College Financial Aid "Preferred Lender" Relationships Investigated

College Financial Aid "Preferred Lender" Relationships Investigated

www.msnbc.msn.com

Attorney General Andrew Cuomo’s office is investigating stock grants from student loan companies to financial aid officers at three major universities as part of a widening investigation into the $85 billion student loan industry.

Investigators found that many colleges have established questionable “preferred lender” lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have “exclusive” preferred lender agreements with the companies.

(visit the link for the full news article)

I have long thought there was a questionable relationship between college tuition expenses and student lenders. Imo, the cost of a college education is artificially inflated in order to force the average student into seeking financial aid in the form of loans.

Many college graduates who needed loans to pay for their degrees are then leveraged by their debt, leaving them barely able to make ends meet as they transition to professional life, or consider incurring further debt to pursue post graduate studies.

This is simply another way the status quo is maintained. Those students from wealthy families who don't need financial aid to attend college have a huge advantage over those leveraged by debt incurred to pay for an education the could not otherwise afford.

I am pleased to see Mr. Cuomo taking a stand against such predatory practices and their ingrained, bought and paid for presence on the college campuses of America.

www.msnbc.msn.com
(visit the link for the full news article)

[edit on 5-4-2007 by Icarus Rising]

This story dropped like a stone after I posted it the day before yesterday, but it just won't go away. In fact, it keeps getting bigger.

Now, a Department of Education official, Matteo Fontana, has been placed on leave as a result of a conflict of interest involving stock in the student loan company under investigation.

Maybe everybody else just takes graft and corruption for granted these days. Its a sign of the times.

The federal Education Department official who oversees lenders owned about $100,000 worth of stock in a student loan company now under investigation in an expanding nationwide probe of the $85 billion student loan industry.

What started as a probe into possible kickbacks to school officials for steering students to certain lenders has mushroomed this week as investigators revealed ties between high-ranking financial officers and the loan companies.

link

It pains me greatly to see the very people who are supposed to help students afford their college educations profit off collusion with the loan companies providing the financing that saddles those same students with what I consider unnecessarily heavy debt burdens as they leave college to start their professional careers.

It is predatory, usurious, and unconscionable to take advantage of those needing financial help to participate in what is now being exposed as the rigged system of higher education.

Originally posted by Icarus Rising
It is predatory, usurious, and unconscionable to take advantage of those needing financial help to participate in what is now being exposed as the rigged system of higher education.

Nice work, Icarus

Add this to the list of the "money/power grabbers" list of how to financially drain America's future..

Credit companies prey on these students as well, setting these kids up for failure.

The recent "sub-prime" housing deal which is now going to end up in crushing many Americans their financial future.

Oil companies record breaking profits as you and I struggle to keep our cars fueled just to earn a living only to be "hit" again at the grocery store where we see products' prices rising as suppliers let the consumer offset their fuel cost increase.

I am sure there are many more ways the average American is being led down the path of financial ruin but I digress.

I will keep an eye on this situation and see if any real repercusssions come about from this investigation.

Thanks,

You are absolutely right that this is just one of the many ways that America is being turned into what amounts to a "company town."

company town

Here is an update from the news on my homepage this morning. I haven't found this info in circulation elsewhere on the web yet. When I do, I will post a link.

CIT Group Inc. has placed three top executives of its student loan business on paid leave following an investigation into stock transactions with a high-level U.S. Department of Education official and college financial aid officers, the company said Monday.

CIT, with corporate headquarters in Livingston, N.J., said Student Loan Xpress Vice Chairman Robert deRose, Chief Executive Mike Shaut and President Fabrizio Balestri were all placed on leave. Randall Chesler, president of CIT Consumer Finance, will handle interim oversight of the business.

[edit on 9-4-2007 by Icarus Rising]

Great find, Icarus and thanks for posting this. I've actually kind of been expecting that something like this would eventually surface. The whole student loan thing is way out of hand. I think they're raising the cost of college so fewer people will be educated, i.e. will know what our govt is really doing.
I went back to school in 1990 to get my master's degree because I wanted to be a psychotherapist. The cost of the entire loan in those days for 1 and 1/2 years of graduate school was $16,000. Now, therapists are not known for making tons of money (unless they're in private practice, but even then no one makes tons of money). The most anyone could hope for was about $25,000 per year and that was in San Francisco, California where the cost of living is astronomical.
And because i wasn't making taht much money, I had great difficulty in paying off those loans. Citibank was the original lender but eventually, after not being able to pay it back on time, my loan was sold to another company and another company after that.

Long story short, my $16,000 loan jumped to $83,000. I will never be able to pay it off. I think this is outrageous. That's an interest loan at 500%. IF anyone had told me that could happen, I would never have gone to college. They don't tell you that, though and there are lots of us out there who are saddled with this kind of loan for life. It's a scam by shysters, nothing more. I cannot tell you the grief it's caused me. My mother, for reasons known only to herself, decided I must be doing something wrong not to be paying my loan back and eventually she quick talking to me because of it and now she has serious Alzheimer's so I guess we'll never speak again. I wonder how many other people have stories like mine, I'm sure there are many.

Thanks for posting this, IC.

What is really going on, is a transfer of money from the federal government, to the lenders, via YOU.

The lenders have a guaranteed profit margin, since supposedly, if you default, the government will step in and cover the loan. But what is actually happening, is they are sucking up all your "excess" credit-worthiness.

On paper, your loan is "below market rates," with the government paying part of the interest, to "keep things profitable" for the banks.

Where does the government get these billions, to donate to the banks?

That would be you. Again. from your taxes.


Once again, we see how socialism . . . er, "government assistance" ends up simply inflating prices. What would happen to healthcare and education, if the government quit handing out money? Well, it would be inhuman, certainly. But prices would drop, and providers like hospitals and universities would actually start having to compete for your business, instead of competing for money from your insurer or student loan company.

A bachelor's degree is obsolete anyway. You wanna make some serious bank? Then get a welding certificate. A welder in Texas can make nearly $50 an hour, plus benefits. More and more of the investors where I work are welders, who are looking for a place to stash all their earnings in a tax shelter.

And they aren't paying any student loans, either.

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I am so sorry to hear how this scam has impacted your personal relationship with your mother. That is a tragedy.

The 500% increase in your loan balance is a crime. It is complete usury, and our government is condoning it, if not sponsoring it outright.

I still pay $50 a month on my college loans from the early-80's, now held by the USDOE, and I probably will for the rest of my life without making much of a dent in them.

Our educational system has fallen victim to corporate capitalists, and we may be headed back to the guild system before too long, if things keep going the way they are. It is a sad commentary on the society we live in today.

I don't see this as an outcome of socialist practices in our government. More like the bastardization of a social program to fit an unrestrained capitalist agenda.

Capitalism in and of itself isn't a bad thing, it is the predatory nature of people who lack a social conscience taking usurious advantage of those with needs for financing that is the problem. Said needs for financing many times artificially manufactured to suit the purposes of those with the aforementioned predatory nature.

Redux = Greed.

I call it sociopathic capitalism, and it is a parasitic scourge upon our culture.

Originally posted by Icarus Rising
I don't see this as an outcome of socialist practices in our government. More like the bastardization of a social program to fit an unrestrained capitalist agenda.

Capitalism in and of itself isn't a bad thing, it is the predatory nature of people who lack a social conscience taking usurious advantage of those with needs for financing that is the problem. Said needs for financing many times artificially manufactured to suit the purposes of those with the aforementioned predatory nature.

Redux = Greed.

I call it sociopathic capitalism, and it is a parasitic scourge upon our culture.

EXACTLY, Icarus, I agree completely. It's not just happening with student loans, it's with all credit card companies now. There used to be a law that said you couldn't charge more than like 15% interest. My loan was at 8%, but then they changed the laws, AFTER I signed my contract and now they can sell the loans for whatever they want. You don't change the laws after a person has a signed contract, it's just not right. But now we don't have that law to protect us and now it's open season on the consumer, they can charge whatever interest they want to. Sociopathic capitolism is a good term for it.

Originally posted by Icarus Rising

I call it sociopathic capitalism, and it is a parasitic scourge upon our culture.

I agree with you and forestlady there. Personally a fan of free enterprise, I think it is frequently subverted when ruling elites work together behind the scenes to limit competition.

That's what you've reported here, companies "buying" advertizing from the academy.

Similar things happen with HMO's and healthcare. What was originally intended to help "the little guy" (unions, HMO's, student loans) inevitably becomes one more fiefdom for the ruling elites to suck money from worker bees.

But, regardless of economic ideology, it still comes down to backroom dealing, with a veneer of "governmental oversight," which is itself controlled by the elite.

Thanks for bringing this to ATS, Icarus; I hope you'll post updates here as well, as the story grows legs.

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Absolutely.

These predatory lending practices are now widespread and are underwritten by our own government. That is why I said in an earlier post that America is heading toward becoming one big company town.

Free enterprise is one thing, and I am in favor of it, but government collusion with big business to help the rich keep the rest of us in servitude is another. It is anti-thetical to the very principles this country was founded on, what made America great to begin with.

It was this same thing in a slightly different wrapper that the Pilgrims who landed at Plymouth Rock were trying to get away from when they came here aboard the Mayflower.

Originally posted by Icarus Rising
Absolutely.

It was this same thing in a slightly different wrapper that the Pilgrims who landed at Plymouth Rock were trying to get away from when they came here aboard the Mayflower.

Oh, now you've done it! You've dipped into minutiae.

Are you referring to the Court of Wards and Liveries, which Massachusetts colony governor John Winthrop blasted as an abomination, since they were supposed to protect the property of widows and orphans in England, but instead were the agent of the despoiling of so many? That he and other puritan lawyers fled to America because they felt that the English Crown was inviting God's wrath for despoiling widows and orphans, whom kings have a Biblical obligation to protect?

Is that what you meant?

.

You are so much more learned on this subject than I am.

What I meant was the Puritans left England because the government and the church were in bed together depriving the individual of opportunities to practice religious freedom, just as today's US government is in bed with big business depriving ordinary individuals of the opportunity for financial freedom.

At least that is what I thought I meant.....

I do agree that the Bible charges leadership with caring for the widowed, the fatherless, and the poor, and when leadership fails to do so, they may incur the wrath of God.

Thanks for the info on Winthrop and the Court of Wards and Liveries, fascinating stuff.

but.....but....
aren't we all susposed to be going for that higher education...I mean this IS a knowledge based economy, isn't it??

this is just another example how those in power, use every blasted good program that serves to help society to funnel wealth into the pockets that they feel are deserving of it, while totally screwing everyone else..

don't be surprised if this little scandal makes it's way to the top levels of the federal government, why else would they want people who barely managed to finish high school to borrow out the tush to get a diploma so they can have a decent job with a fair wage.

Originally posted by dawnstar
but.....but....
aren't we all susposed to be going for that higher education...I mean this IS a knowledge based economy, isn't it??

Is it?

I'm refusing to pay for my children's education. Partly from a philosophical stance (no one paid for mine), plus the fact that I am not bankrolling anyone else's vice-binging through their late teens/early twenties.

But seriously. Once again, I recommend the seminal book The Millionare Next Door. In it, you'll learn that after 2.5 years of college, you actually make LESS on average for every further year of education. The wealthiest people in the US are people who entered the work-force as young as possible, even if it was for low wages. Basically, college, (in addition to racking up 1000's in debt) delays your lifetime earnings by 4 or 5 years---a deficit most earners never overcome.

In the book, they survey the three most common occupations of millionaires. Number one was welder. Number two was auctioneer. Number three was owner of a janitorial services company.

The reason for those is that they either specialize in turning labor into value, or in taking someone else' junk and converting it into retail merchandise.

Now if my kids wanna be lawyers and doctors and such, that's just great. They'd better get start mowing lawns or something.


.l

In a letter sent to Johns Hopkins President William Brody, Cuomo investigators said that they believe Student Loan Xpress, a unit of CIT Group Inc., paid more than $21,000 for the school's director of student financial services to attend graduate school at the University of Pennsylvania between August 2002 to January 2004. Investigators also believe that the official, Ellen Frishberg, was paid $42,000 as a consultant for the company from April 2004 to October 2005.

Cuomo's office said that Timothy Lehmann, director of financial aid at Capella University, an online school based in Minneapolis, was paid more than $13,000 in consulting fees by Student Loan Xpress.

Cuomo's office also said that a consulting company run by Walter Cathie, dean of financial aid at Widener University in Pennsylvania, was paid $80,000 by Student Loan Xpress since 2005.
link

Payoffs. That is what these people received. Cash for steering students and administrations to Student Loan Xpress. This is a form of influence peddling similar to lobbyists paying for votes on the Hill. Except this is illegal (btw, I think that should be, too).

Is it downright illegal to peddle influence in the private sector? I mean, I hope it is, since it is obviously unethical. But can they be prosecuted for it?

This is the core of what's wrong in ALL of our institutions, at every level.

Thanks again, IC.

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That's what I am wondering, can/will there be indictments/prosecutions arising from Mr. Cuomo's investigation? The entities involved seem to be taking it very seriously, putting those concerned on leave pending the outcome of the investigation.

I agree, again, that this issue is endemic to many governmental institution/private enterprise interactions that involve crossover funding and opportunistic, ethically challenged individuals/corporations.

dr_strangecraft, I very much appreciate your interest in and informed contribution to this thread. Thank you.