Lenders Fake Counselling on Campus

April 21, 2007
Colleges Relying on Lenders to Counsel Students

By JULIE BOSMAN
Rachel Jones, a senior at Loyola Marymount University in Los Angeles, recently was sitting through a student-loan workshop that university officials had told her was mandatory when an uneasy feeling kicked in.

The woman in the front of the classroom asked students to fill out forms with personal information — including names, addresses and phone numbers of relatives, an employer and a friend. Ms. Jones recalled that she also talked about “other loan companies” that would saddle students with unfavorable rates if they decided to consolidate loans on graduation.

Unable to keep quiet, Ms. Jones raised her hand: “I just said, excuse me, who are you and what is your affiliation?” The woman identified herself as an employee of All Student Loan, a California-based lender.

Ms. Jones, a 22-year-old who has $17,000 in student loans, had unwittingly stumbled upon another undisclosed relationship between universities and loan companies.

Recent investigations have largely focused on incentives lenders give universities to get coveted placement on the preferred lending lists students use to take out loans when they enter college. But colleges also give lenders crucial access to students when they are graduating, using lenders to conduct exit counseling required under federal law for students who have taken out federally guaranteed student loans.

In some cases, loan company representatives come on campus and run sessions for seniors on loan repayment. In others, colleges direct students to loan company Web sites, including Wells Fargo, Citibank and Sallie Mae. And in many cases, the loan companies are pushing a product: their consolidation loans.

Anne Prisco, the vice president for enrollment management at Loyola, defended the practice, saying the lenders allowed on campus were carefully selected. “Every year when we have exit interviews we ask if they want to assist,” Ms. Prisco said. “They are just there to provide additional information.”

Others say the access to students is improper. Heather McDonnell, the director of financial aid at Sarah Lawrence College in Bronxville, N.Y., said she thought using loan companies for exit counseling was “absolutely” inappropriate.

“Behind every lender is a consolidation loan,” Ms. McDonnell said. “I don’t allow anybody to come on my campus to come and do that. I just don’t think it’s a good idea. I think that information should be coming directly from the financial aid office.”

Many students have various kinds of loans, and consolidation allows them to combine the loans to pay a single interest rate and make one monthly payment.

Karen Gross, the president of Southern Vermont College and a professor of law at New York Law School, said depending on a student’s prospective job, income and health, consolidating loans was often unwise. For example, she said, students who take certain public sector jobs may sign away available benefits if they consolidate federal loans.

“There is no shortage of erroneous information that a student could receive in a group counseling session,” Ms. Gross said. “Student loan consolidation makes sense for many students, but for many students it is absolutely not the right choice.” She added that “the reason this is bothersome is that students are required to engage in exit interviews, and so lenders have a captive audience.”

The reason exit interviews are mandatory is that the federal government wants to crack down on default rates. According to the Department of Education, exit counseling is intended to explain borrowers’ rights and responsibilities, loan repayment and the consequences of default.

Students who consider skipping the sessions are often threatened with severe consequences. At Loyola, an e-mail message from the financial aid office said, “A HOLD will be placed on your account and will only be removed upon your attendance at one of the above sessions.” A hold typically prevents a student from registering for classes or even receiving a diploma.

Many institutions send students to complete exit counseling online through Direct Loan Servicing, part of the Department of Education. But others do not.

Capella University, an online institution where the director of financial aid was recently put on leave for accepting consulting fees from a loan company, allows Collegiate Funding Services, a loan consolidation company, to conduct online exit sessions and introduce its “consolidation product.”

Through a spokeswoman, Capella said that “as part of the online counseling process, students are asked by C.F.S. whether they have an interest in debt consolidation.”

The University of Maryland Eastern Shore, according to a recent news release, allows at least one lender, Consolidation Resource Center, to conduct exit counseling. The same news release also announced the company’s $10,000 donation to a university scholarship fund. University officials did not return repeated calls for comment.

All Student Loan, which ran exit interviews at Loyola, has conducted 25 counseling sessions at 20 institutions this year, said Joseph Booth, a company spokesman.

The Indiana Institute of Technology directs students to complete exit counseling through OpenNet, an online service run by Sallie Mae, the nation’s largest lender to college students. The Web sites of George Washington University and Case Western Reserve University in Cleveland show that they do, too.

Before signing in, students must agree to a disclaimer allowing Sallie Mae to use their data for purposes beyond loan processing, “provided the proposed usage does not violate applicable laws and regulations or any confidentiality obligations.”

The financial aid director at Indiana Tech, Teresa M. Vasquez, said, “I didn’t know that.” She said Indiana Tech had been using Sallie Mae’s exit counseling for three years.

Tom Joyce, a spokesman for Sallie Mae, said the students’ data was shared with the students’ lenders, whom they identify in the online exit counseling. Sallie Mae also uses their e-mail addresses to send solicitations from “partners” of Sallie Mae, “where we have struck deals with industry-leading third parties, like Geico for insurance,” Mr. Joyce said.

At the end of the counseling, a link leads students to consolidate with Sallie Mae if they choose, Mr. Joyce said, but it is available only to students who have already chosen Sallie Mae as a lender.

The Department of Education does not forbid the use of private lenders to conduct exit counseling, a spokeswoman, Jane Glickman, said. “A lender may participate in exit counseling sessions offered by the school,” she said, “provided that the school maintains control of the session and school staff members are present.”

Senator Edward M. Kennedy, the Massachusetts Democrat who is chairman of the education committee, is examining exit counseling as part of an investigation into student lending.

Mr. Kennedy said in a statement, “When schools refer students to these counseling services, they should be able to rely on honest advice about their financial future — not be subjected to unexpected marketing pitches from lenders.”

Ms. Prisco of Loyola said that next year the university would consider making it clearer that the sessions were conducted by lenders. “I’m not saying that maybe we can’t make things a little more transparent,” she said.

Weeks after her exit counseling at Loyola, Ms. Jones is still marveling over the session. She wrote an opinion column in the student newspaper, The Los Angeles Loyolan, denouncing the workshop as “nothing more than an hourlong advertisement.”

“It just seemed really shady and underhanded the way it was run,” Ms. Jones said. “I still feel like I was duped.”

Jonathan D. Glater contributed reporting.


Copyright 2007 The New York Times Company