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Friday, March 23, 2007
ATTORNEY GENERAL SWANSON CAUTIONS COLLEGE STUDENTS ABOUT UNDISCLOSED FINANCIAL INDUCEMENTS IN COLLEGE LOAN INDUSTRY
Attorney General Lori Swanson today announced a series of inquiries regarding financial inducements paid by lenders to colleges for the referral of student loans.
Swanson said the inquiries follow a number of reports in which colleges have acknowledged receiving up to 1/2 percent of the loan amount, for referring students to lenders. The colleges steer the students by including the lenders on a “preferred lender” list and by advising students that the use of certain lenders will ensure a quick processing of the loan. “A ‘preferred lender’ list implies that the college has negotiated the best terms from these lenders on behalf of their students,” said Swanson. “In fact, this may not always be the case and I encourage students to shop around for the best rates.”
Swanson called upon colleges to disclose inducements, fees, or other consideration they receive from lenders who make college loans. “It is important that students adopt a ‘buyer beware’ attitude in a deregulated economy,” said Swanson. “Deregulation of interest rates and fees is based on the assumption that the buyer will shop around for the best terms. The problem here is that students are lulled into thinking the college is negotiating for the best interest rate for the student, rather than the best financial inducement for the college.”
Swanson sent a letter to Minnesota colleges and universities asking that they disclose any consideration or payments they receive from lenders, and asking them to stop such practices in the future. Swanson also sent a subpoena to leading college lenders asking them to disclose such payments. Finally, Swanson said she is sending a pamphlet to high schools which cautions students about the practice.
Swanson said the inquiry is also being undertaken in other states, such as New York, and that Senator Edward Kennedy of Massachusetts is planning to conduct hearings on the issue.