In
response to growing national concern about abuses in student financial
aid practices, the University of Texas System has asked its 15 campuses
to stop directing students to "preferred lenders" and to report any
perks from loan companies.
The University of Texas at Arlington quickly removed two lists of
lenders from its financial aid Web site. UT Southwestern has taken down
one list and is looking at others. The University of Texas at Dallas
plans to keep a lender list online because officials believe it passes
muster.
The UT System's top lawyer e-mailed campus presidents Monday asking
them to "immediately cease and desist" using preferred lender lists.
The orders included removing lists from Web sites and not distributing
them to students. Campus financial aid offices are also being asked to
report any benefits they receive from lenders, including money or paid
travel.
The directive comes amid national investigations into the $85
billion-a-year student loan industry. Lawrence Burt, a financial aid
officer at UT-Austin, is on paid leave while officials investigate his
previous ownership of stock in the parent company of a campus preferred
lender. Other investigations have found that universities received
money for putting certain companies on their preferred lender lists.
UT System officials say that beyond Mr. Burt's case, they know of no
other allegations of improper lending practices within the system. And
they say they haven't found any problems with preferred lender lists.
But officials say they are reviewing the practices of all UT campuses
to make sure the lender lists and lending practices are aboveboard.
"Either you get out in front of these things or you get run over by
them," Chancellor Mark Yudof said. "My feeling is there's so much
turmoil in this area that it's best to take a breath and abolish – at
least temporarily, maybe permanently – the preferred lender lists."
He added, "We don't want to discover that someone owns $100,000
worth of stock in one of the companies we're doing business with."
A member of the Texas Public Interest Research Group, a nonprofit consumer advocacy group, applauded the move.
"This is quite encouraging news," said Luke Swarthout, a higher education advocate for the group.
He said preferred lender lists are not inherently bad – and can be
quite helpful to students unfamiliar with loan markets – but
universities should make sure that no one's benefiting from them.
"Reviewing the process to ensure that decisions are being made in
the interest of students is a valuable step forward," Mr. Swarthout
said.
Good service, records
Many campuses keep preferred lender lists for students who
want to borrow money for college. Financial aid officers say the loan
companies typically make the list because they offer good service and
have a solid track record.
The New York attorney general's office has found recently that some
lenders pay universities for putting them on preferred lender lists.
Just this week, that office entered into a settlement with its third
target lending company, Education Finance Partners, over questionable
practices, and it continues to investigate other lenders.
Students are not required to use preferred lenders. But appearing on
a university's Web site can give a company an edge, just like a
specialist recommended by a primary-care doctor.
All area campuses contacted Tuesday said they don't receive perks from lenders they mention.
On Monday, UTA removed from its Web site the list of 14 lenders that
participate in the main federal loan programs and another list of four
companies offering private loans that are not part of the federal
student loan program.
The university purposely didn't call companies on the lists
"preferred" lenders, but the site notes that they have "a history of
providing reliable service."
"I guess it is somewhat of a preferred lender list," said Karen
Krause, UTA's financial aid director. "There are over 200 lenders that
participate in this program. It was an attempt to be helpful to
families, not to be exclusive."
UT Southwestern has removed a list of preferred lenders for private or so-called alternative loans.
"We'll take a look at everything," spokesman John Walls said. "We feel comfortable we're doing everything that's appropriate."
UTD will keep offering a list of about 80 lenders that do the most
business with the campus, spokeswoman Susan Rogers said. The list
appears on a Web site accessible to students with accounts at UTD but
not the general public.
"They are not preferred. They are the people that have been doing the most business with us," Ms. Rogers said.
Barry Burgdorf, the UT System's general counsel, said campuses can
keep lists if they're based on objective criteria, such as the top
lenders by volume. Universities can also refer students to a nonprofit
corporation in Texas that keeps a list of all lenders.
UTD also lists eight lenders as sources of private loans not
included in the federal program. The university plans to keep those
names posted at least through mid-May because letters have gone out to
students referring to that site.
"We're going to take it down, but right now we can't because we're enrolling students for summer," Ms. Rogers said.
SMU, TCU keep lists
Two private universities, Southern Methodist and Texas Christian,
said Tuesday that they have no plans to discontinue their preferred
lender lists.
"Our families tell us that they need and appreciate that service,"
Mike Scott, TCU's financial aid director, wrote in an e-mail.
"Quite frankly, doing that research and vetting those loan options
is part of what they are paying for at a school like TCU. We do,
however, agree that there should be more disclosure concerning how
those decisions are made, and we plan to add that information to our
consumer materials as soon as possible."
June Hagler, SMU's associate director of financial aid, said
college officials get no compensation from lenders. "We get sticky pads
and pens sometimes. That's it," she said.
