October 4, 2007

Student-Loan Agency in R.I. Cuts Ties to Nelnet After Criticism Over Call Center

Rhode Island’s quasi-public nonprofit student-loan agency is ending a controversial three-year relationship with the for-profit lender Nelnet. The agency, the Rhode Island Student Loan Authority, faced criticism last May when The Chronicle reported that it was allowing Nelnet staff members to operate a telephone center that supposedly offered students “unbiased” advice on their loans.

A Chronicle investigation found that the phone center’s employees did not identify themselves to callers as working for Nelnet, yet often encouraged students who asked about financial aid to take out Nelnet loans through the Rhode Island agency. Rhode Island’s state treasurer, Frank T. Caprio, called the arrangement “a potential conflict of interest,” and the agency’s board voted within days to put its own staff in charge of the call center.

The Providence Journal reported today that the agency has now cut all ties with Nelnet. A Nelnet spokesman told the newspaper that the move was part of the company’s realignment following the enactment last month of a new federal law cutting government subsidies to student-loan companies.

Meanwhile, Pace University has ended a similar arrangement with Sallie Mae, in which the student-loan giant operated the New York university’s financial-aid call center, according to The Pace Press, a student newspaper. A university spokesman told the paper that Sallie Mae employees at the call center identified themselves as “the Pace Financial Aid Center,” without mentioning their Sallie Mae affiliation. Pace conducted random checks to be sure they did not press students to take out Sallie Mae loans, he said. —Paul Basken

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