COLLEGE LOANS AREN’T FREE

In 2007 student loans were an $85 billion industry, with private loans growing exponentially and accounting for about one-fifth of the loans.

Shortly after being sworn into office in January, 2007, Attorney General Lori Swanson noticed complaints which questioned whether loan officers at colleges were induced by gifts from lending companies that charge higher interest rates or higher fees. The preliminary issue was whether such gifts, if they were made, were a fee paid to the college loan officer in exchange for referrals. A more important issue was whether loan officers were referring unsophisticated students to lenders that charged higher interest or higher fees.

In February of 2007 Swanson sent letters to 350 colleges and universities asking them whether they had a “preferred lender list,” and if so, who and how was the list maintained. Swanson also subpoenaed the lenders doing business in Minnesota to get information on gifts or inducements paid to the benefit of college loan officers.

In March of 2007 Swanson and the New York Attorney General drafted a “Code of Conduct” for colleges. The Code of Conduct included a prohibition on lenders providing inducements to college personnel and on college staff receiving such inducements. As it turns out, some college employees served on the boards of industry lenders and received gifts, trips, and other valuable consideration.

In May 2007 Swanson settled her investigation of Capella, a for-profit college based in Minnesota, with the school agreeing to the following:

Being banned from taking anything of value from a loan company in return for a benefit, such as appearing on a preferred lender list.
Prohibiting employees from taking anything of more than nominal value from a loan company, including trips.
Declining anything of value to serve on advisory boards of loan companies.
Advising students they can choose any company they want for their student lender.

In announcing the settlement, Swanson stated that other schools had personnel who accepted fees from lenders and that negotiations were taking place.

References:

https://www.mprnews.org/story/2007/04/11/studentloans
Crosby, Jackie, “Are state’s colleges too cozy with loan providers?” Star Tribune, March 24, 2007, p. D1.
https://www.twincities.com/2007/04/16/capella-puts-stock-offering-on-hold-plans-response-next-week-to-student-loan-probe/
“Capella settles case over student loan practices,” St. Cloud Times, May 16, 2007, page 3B.