Kennedy and Cuomo
Question the Relationship
Between Schools and Lenders

Patrick Sutton

The student body at many colleges and universities is comprised of an ever-increasing number of students that rely on financial aid. In addition, many academic institutions that offer online courses report that upwards of 50% of the students that apply but don’t enroll "fall off" because they are not able to secure financial aid. As these institutions and others seek new ways to increase enrollments, and monetize their existing student body, certain loan practices are coming under scrutiny.

Andrew Cuomo, the New York attorney general, and Edward Kennedy, (D-MA) chairman of the Senate education committee, have both begun to look into the relationship between academia and finance. More specifically, the relationship that exists between the financial aid offices of colleges and universities, and the institutions that offer student loans.

The average college graduate leaves school with debt: this may come as a surprise. But even more startling is the balance that these students carry forward—an average of around $18,000. Combine those figures to the average student loan rate—which is hovering around 7%—and its easy to see why the student loan industry is expanding fast.

As many financial entities begin to consider more aggressive tactics for marketing to college students, New York attorney general, Andrew M. Cuomo has begun to question the “advice” that financial aid offices of colleges and universities offer students. Are academic institutions offering “skewed” or partial advice to students? Cuomo stated:

“My office is seeking to ensure that students are being steered towards lenders offering the most competitive rates, not those who offer the best perks to schools or financial aid administrators. When making recommendations on how to make tuition more affordable, there must be absolutely no conflict of interest at the expense of students and their families."

While Cuomo is sending letters of inquiry to colleges and universities from New York to California, many other efforts and initiatives are under way that promise to alleviate some of the financial strain that students feel. For example; last month a bill was passed in the House that will gradually lower the interest rate that some students borrow money at from around 6% this year to 3.4 percent in 2011. In addition, Kennedy is planning on introducing a more comprehensive bill that include such measures as capping monthly student loan payments to 15% of a borrower’s discretionary income, and raising the tax deduction for college tuition to $12,000.

What effect, if any, will these new practices have on attracting and retaining new students? Will Cuomo’s investigation help students to secure a more affordable education?

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Sources

Block, Sandra; “Students Suffocate under tens of thousands in loans” USA TODAY; February 22, 2006
Glater, Jonathan; “Greater Scrutiny on Colleges and Ties to Lenders” The New York Times, February 3, 2007
Reuters; “New York student loan investigation is widened”; LA Times; February 2, 2007