July 2, 2008

Lender Jeered as It Departs Federal Student-Loan Program

Washington — In this era of economic anxiety, college financial-aid administrators can often be heard worrying each time a student-loan company withdraws from the system of federally subsidized lending.

But there’s an exception.

MyRichUncle, which specializes in direct-to-consumer loans, stopped offering government-backed loans last Friday, and the response from college aid administrators appears to be barely restrained glee.

“Best news I’ve seen in weeks!” one aid administrator wrote to his colleagues on an electronic bulletin board.

Many aid administrators are angry with MyRichUncle over its business-building tactics, which include an ad on its Web site that promotes private student loans by depicting a lobotomized college student saying: “I didn’t use my brain. I went straight to the financial-aid office.”

MyRichUncle also gained a reputation for encouraging the investigation last year by New York’s attorney general, Andrew M. Cuomo, into the close ties between some loan companies and some college financial-aid officials.

A spokeswoman for MyRichUncle said the company was “pausing” its participation in the federal loan system until the Education Department begins buying up packages of loans from lenders, as promised by the industry-rescue legislation approved by Congress in May. In the meantime, MyRichUncle will continue offering its private student loans, which are issued without any government subsidy and are therefore often more costly to students than federal loans are.

“As always,” said the spokeswoman, Karin Pellmann, “we urge parents and students to thoroughly research their options when making education-finance decisions.”

Brandon Pierce, director of financial aid at Friends University, in Kansas, had one of the more measured responses to MyRichUncle’s announcement, saying he would “wish them the best in the private-student-loan arena.” Mr. Pierce also expressed his hope that MyRichUncle, if it returns to the federal program, “will decide to work with financial-aid administrators in providing students the best products, services, and benefits instead of against them by undermining their knowledge of the industry.” —Paul Basken

Comments

1. Aren’t these the same college administrators whose professional organizations’s boards are stacked with lenders?

   I wouldn’t expect such a petty and silly response from dedicated financial aid professionals.

   — Alan Collinge    Jul 2, 03:42 PM    #

2. There remains a cartel, obvious to anyone who is really paying attention.

   — Columbia Administrator    Jul 2, 03:47 PM    #

3. Alan, 98% of school and university do NOT stack their boards with lenders. You obviously are unaware the damage MRU has done to the financial aid industry. The worst part is that they have hurt students more than they’ve hurt an individual school. Due to MRU’s ties to Cuomo’s office, the investigation that followed prompted the knee jerk reaction of eliminating subsidies to lenders. that and the credit crunch created a perfect storm that pushed many lenders out of business. The other thing that occurred was that those who were able to stay reduced borrower benefits to students just so they could stay in business.

   We all knew MRU’s game would catch up with them. To malign the integrity of a very hard working group of people, financial aid administrators, is not the way to get ahead in business. These young men learned the hard way on to NOT run a successful business. Who would’ve thought an Ivy league education would’ve taught such poor business ethics…

   — AW    Jul 2, 03:53 PM    #

4. Interesting…I’m on that list – that’s the only comment on the topic in the last 24 hours and it warrants an article? Must be a slow news day.

   — JD    Jul 2, 04:01 PM    #

5. See ya later, Uncle! Please don’t come around anymore.

   — Dale    Jul 2, 04:49 PM    #

6. #3 poses the question “Who would’ve thought an Ivy league education would’ve taught such poor business ethics . . . “

   Um, I would.

   — babylawyer    Jul 2, 04:55 PM    #

7. Painful and expensive lessons in ethics for all of us.

   — BH    Jul 2, 05:14 PM    #

8. As all of you argue the point around lending practices and My Rich Uncle, you have forgotten the real victims in this case – the parents who are trying to afford a public or private college education.

   As parents of a son at Berklee College of Music in Boston, we have exhausted our savings, our son’s college fund, and the there is no interest coming any time soon on our investments.

   You college types – who I understand if you work for a college get your tuition paid for – need to get real and understand what we regular parents are going through.

   Obviously, we are committed to the four years our son has at college, but it won;t be so easy for any of you with the next group of parents. The economy is so bad, equity in many homes is minimal and scholarships and grants are becoming more difficult to get

   Stop moaning about the present and start strategizing for the future when your parent pool will no longer be able to afford a private college education.

   State colleges are looking more and more attractive!

   RTJ

   — Renee Jones    Jul 2, 08:25 PM    #

9. As a financial aid administrator I am saddened to hear that RTJ and her husband have spent everything on their son’s private education. We always encourage families to consider loans as a last resort and also consider other educational options. Going broke to send your kid to Berkley is irresponsible for both parties. The unfortunate reality is this: your child’s dream education may not be a reality. It is up for parents and their children to discuss what options they can responsibly afford. This may sound harsh but it is becoming the truth for many families.

   — Rave    Jul 2, 10:21 PM    #

10. I also feel for RTJ and her family, however I am also compelled to remind everyone that while a private education is expensive, private and expensive do not also equal quality. Berklee has a great reputation, but there are also other excellent music programs at other institutions that cost much less. Many of them are even (gasp!) public.
    This leads me to wonder how much of the student financial aid crisis has been precipitated by the high cost of many private institutions that have adopted the high tuition/high aid model. When it comes to determining the source of the problem behind the high cost of college, we need to exercise the same rigor we use in our research and look at all of the potential contributing variables and find the truth where it lies.

    — JS    Jul 3, 12:26 AM    #

11. RTJ – Send your kid to a western state university where the aura of private high-cost education has not obscured the down-to-earth value of a public education. There are plenty of better values out there!!

    — John    Jul 3, 06:29 AM    #

12. I’m compelled to write a comment given the issues faced by RTJ. Good, hard-working students are being driven out of school because of no fault of theirs. It’s unfortunate that the credit crunch has drained options for families and students — having gone through a similar situation while in college, it’s a helpless feeling that brought considerable strain on my parents.

    Here are two sites that may be of help. Greennote, which will formalize a loan between friends and family, and Fynanz, which in addition to friends and family allows alumni and others to lend to the student. Moreover, I think the schools themselves should be lending to students — after all the money does go back to them! Make it merit based, but investing in their own students and education system seems logical.

    — DS    Jul 3, 06:40 AM    #

13. State-wage school employees get tuition breaks? Not in over a decade in many schools. Maybe in private institutions?

    — RH    Jul 3, 08:34 AM    #

14. I think the day is coming when many students will do a cost benefit analysis, and see the value of a 4 year degree is not comensurate with the costs incurred. It will be interesting to see when college reverts to becoming an “option” or a “privelege” as opposed to given.

    — GC    Jul 3, 10:01 AM    #

15. To start, I paid for my own college education. My parents owned a small struggling business, and their inventory made me ineligible for anything other than loans, despite the fact that our annual household income was less that $20,000 each year. Because of this, I chose a state school and worked 40 hours a week to pay for what my meager sub loan did not cover. Everyone has a choice to make when deciding where to go to school, going to your dream college is sometimes just that…a dream. Families need to be realistic when making that decision.

    That being said, I currently work at an institution which gives me free tuition. However, I work 15 hour days for the first couple weeks of each term disbursing aid to students so my ability to take advantage of my institution’s generosity is non-existant.

    I understand that Cuomo’s investigation found some bad apples but 99% of FA administrators are honest hard working people who are singularly dedicated to helping students and their families afford education. Anyone who believes otherwise is simply falling prey to the slanderous media coverage perpetrated by the machinations of MRU whose actions in the matter were fueled by their anger at schools who refused to push MRU loans on their students when better loans were available by other lenders.

    — J    Jul 3, 10:24 AM    #

16. Congrats to Rave for stating the truth. Dreams are not always affordable, you “choose” an expensive college, you need to pay for it. Noone is requiring you to send your child there. Back to the important topic, MRU and the NYAG have severely hurt parents and students by forcing higher interest rates and no benefits for consistant repayment. Yes, there were people doing the wrong thing but how many school administrators were caught with their hand in the cookie jar, less than 2 dozen? How many FA administrators are out there, over 5000? You do the math. Also how many students have to leave school b/c they can no longer get a private loan, thousands? Thanks MRU for making college LESS available to Americans.

    — SB    Jul 3, 10:25 AM    #

17. MRU did not undermine lending, the schools did: hook, line and cost shifting/profit sharing sinker with their refusal to add MRU to the school’s list of preferred lenders. Isn’t this how it all really started? I imagine they went to meet the FA’s for the customary lunch to introduce themselves and to ask to be added to the list and then the schools started asking MRU what they were willing to do for the FA Office: will you cover my printing, do my exits etc and MRU must have said “no” and the schools weren’t interested in MRU anymore. After hearing “what will you do for us” a few times, a marketing campaign was born in what I will concede was probably one of the most brilliant marketing campaigns I’ve ever seen. It’s still a shame about the name, though— you would think they would have considered that’s the real issue in why their brand isn’t taking off.
    Funnily enough there’s another article on the front page about the “school as a lender” model— you know where you, the student, think you’re borrowing from good ol’ U of C only to discover the loan was sold to the partner lender immediately and U of C got a payment in exchange (which is different than a “kickback” I was told by many very well respected FA folks). I don’t see where MRU had anything to do with that skeevy, profit sharing arrangement… other lenders invented it and schools signed up for this before MRU was ever a well known entity in our circle. Or the handy little jump pages to the preferred lenders app, the phone banks, the printing, the conferences etc. MRU didn’t invent those either— other lenders and schools had already done that.
    And Alan, it is the lenders that stacked their boards with FA folks because they value our “expertise” and genuinely wanted to hear our opinions because the lenders care after all— unless they are losing money, then they all scamper away. If anyone in my line of work hasn’t figured out FFEL lending is a business, I’m starting to just feel sorry for you.

    — AMD    Jul 3, 10:54 AM    #

18. Private colleges do offer tuition remission and tuition exchange programs,but they’re not always what they’re cracked up to be. Tuition remission at the home institution is fine if your school is the right place for your kids.It may not be if you kid really needs to go to a more high powered college or needs a place with a strong department in a specialized area. As for tuition exchange, you may discover that many schools on the list are not sufficiently demanding for your child and that the more elite schools take only a very few students per year from the tuition exchange list.

    — luigi    Jul 3, 11:05 AM    #

19. Yes, FFEL is a business. I was a lender rep for 3.5 years (until the layoff) now back on the FAA side. In my territory, the NW part of the US and AK, I did not see or hear of the kinds of abuses that we all read about.

    I think that the most important issue is that higher education has trended from a public good (with the advent of community colleges, post WWII GI bill, HEA, etc) to a private good. Public tax support on the federal and state levels has been declining. Costs of a 4 year degree are reflecting those declines as those costs are being transferred to students and families. It’s time for parents and students to carefully examine costs and decide which college/university best fits their financial situation.

    — Sam Collie    Jul 3, 11:16 AM    #

20. MRU had terrible borrower benefits- rewards for paying on-time and in many cases, electronically. The bottom line is….the bottom line- their loan products just didn’t stack up. THAT’S WHY THEY DIDN“T GET ADDED TO LENDER LISTS!

    — Nick Boyer    Jul 3, 11:39 AM    #

21. AMD, if ignorance were a virtue you’d be a saint!

    — Nick Boyer    Jul 3, 11:44 AM    #

22. As a financial aid administrator for 20 years, I have to agree that AMD is ignorant of the facts. MRU is partly responsible for the cuts in borrowers’ benefits that now make student loans more costly. I would not use MRU loans because their products couldn’t touch the cost savings to borrowers that the non-profit lender I was using almost exclusively for my students. Notice I said non-profit – my school did not receive any “kickbacks” for using this particular lender. 99% of financial aid administrators have never received kickbacks. As for MRU, ask them why they awarded an iPod to one of my staff members at a financial aid conference after one of their sales reps practically accosted her on the exhibit hall floor. Good bye, MRU! My students who are no longer receiving the benefits on their loans like they have in the past say “Thank you”. (sarcasm).

    — Darren    Jul 3, 12:59 PM    #

23. Good afternoon. I am very hesitant to add my two cents worth, but will do so as I have strong thoughts on the matter and have been in the FA industry for 15 years. I would like to respond to some who have posted comments and/or questions. As I do, I am addressing the subject and not the individual – we certainly all have opinions, however, often times they are not based on facts – that is a very powerful statement.

    Alan made the reference to our professional organization being stacked with lenders. I am not sure associations were stacked, but these individuals brought a great deal of knowledge and time to the table. Their time was invaluable as generally they truly served in assisting with menial tasks or securing individuals for various purposes. Call your FA Office 3 weeks before the first day of class this fall and see how difficult it is to get through – these FA folks generally are inundated with voluminous regulations from various sources and the constituents whom they serve constantly seek out their opinion.

    RTJ – you understand incorrectly (as pointed out by others). Your comment generalizing ALL FA professionals that have dependents who get free tuition is wrong. Check with public institutions – in many cases NOTHING. In some cases a minimal abatement – I do mean minimal. As for private schools – some schools do offer this for ALL employees – from the President – the coaches – the Professors who draw an incredible salary – custodial services. Not just FA personnel. Also, not all private schools may offer full tuition for the dependents. It may be partial and it may be some time elapsed before the benefit takes place.

    J brings a fresh approach that we see from some folks – hard working, self-reliant, and realizing that one may not be able to attend the school of choice, but another school to reach their educational goals. J notes the 99%. I previously served on a Regional Board and during a meeting, relayed these facts. According to statistics complied by NASFAA, during the height of this storm, it was estimated that their were 16,000 FA Professionals and 6600 schools. Now, you may recall that there were a handful of FA professionals who were terminated (that I read about) – no more than 4-5. Of the 6600 schools, less than 30 signed a code of conduct. NY schools, for the most part, were pressured into signing this agreement, as were the schools who were feeling the heat of AG Cuomo’s “reactionary” investigation. You want to compare how many Congressional Representatives that have been terminated (% wise) vs. the FA profession? Athletes? Lawyers? Other professions? The FA industry served as a microcosm of societal issues – wrong vs. right. If someone did perform unethically, it should be addressed, but not to the detriment of the masses. Do folks really believe that someone offering me a lunch at Pizza Hut or a more expensive location will sway my decision? If so, one is incredibly off base.

    Who is affected by this? Student borrowers. For those of you who are current students or repaying borrowers, look at benefit rates now compared to 3 years ago. The lenders, already on profit thin margins, now have had their subsidies reduced and who pays for this? The borrower – thus, many of the borrower benefits are eliminated – extinct.

    Growing up, I heard of the “medi-scare” tactics and would see this on the news. While I will honestly state I do not know the facts, I will state this piece of news does hit the very heart of my profession and yes, I do know a bit about this industry and YES, it is been reactionary and not nearly an issue – truly perception vs. reality. Do any of you believe that Senator Kennedy and Rep. Miller have not been beneficiaries of companies – the news reported that on several occasions, Senator Kennedy flew on airline transports owned by Sallie Mae. He may have reimbursed them – I do not know. But these two men made it known they wanted to eliminate the FFELP industry (banks) and have the FDSLP as the SOLE lender (folks, this is where the government is now your banker – oh, check that SSA retirement fund that the government has been investing on your behalf – how is that working out?).

    In any event, I am not sad to see MRU leave the FFELP industry – I believe the name of the company was creative and they did offer creative benefits. However, the fact they castigated the customers and offices they serve on numerous occasions was/is unethical. There are several lending agencies who are wonderful, have come to the office, and have NEVER offered anything remotely suspicious – never. They have offered their assistance if we need it and that they are there for our students, parents, and FA Offices if needed. MRU not only shot themselves in the foot, but they went right through the knee to get there.

    Lastly, I had a MRU representative call about 12-18 months ago and wanted to know why I did not certify a loan – sounds scrupulous and right in line with what has been in the press. Well, since the student had already borrowed with another lender, the student had used their annual limit – I asked if MRU was advocating we break the law by awarding in excess – absolutely not. I asked MRU if they advised the student they would now be paying back two lenders if the loan would have gone through – uh, no.

    Lastly, someone noted advisory boards and they are now a thing of the past (for the most part). I served. Do you realize it is an “advisory” role and the purpose is to make the process more efficient – if it is easier for the FA Office to certify, it is easier, quicker, and more efficient to the borrower – the purpose is to keep the lenders anew with what is going on in the market place and make life easier for all.

    It is my hope that this article is read objectively – could go on longer, but I want to enjoy the Independence Day :-)

    Life is good – Peace!

    — Kim    Jul 3, 02:43 PM    #

24. Thank you Kim! My sentiments exactly.

    — Stephny    Jul 3, 03:37 PM    #

25. MRU – Brought to light what was happening in the student loan industry with the lenders and the financial aid office. – It was about time

    — BB    Jul 3, 04:09 PM    #

26. Who, what, where when, how. Five easy questions to ask. Perhaps the answers are not as easy to get. I now ask Kennedy and Cuomo to identify the student, the school, the lender and an example of how that student “might not get the best loan deal” by choosing a lender from a schools lender list- the inuendo that caused this whole situation. You see there is none.
    At the same time, the afore mentioned politicians- the key word here- were backing the Direct Loan program which was grabbing $500 from the loan proceeds of the graduate loans of $18,500. The student must pay back the whole amount even though the FED was about the only lender collecting the fee. Are any of the commentators in this blog who accuse lenders of being greedy aware of this? Who had the best deal? How come the media didn’t pick up on that? The students should be happy they had professionals whittle down their lender lists so the Harvard types who think they are entitled to their cut of the business without a competitive product could show themselves to be the whiners they are. By the way….Harvard students MUST borrow their student loans from the FED. How would you like it if the only mortgage, car, commerical and consumer lender was the FED?

    — Nick Boyer    Jul 3, 04:55 PM    #

27. Nick, you’re wrong. Borrowers at Harvard have a real choice between FFEL and DL for a fact having worked there. I’m genuinely curious why you have used the word ignorant? If the recipients of a social program deserve choice, why not the rest of them: foodstamps, housing subidies, medicaid on down the line? Federal lending is not “cost free” to the taxpayers and why should anyone be expected to pay a part of the interest for a borrower so the lender can make a profit throughout the length of their repayment? If you can come up with a reason why there should be a profit in a social program, please cure my ignorance. Seriously, did I miss something in all this? The day the ad broke I said to a colleague that all hell was going to break loose and I was scoffed at for it. Every parent or student I have ever met thought the words “preferred lender” was me shopping the market for the best rate— every one. Kind of like the mortgage industry, not. I’ve been to conferences where there was great interest in the revenue stream generated by school as lender and the dog and pony show of what lenders would do for me. I think Direct is the better of the programs for everyone: simple, no secondary loan market, reasonable rate and here’s the best part: income contingent repayment with forgiveness. You would think that the altuistic going into teaching, social work, public defending etc would value that little “incentive” above the 1/2 off the rate after 36 payments they are unlikley to pull off— perhaps you could offer your students real choice: DL with forgiveness for doing good or FFEL with a possible, but unlikely, 1/2 point off the rate. Oh wait, there are no borrower benefits this year—can’t take the hit to the profit. I’d be interested to hear what your borrowers prefer since I must only get the really stupid kids and their even dumber parents. And have you ever seen the reaction of a borrower when you tell them U of C is not their lender after all? Now that’s a reaction not to be missed…
    The loan fees on DL would have been eliminated if the lenders didn’t cry foul by the way— Ed wanted them gone so don’t blame Ed for a problem FFEL created to maintain market share and have “fair” competition. That was a fiesty battle with Ed introducing the “rebate” concept on fees. So, Nick, tell me why my logic is faulty since anytime I post my opinion, I get railed but never get anything to sway me to the other side. I’ve heard borrower choice but that can only be truly a choice of the borrower is informed about DL and FFEL; anything less in my book is not really a choice.

    — AMD    Jul 3, 09:41 PM    #

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