| Sunday, May 6
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Loan work got colleges $1.5 million |
The nonprofit lender that dominates the college loan industry in Iowa has paid colleges about $1.5 million over the last five years for processing students' applications for its loans.
Critics say the money from Iowa Student Loan Liquidity Corp. could influence financial aid staff to steer students to that lender's "private" loans, which can be more expensive than federal loans because some rates and fees are higher.
Financial arrangements that benefited both lenders and colleges - at students' expense - have been criticized by New York Attorney General Andrew Cuomo, whose investigation into the loan industry found that some New York schools were accepting fees based on the volume of loans they handled from a certain lender.
Iowa Student Loan says its practices are different from those investigated elsewhere because the money it offers to about 50 Iowa colleges is simply reimbursement for financial aid offices' out-of-pocket expenses for administering its loans.
The Iowa schools don't get extra money as a reward for processing more loans, or higher-dollar loans, Chief Executive Officer Steve McCullough said. To get any money in return, colleges have to document their expenses.
"There's nothing unethical about it, or we wouldn't be doing it," said Tom Gronstal, an Iowa Student Loan board member and the state official who oversees the banking industry.
State Sen. Herman Quirmbach, a Democrat from Ames, said Iowa needs legislation to end the practice of paying out reimbursements.
"Whether they're legal or not, I'm very uncomfortable about it," Quirmbach said.
He added, "I want to see all the public colleges in the state - and the privates, too, though we may not have legal authority to force them - refund to the students who took out Partnership loans the proceeds of any payments received by those colleges from Iowa Student Loan."
The private loans are known as "Partnership" loans.
Also, some board members of a state agency, the Iowa College Student Aid Commission, have concerns about the types of loans Iowa students are taking out and why Iowa students have one of the highest debt loads in the nation.
That's particularly true at Iowa State University, where students took out three times as many private loans through Iowa Student Loan as did their counterparts at other state public universities last year, state records show.
ISU students graduated with an average of $30,640 in debt last year. The national average for public universities was $17,250 for 2003-04, according to the most recent figures from the Project on Student Debt.
Meanwhile, a new study shows that the number of federal loans that parents take out on behalf of their students is exploding in other states - but in Iowa, far fewer families are taking advantage of that cheaper option.
ISU received $500,000 in reimbursements
Statistics compiled from Iowa colleges by the Des Moines Sunday Register show Iowa Student Loan paid an average reimbursement of $23 per loan to private colleges and $15 per loan to community colleges last school year.
Iowa Student Loan appears to base its reimbursement calculations on dollar volume, at about $30 for every $10,000 in loans, the Register found after examining information provided from about 40 schools.
ISU received nearly $500,000 in reimbursements from Iowa Student Loan between 2002 and 2006. Last school year, ISU students signed three times as many private loans with Iowa Student Loan than did students at the University of Northern Iowa and the University of Iowa, two schools that have never accepted reimbursement money.
ISU's financial aid director, Roberta Johnson, said the school used to list Iowa Student Loan's parent loan as an option on its financial aid award letters for students who needed extra money, but stopped because some students mistakenly believed they were required to take out that loan.
ISU no longer takes the reimbursements.
"Because no one product can meet the needs of our diverse student body, we made the decision starting in the 2005-06 academic year to provide comparative information about multiple lenders for private loans," Johnson said.
McCullough, the CEO of the West Des Moines-based Iowa Student Loan, defended the reimbursement policy, as did several Iowa college presidents and financial aid directors. He said the reimbursement program "is legal under all state and federal laws, and is not a volume-based incentive fee."
McCullough said his organization paid out an average of $300,000 over the past five years to 47 schools, but would not provide a breakdown of which schools or how much each received.
Other lenders who do business in Iowa, including Wells Fargo, Sallie Mae, Nelnet and Citibank, do not pay colleges for handling their loans.Labels: student loans |
posted by ^%&^
@ 6:06 PM
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