Ask Mr. Ethics: Can Schools Contract With Companies in Exchange for Scholarship Funds?

Question

Dear Mr. Ethics, 

How does NASFAA feel about companies that approach schools wanting to contract with them to sell merchandise/equipment and in return give the school scholarship dollars? Could this also possibly violate the Code of Conduct? Is this an ethical practice? We in the financial aid office do not feel comfortable with this; however, the university feels differently.

Sincerely,

Conflicted About Contracts

Answer

Dear Conflicted,

Such arrangements are not really covered by the Code of Conduct, but whether they are ethical is a good question. NASFAA’s Statement of Ethical Practices requires that financial aid administrators “commit to the highest level of ethical behavior and refrain from conflict of interest or the perception thereof.” As marketers will tell you, “Perception is all there is.”

In our quest to help students and to obtain adequate grant funds to do so, any opportunity to increase scholarship availability may seem too good to pass up. However, entering into a contract to sell or promote goods in exchange for funds is a slippery path. The comparison to kickbacks is easy to make, and that carries negative connotations. A school that is considering such an arrangement should ask itself how it will ensure transparency and full disclosure to students. The school should also ensure that the prices charged to students do not exceed typical amounts, and should continually monitor that prices remain competitive. If there is any element of exclusivity in selling a particular product, the school would be well advised to require cut-rate prices, or to turn the arrangement down altogether.

Another cautionary parallel presents itself—and that is the preferred lender arrangements some long-time NASFAA members will recall from the Federal Family Education Loan (FFEL) Program. Even schools that negotiated such arrangements to result in better loan terms or services to their students were tainted by the overall perception that schools or aid administrators—rather than students—profited from preferred lender arrangements, caused by a few bad actors.

Contributions to scholarship funds are welcome when freely and altruistically made. When they come attached to strings that involve profit, however, it is very difficult to avoid suspicions of unethical motives. Running in the other direction is probably a better idea.

Are you working through a common ethical question and want some help? Email Mr. Ethics at ethics@nasfaa.org with your inquiry and check out prior Mr. Ethics columns for answers to other tricky questions.

 

Publication Date: 7/22/2019


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