In an effort to increase accountability and transparency within the college financial aid industry, the U.S. Department of Education has released new regulations that reflect major policy changes regarding preferred lender lists and potential conflicts of interest between university officials and loan companies.
The student loan industry came under fire earlier this year by New York State Attorney General Andrew Cuomo, whose investigations revealed that Hopkins's own Director of Student Financial Services, Ellen Frishberg, had accepted at least $65,000 in consulting and tuition payments from a loan company that was on the school's recommended lenders list. Hopkins immediately suspended all lists of recommended lenders in the wake of Cuomo's investigation.
The Department of Education claims that these new regulations will prove to be a step toward creating greater transparency of student loan programs, ensuring free choices for borrowers and restoring confidence in financial aid services and programs.
According to Bill Conley, interim director of Student Financial Services, the controversy surrounding the preferred lenders list is still prevalent at Hopkins. Although they previously told the News-Letter that instituting a new preferred lenders list would merely require a national consensus on regulations, the University now says that it will remain without an official list for the foreseeable future.
"In the current climate, the appearance of a conflict of interest is present," Conley said.
The "shadow" of the Cuomo investigation is still falling on the financial aid office, according to Conley, so the office is determined to prove that they are not "in the pockets" of big lending companies and can still provide fair and beneficial options to students.
The new national mandates, which go into effect next July, do not prohibit preferred lenders lists, but require universities to include no fewer than three lenders on any such list. They must also provide full disclosure of the criteria used for placing them on the list, and schools are explicitly forbidden from including companies that have offered them financial incentives for their inclusion.
Last year, Hopkins only had a general conflict-of-interest policy, "Statement of Behavior in Contractual Relationships," that applied to the University as a whole, not specifically to financial services. As reported by the office of Sen. Edward Kennedy, Frishberg received a total of at least $130,000 in undisclosed financial benefits during her 18-year tenure at Hopkins. She had also served in advisory capacities to lending companies, though these were generally approved by the University at the time.
These new regulations explicitly define what constitutes a permissible relationship between lenders and academic institutions. As the guidelines state, prohibited behavior on the part of the lender includes "solicitation of an employee of a school or school-affiliated organization to serve on a lender's advisory board" and "payments or other benefits to a school, any school-affiliated organization or to any individual" in exchange for offering the loan company's services at the school. Schools may not discourage students from pursuing loans that are not on the preferred lenders list in any way.
The Department of Education is somewhat limited in its ability to oversee and monitor adherence to these regulations.
"The Department has very limited statutory authority and a high threshold is required to meet in order to bring enforcement action to a school, lender, guaranty agency or other third party," former Dept. press secretary Katherine McLane said in an August press release.
However, Secretary Spellings revealed in an Oct. 31 conference call with members of the press that the Department is making an effort to increase universities' awareness of the new federal expectations regarding financial aid practices. Over the summer, in anticipation of the release of these regulations, the Department sent letters to 921 schools that distributed 80 percent or more of their loans through a single lender. The letters asked for specific information to ensure that the nature of the relationship between the lender and the school was not monopolistic or based on relationships that would violate the new regulations.
"We obviously intend to act on that accordingly as that information materializes," Secretary Spellings said during the conference call.
In an effort to compensate for the lack of official guidance in selecting lenders for Hopkins students, the financial aid office is pursuing a policy of increasingly proactive advising.
According to Conley and Anita Dinwiddie, special assistant to the Director of Student Financial Services, more counseling will be available to students and parents looking to take out loans. Financial aid officers will be available to look up the aid records of students needing assistance with loan applications to ensure that the students are choosing the most suitable options and are not overextending themselves in terms of their ability to pay interest rates.
Hopkins's recommended lenders list featured loan companies whose loans were subject to federal regulation. However, in the vacuum of guidance created by the lack of a list, Dinwiddie warned that entirely private loan companies, which are not subject to governmental regulation and tend to have higher interest rates than federal loans, might try to hone in on students and parents who may not feel as certain about where to turn for loans.
"They are aggressively marketing their products," she said.
This indirect result of the negative attention paid to preferred lenders lists is another factor in the financial aid office's desire to "do a better job of giving people a framework for choosing loans," Conley said. We're in a transition period," he said. "We don't want to take chances."
The office of Student Financial Services is still interviewing candidates to replace Frishberg. According to Dinwiddie, they expect to have the job filled by early 2008.
Press representatives of Attorney General Cuomo's office could not be reached for comment on the regulations.
