October 24, 2006--$tudent Aid

It’s not just Members of Congress who get whisked off on private jets to Caribbean islands for a little golf and schmoozing with lobbyists. These days college and university officials are horning in on the act.

In a little-known shift in policy during the Bush years, the private student loan business, a rapidly expanding mega-billion industry ($13.8 last year), has been substantially unleashed from federal regulation and thus has been effectively transformed into a “free market.” This private version of the better-known federally Guaranteed Student Loan Program has experienced exponential growth in recent years—it is ten times larger than it was last decade--because of the crossfire effect of dramatically rising tuition and student fees and concomitant declines in other forms of federal aid. Students and their families, thus, have been more and more forced into the hands of private lenders to cover their college costs.

Here’s how this scam works to benefit colleges and universities while taking advantage of students.

There are many private lenders eager to sell their loans to students. So for one company to catch the eye of potential borrowers they ask colleges to represent them to students as so-called “preferred lenders.” Oftimes colleges list just two among many, the clear implication being that these have been identified as preferred since they offer the lowest interest rates. Sounds good on the surface. How many students have the time or capacity to do all the research required to find the most advantageous deal? Since the university has its students’ best interest at heart, such a list is invaluable.

Not necessarily, because quite often the university has not done any due diligence at all. Rather their financial aid officials have either been wined-and-dined on Eleuthera or, better yet, the loan company has agreed to pay the sponsoring university itself a commission on all the loans it brokers to its students.

If you are thinking that those universities benefiting from these arrangements are those founded by Jerry Falwell and Bob Jones, think again. According to the NY Times they include Fordham, Boston University, Purdue, and New York University, among many, many others. (Article linked below.)

Sadly, this money-grubbing on the part of some of the nation’s greatest institutions exemplifies a larger set of issues—how many have lost their focus on students and turned more and more of their attention to fundraising and providing for the good life of its faculty and senior administration. To accomplish this, to pay for it, many universities raise money in this and other ways so faculty can be “bought-out” of teaching. This means that rather than their having to teach one or two courses per semester, all in a two- to three-day work week, faculty are “released” from that heavy burden so they can do some research or travel or attend conferences; and in their place their courses are taught for them by “adjunct” faculty, usually graduate students, who get paid a few thousand dollars per course.

This is yet another way that students are defrauded. To enable senior faculty members to teach as little as possible universities have to raise increasing sums of money. They do this in large part by increasing tuition at rates way beyond that of inflation. They also raise money by directing students to private lenders who have the institutions themselves on their payrolls. With this money they then can support faculty sabbaticals and released time and thereby, in this way too, wind up short changing their students who are more and more being taught by well-intentioned but under-experienced part time faculty.

Alma mater, “bountiful mother,” indeed!