April 18, 2008

Aid Administrators Urge Reconsideration of Rule on Preferred-Lender Lists

The new president of the financial-aid-administrators’ association is asking the Education Department to reconsider its interpretation of a rule that requires colleges to have at least three unaffiliated lenders on their preferred-lender lists.

The rule, which was issued in November and goes into effect in July, was written to prevent lender monopolies. But the department has read the rule to require that all lenders on an institution’s list, whether three or 30, be unaffiliated with one another. Many financial-aid officers feel that interpretation is overly broad.

In a letter sent to department officials earlier this month, Philip R. Day Jr., president of the National Association of Student Financial Aid Administrators, argues that the department’s interpretation conflicts with both the regulation itself and the discussion on it that took place in negotiated rule making last year. He says the department’s requirement could “have the effect of seriously limiting borrower choice” at a time when lenders are leaving the guaranteed-loan program at an alarming rate.

The department’s interpretation, he writes, “could not come at a worse time.”

“Combined with the present uncertainty about access to loans and the fact that many schools already have their preferred-lender lists in place,” the letter says, “this interpretation poses significant challenges as financial-aid offices face their peak loan-processing and student-counseling season.” —Kelly Field

Comments

1. Fronting for the banks seems to be in this group’s DNA.

   How does flooding the lender list with a bunch of fake choices improve choice?

   Why doesn’t the financial assistance group try to help students for a change?

   — Confused? Follow the Money.    Apr 18, 04:20 PM    #

2. Confused does not understand the issue. The intent of the legislation was to ensure that students were given a choice of lenders and not have a lender list, where all the lenders were owned by the same parent company. It was agreed that a school had to have a list 3 lenders, who were not affiliated on a lender list. Now the Department is interpreting that to mean that a school cannot have any affiliated lenders on a list. Well, we have lost more than 50 lenders due to the credit crisis. Daily, schools are being notified that lenders will no longer offer their students loans. As a member of NASFAA for 34 years, I can assure you that our organization works diligently for students – not for schools and not for lenders – but for students. #1 is more than Confused. You are dead wrong.

   — Dr. Pat    Apr 18, 04:56 PM    #

3. I agree that Confused is mischaracterizing NASFAA. As an administrator with 15 years of experience I believe NASFAA is a good organization which has done a lot of good for students and for schools. I am not sure though that this issue should be a priority for NASFAA. While many lenders have left the program there are still a lot of lenders out there— enough that I still have no trouble creating a lender list with at least 3 lenders and no affiliated lenders. It is not hard to meet the narrow interpretation of the rule. On the other hand, allowing affiliated lenders on a list creates more room for perception of less real choice and for questions that we’d be better off preventing— which is why I have always avoided the practice.

   — CP    Apr 18, 05:31 PM    #

4. CP describes the real problem. Putting 8 Sallie Mae affiliates along with two independent lenders on a preferred lender list give Sallie Mae a huge advantage and would be the same as directing 80% of the lender list volume to one company. This is why the regulation makes sense if the goal is to protect students from secret deals between schools and banks, not that that’s ever happened in this business, right?

   Dr. Pat, your 34 years of membership in this organization must not have included last year, when it had to enter into a consent decree with Andrew Cuomo.

   — Confused    Apr 18, 10:51 PM    #

5. Confused, I couldn’t think of a better name for you.

   — Fully Monty Hall    Apr 21, 08:40 AM    #

6. At a time when schools are having to update their lender lists almost daily because of lender redlining, it is very short-sighted – and detrimental to students – for ED to narrow the interpretation at this time. This is contrary to what was agreed on during Negotiated Rulemaking, and it will limit students’ choices. Is that what you want to see, Confused?

   — DS    Apr 21, 08:50 AM    #

7. In some cases there are legitimate reasons for listing affiliated lenders, and I hope ED allows some exceptions for cause if they stick with this interpretation. Terms and borrower benefits can vary among lender brands. For example, one major student loan company offers their best deal for medical students under one brand, and their best deal for dental students under another brand. If I want representation of the lender for our other students, I have to include a third brand. ED would also need to establish a grace period policy to deal with lender mergers.

   — Patrick Gorman    Apr 21, 09:31 AM    #

8. Confused; If you consider the task of identifying lenders that continue to pay the insurance fee and guarantors that continue to pay the guarantee fee so my students benefit from the full dollar amount of the money they borrow, then “fronting for banks” is in my DNA. This was exactly the problem that started the whining and slandering by My Rich Uncle and CLC, to name a few. True, some aid administrators received personal benefit for selecting certain lenders however, this was a significant minority. Most Aid Officers identified lenders offering the best benefit for their borrowers. I am pleased to see that some of the “simply here for profit” lenders are gone! None the less, this is creating a challenge for creating a compliant lender list within the current credit environment.

   — rdk    Apr 21, 12:55 PM    #

9. I agree with RDK. We’re having to update our lender lists almost daily with changes. I’m an aid administrator of over 20 years. Things are uncertain at the moment, to state it mildly!

   — CJ    Apr 21, 11:56 PM    #

10. Lets stop the bantering and end all of the political nonsense! We need to do away with ALL STAFFORD LOANS AND DL AND FFELP!! Lets go back to helping only those who have NEED!! Make Perkins a need based entitlement loan program keeping all of its already workable and wonderful teacher cancellations, etc and do away with the ACG/SMART and TEACH programs that are purely political garbage! Those who dont have need can deal with the private lenders who will be there no matter what! And lets stop the wasteful tax credits for the rich too! Keep the Parent Loan and all will be fine. We can then forget about lists and conduct codes and the rest of the political crap. Ive been in aid 34 years and am tired of the no need wealthy few trying to undermine need based aid and the stupid politicians…If you have no need…pay the bill or take out a parent loan or private loan and leave aid officers to do the job of helping the “NEEDY”!! Hows that for a radical new/but old approach?? idea?

    — shishkabob    Apr 22, 01:56 PM    #

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