undisclosed number of lenders doing business with Minnesota colleges to find out more.

"My concern is that if the college and lender have this relationship, what does that mean for the interest rate that is charged the student?" Swanson said Friday. "It's not just the issue of the money that the lender is paying to the college. But does that mean that students are paying more for their loans?"

Each of the 32 schools that make up the Minnesota State Colleges and Universities (MnSCU) system has its own financial aid department with individual guidelines, MnSCU spokeswoman Nancy Conner said.

Students should be cautious when entering into financial arrangements, she said, but MnSCU schools are "committed to providing the best information and services possible in the financial aid process."

At the University of Minnesota, students aren't offered a school- sanctioned choice in private lenders because the university acts as a direct provider solely of federal government loans, spokesman Dan Wolter said.

About two-thirds of undergraduates need to borrow money, according to the College Board, a national nonprofit education organization.

Meanwhile tuition costs have outpaced inflation for decades. The volume of private student loans has grown at about 27 percent a year since 2001, according to the College Board, and now account for about a fifth of the $85 billion student loan industry.

Last month, Sens. Edward Kennedy, D-Mass., and Richard Durbin, D- Ill., introduced a "Student Loan Sunshine Act" that requires full disclosure of special arrangements and bans lenders from offering gifts worth more than $10.

On March 15, New York Attorney General Andrew Cuomo announced an investigation into questionable practices that included revenue sharing, Caribbean junkets and kickbacks involving nearly 400 colleges and universities nationwide, including some Ivy League schools.

Tom Joyce, a spokesman for Sallie Mae, the nation's largest student-loan provider, said preferred lending lists can help students sort through the maze of financing, and warned of the unintended consequences if lawmakers end up stifling competition among lenders. Still he spoke against kickbacks, revenue sharing and other shady practices being investigated.

"The role that the financial aid office plays on campus is critical in evaluating who the best lenders are for students and their families," Joyce said. "If you take that role away from them, you get left with the wild, wild West of direct marketing, with people overborrowing and students using the wrong lenders at the wrong prices."