When Andrew M. Cuomo started asking questions about the relationships between lenders and colleges, many in higher education scoffed (off the record) that this was a case of an ambitious politician looking for headlines and that there wasn’t much for his inquiry to find. There’s no doubt that Cuomo, New York State’s new attorney general, is an ambitious politician looking for headlines, but he’s finding more and more to investigate. And some experts on aid are increasingly worried that the scandal is going to scare some students and families away from borrowing or from getting advice from financial aid offices.
As the loan scandal has grown in the last two weeks, more and more institutions have become involved.
Cuomo started off with a series of information requests and then agreements with colleges to stop taking payments from lenders based on the business the companies gained from being on recommended lender lists maintained by the colleges. Many of the colleges also agreed to repay these funds, which Cuomo called "kickbacks," but many colleges defended as a means of obtaining funds for student aid.
Fallout for Students and Families
Many experts on student aid are worried about the fallout from the scandal on students and families — even while expecting that few students will understand the details.
Robert Weinerman, director for college financing at College Coach, said that there is already evidence that the scandal is having an impact. College Coach provides advice on admissions and financial aid to company employees (where businesses provide the services as an employee benefit), and Weinerman said that there are already questions coming in from employers about what the scandal means, and that these questions are likely prompted by employees who are looking at paying for college for their children.
Weinerman, who formerly worked in financial aid at the Massachusetts Institute of Technology and Babson College, also said context was important in looking at the impact. The part of the financial aid process under the most scrutiny involves private loans that students receive on top of the much more prominent federal loan programs. More and more families are finding it necessary to take out private loans, but they typically get little help from colleges in understanding their options besides the "preferred lender" lists that are now being questioned.
"This is a huge black box for families," Weinerman said. "They get very little support."
And that’s why Weinerman is worried right now for students. "This is a part of the process that is very difficult for families and they rely significantly on the preferred lender lists because the assumption is that the college has vetted the lenders," he said. "It’s difficult for families to comparison shop, so they assume the colleges have."
While Weinerman said that he suspected the problems aren’t widespread, he’s not sure that will matter. "This could take away the financial aid office as a reliable source for people," he said. "People may end up in the hands of less scrupulous lenders because all those ethical aid officers are going to be less trusted" with their preferred lender lists, he said. "There is so much publicity — everyone is going to be suspect."
