Personal About Politics: Picking the Pockets of College Students.

A record number of students are heading to college, which means for the majority of them, student loans. According to Steven Bird of the New America Foundation, a nonpartisan think tank, tuition has gone up much faster than middle income, making the need to borrow much greater.

Upon acceptance to a university, students turn to the financial aid office seeking guidance for loans. Up until this past week, this was thought to be the safest and best way to find a lender.

Three university financial aid directors as well as a senior official at the Federal Education Department are being investigated for conflict of interest. David Charlow, University of Columbia, Laurence Burt, University of Texas, Catherine Thomas, University of Southern California and Matteo Fontana, general manager in the Office of Federal Student Aid, were all shareholders in the lending company Student Loan Express. All bought shares at about $1 a share only to turn them around to sell at about $10 a share. Nice profit. Charlow earned more than $100,000 from the sale of his shares.

Each of the directors being investigated had placed Student Loan Express on their “preferred lender” list, a coveted spot for any lender in the student loan business, which amounts to over $50 billion annually. They were then in a position as a financial aid director to recommend Student Loan Express to students at the same time lining their own pockets. Pretty sweet deal.

Libby Lewis of NPR talked about the history of student loans on Weekend Edition Saturday.

 "Forty years ago when government loans originated, the idea was for poor students to get grants and       middle -income students would get loans. Many banks did not want to get into the student loan  program because students are not credit worthy. By the 1990’s the government had sweetened the deal to give almost 100% coverage on guaranteed student loans. The lender bears virtually no loss.

Aides for the first President Bush did a study on student loans. These studies showed that when the middleman was taken out of the picture and the government lends directly to the student, taxpayers save.

That administration did nothing, but Bill Clinton loved the idea, and made it a hallmark of his presidential bid. But the G.O.P. hated the idea. They liked the idea of private lenders."
 
Of course they liked the idea of private lenders. They saw a chance to make millions, putting financial burden on low and middle- income students. Prior to government student loans, universities were the bastions of the wealthy. Is the thinking here that if we can’t keep the middle and lower income students out, we will put them in heavy financial debt?  Where is the “moral” in the so-called moral majority here?

More information was forthcoming today in the New York Times from the office of Attorney General Andrew M. Cuomo of New York, who along with the New America Foundation began the probe into the lending companies. According to today’s report, financial aid officers at Johns Hopkins University in Baltimore, Capella University, an online for-profit institution, had served as paid consultants to Student Loan Express, the loan company in question. The company also paid for part of the graduate school tuition for Ellen Frishberg, the John Hopkins official.
 
At Widener University in Pennsylvania, the lending company sent executives to conferences held by a firm run by the dean of financial aid. SLX paid $80,000 to the firm. (NY Times 4/10/07)

So, now what happens? All the financial aid officers, the senior official at the federal Education Department as well as the three executives at Student Loan Express have all been put on paid leave. Subpoenas have been issued for more information from all involved, and it’s likely the investigation will widen. But then what? Can charges be filed? And what about the students who are the victims and ultimately bear the burden of higher loan rates? The ones who can least afford the added financial burden.

I recently spoke with Sean McMorris, a student at Columbia University and Policy Writer for the Student Council. I asked him how this scandal affected the students on campus.

“Students don’t have time to fight these battles with the university. We have a general sense of the way things work and we know that we are being taken advantage of by the university in many instances, but we simply don’t have the time to pursue it and to do the research needed to make a change in the system.

We are paying so much money that we must focus on our schooling and getting done as fast as we can. That is exactly what the university knows we will do, so they tend not to think twice about certain issues involving a student going into debt – what’s a couple more grand tacked onto $200,000 at the end of the day?

So, although we know we are being taken advantage of, we simply can’t do anything about it. And, when we are gone, we don’t care anymore because it doesn’t affect us any longer. “

Apparently that’s exactly what the universities and lending companies  were counting on.  Students don’t have the time nor the ability to delve into different lending options, trusting the university to guide them. Unfortunately, at these universities, that trust was misguided.

Perhaps it’s time to take student government loans out of the hands of greedy lenders and back into the hands of the government where they originated, therefore saving well needed money for both taxpayers and students.

 

Cheri Cabot, Politics Correspondent
Cheri’s column, “Personal About Politics”, published every Tuesday, will reflect on how the life of a 57 year-old, middle class woman is affected by politics, policy and the current state of the nation - a look at the personal aspects of politics. The articles will be posted to Politics.gather.com as part of Gather Essentials.

Cheri is a single teacher and writer, living in Southern California.  She has two grown children, one in Iowa and one at Columbia University, and is the proud grandmother of two. Cheri is also a purveyor of fine coffee, warm chatter and dry wit.

You can find all of Cheri’s columns on Personal About Politics at www.ccabot.gather.com.  Keep up with Cheri’s other postings and Gather activity by joining her Gather network at www.ccabot.gather.com, and select the orange “Connect” button on the left-hand side of the page.

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