The role college financial aid counselors play in helping students find loans has come under fire in the past several months after private loan companies were caught providing kickbacks to colleges who agreed to steer students to their loan programs.
New York Attorney General Andrew Cuomo has reached dozens of negotiated settlements with colleges and banks.
Private student loan company Education Finance Partners recently became the third lender to agree to a multimillion-dollar settlement with Cuomo, joining Citibank and Sallie Mae.
Investigative efforts also identified at least six college financial aid directors and an official of the U.S. Department of Education who held stock in or accepted payments from Student Loan Xpress, another loan company.
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Cuomo says he even plans to sue Drexel University in Philadelphia, citing its revenue-sharing agreements with Education Finance Partners.
Officials in California and other states have launched investigations similar to Cuomo's.
"It's a shame because a few ruin it for the rest," said Myra Rush, director of financial aid at Modesto Junior College.
The practice produces a climate of fear among students and families already resisting loans. Such agreements steer unknowing students to loans that might not be best for them.
A Few Make It Tough On The Rest
The contracts for compensation between lenders and colleges can appear to be conflicts of interest, said Diana Ralls, director of financial aid at the University of California at Merced.
"It depends on the terms of the agreement. Does it benefit students?" she said. "Our preferred lenders don't benefit us (the university) in any ways."
Most colleges offer preferred lender lists to narrow choices for students, although they still can take out loans from any company. Those lists are under scrutiny. People want to know how a loan company gets on the preferred list.
Ralls and California State University, Stanislaus' Tom Tompkins said lenders on their lists have a reputation for providing quality customer service to students and college financial aid offices; offer some of the lowest interest rates and best repayment options; and waive a variety of fees for student borrowers.
"It's a few programs, a few schools, a few lenders that are making it tough on the rest of us because governments, I think, are overreacting to a point that they want to do away with lender lists," said Tompkins, financial aid adviser at Stanislaus State.
"It's incredibly shortsighted. I only have 12 on my list, and students still don't know how to choose," he said.
Campus 'Still The Best Place'
Students are now stuck in the middle between trusting financial aid counselors and navigating the overwhelming and sometimes risky student loan market alone.
The scandal includes lenders that have cut checks to college officials or offered money to the financial aid office for student scholarships.
No local colleges have agreements with lenders that provide financial compensation to the campuses, counselors said.
"They don't even get to take me out to lunch," Tompkins said.
The continuing kickback controversy has made some students more fearful of taking on debt.
And over the years, large loan companies such as Sallie Mae have been publicly accused of making astronomical profits while students defaulted on loans they couldn't afford in the first place.
"They also are distrustful of us who work in the financial aid office, but it's still the best place to get good, unbiased information of things awarded to them," Ralls said.