NASFAA President Dallas Martin issued the following statement in response to the NY Attorney General Andrew Cuomo's March 22 press release announcing his intention to file a lawsuit against a lender of private, non-federal student loans, Education Finance Partners (EFP).
The schools mentioned in Mr. Cuomo's press release are all outstanding schools with a long history of serving students by providing excellent academic programs and ensuring student aid is available so that needy students may enroll in those academic programs. I find several aspects of the actions of Mr. Cuomo's office particularly unsettling. First, I am concerned that the Attorney General's investigation sullies the reputations of institutions that have successfully helped generations of students achieve their college aspirations.
Second, and more importantly, the actions undermine trust in the counseling and advice given by financial aid administrators, so that students and their families and high school guidance counselors will have doubts about the guidance they receive. I have already seen this in the reports and reactions by the media to the inflammatory rhetoric coming out of the Attorney General's office. Many of these media stories are adding fuel to the fire encouraging this mistrust. A week ago, a Chicago TV reporter told the station's viewers not to trust financial aid administrators; rather, they recommended that viewers could get unbiased advice from mortgage brokers.
At issue in the AG's announcement is revenue sharing. Some in the lending industry claim revenue sharing arrangements with schools are a normal and commonly accepted business practice. Other lenders vigorously disagree and refuse to engage in any revenue sharing arrangements. But with the Attorney General's lawsuit, we will see if a court believes current laws or rules or regulations have been violated. It is entirely possible that the Attorney General will seek an out-of-court settlement limiting certain activities.
The Attorney General's repeated use of the term "kickback" to describe revenue sharing is troubling. Kickback means to me that someone took a bribe or received some sort of benefit for their own personal gain. If schools have negotiated agreements where they receive some money back that is not at the expense of the borrower, and those funds are going into their student aid program (for example, by giving grants to reduce the gap in a student's financial aid package or to improve student aid services), then there is no personal gain involved. Students either receive increased aid or better services.
However, on numerous occasions, I have publicly stated I would personally discourage such revenue sharing agreements. I advise against this practice because it is hard for many in the public to understand the benefits to students that these agreements bring; and since many do not know or understand the details of such agreements, the appearance of a conflict of interest is unavoidable.
Finally, one needs to understand the genesis of schools seeking revenue sharing agreements. Part of the reasons, I am convinced, is that student aid funds - whether coming from the federal or state governments--have not come close to adequate in meeting the financial aid needs of students and families. Last month, the Congress raised the maximum Pell Grant award for the first time since 2003. Campus-based student aid program funding and the state-based LEAP program's funding has been stagnant In the Perkins Loan program, new Federal Capital Contributions for new low-cost loans have been eliminated. Subsidized Federal loan limits for upper-class level undergraduate students and for graduate students have not been increased in well over a decade. Loan limits for lower-class level undergraduates were recently raised by a modest amount.
The point is that constricted limits on the amount that one may annually borrow in the federal loan programs and funding for other sources of student aid have not been raised to anywhere near the level that they should be. This leads to students and families having no choice but to use private loans, which have higher interest rates and fewer borrower benefits than the federal loan programs which ultimately increases the debt burden of borrowers. Students would not need to consider alternative loan sources if federal loan limits were substantially increased and the Pell Grant, other federal student aid, and state aid sources were adequately funded to meet the financial needs of the American people. That is the real solution we need.
Posted 03/26/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
