Over at the Huffington Post they asked me to put something up about the student loan scandals.
There's an attack on MyRichUncle in the comments:
"I find it very interesting, and somewhat suspect, that all of these "investigations" have started happening only after one lender that was shut out by most schools started what amounts to a slander campaign. That lender's name is My Rich Uncle--the reason for the shut out was two-fold: 1st, their products just are not that good. 2nd, Who in their right mind would list a company with the name My Rich Uncle on their lender list--the very name screams entitlement and is a turn off to most people."
Actually, this is a good point. Except it wasn't a slander campaign--it was a truth campaign. MyRichUncle believes that it can offer cheaper loans by marketing directly to students ( a debatable longrun business proposition, but their loans right now are indeed cheaper), and so they refused to play the sleazy preferred-lender game, choosing instead to draw attention to it (with a full-page ad in the New York Times, among other publicity plays). It may very well have been that publicity that drew Andrew Cuomo to his current investigation, and MyRichUncle, silly name and all, deserves some credit.
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8 comments:
You believe switching everyone over to Direct Lending is the solution to these conflicts of interest we are seeing. Those with actual knowledge of what goes on in at a university financial aid office, and especially those that have worked at Direct Lending Schools know that there have been many problems with the Direct Lending program. You all have to ask yourself, "If Direct Lending was the greatest thing since sliced bread, why haven't more schools flocked to it?" Further, "Why did the number of participating schools drop after the initial surge?" "Why did they go back to FFELP?" Simple answer, Direct Lending has had problems. Problems that affected students. Huge billing errors, delays in funding, reconciliation nightmares. I worked at a school that switched from FFELP to Direct Lending, and I experienced these problems first hand.
You haven’t experienced these problems. If you were in the position of a financial aid administrator, trying to decide what was best for your students, I think your tune would change. That is the problem with this controversy. Everyone has simplified the solution without any insider knowledge. Everyone wants to point the finger to corruption, and thinks they know the solution: kill FFELP.
Well, I’ve got sour news for you folks. If you kill FFELP, there will still be a need for outside lenders. Why? Because colleges charge a lot of money, and tuition and fees will not be completely covered by grants, scholarships, and federal based loan programs. We have already seen an increase in private loans at undergraduate institutions. So, if you wipe out FFELP, you will undoubtedly limit the marketplace for private loans. And the one thing we know about this industry, we need competition to make it better. In fact, one of the best things Direct Lending did for us was make the FFELP lenders get better. A few non-profit lenders also introduced terms that made the big boys improve.
I think some of the proposed regulations will go a long way to resolve these problems. What we need is transparency of process, and full disclosure. I know you agree with this. We also need to provide parents and students with the tools they need to make informed decisions. Financial aid offices attempt to do this. Believe it or not, that is what the majority are attempting to do with these “Preferred Lender Lists.” Despite what you think you know, the lenders on these lists are selected with a great deal of thought in most cases. Price is not the only factor to consider. Customer service, and compatibility with a school’s needs are also evaluated. A lender may promise students the best terms in the world, but if they have crappy service, little accountability, and can’t get the money to students when they need it, their terms don’t mean much.
Again, you would have to know what really goes on at a school to understand these nuances. The media and the public haven’t got a clue. They are too busy looking for controversy, and pointing out the bad apples to get educated about the realities of a very complex delivery system. Let’s all jump aboard the sensationalist bandwagon and call everyone a crook instead of learning the facts.
In a previous post on Huffington Post, I also pointed out that we also need to look beyond the financial aid office at these schools, and ask ourselves why tuition is so high, and why is it ever increasing. You want real controversy? Look into the ways schools squander funds. Look at the exorbitant compensation given to university administrators and professors, all in the name of “attracting talent.” If these administrators and professors really cared about students, they would be happy with their current six figure salaries, or even tighten their belts and accept less. Their greed fuels this money machine. Unfortunately, these lenders are enablers.
I can’t believe you buy My Rich Uncle’s claims. It is laughable that someone with your sharp eye wouldn’t see their campaign for what it really is. “Truth campaign.” Gimme a break! It is a direct to consumer marketing campaign implemented for one reason only: get market share. Also, if you believe their terms are better than average, you really haven’t looked at all the competition that really exists.
Sorry to be so harsh. I hope my insider knowledge helps you understand this issue a little more.
You do realize that your very own Web site has imbedded advertising links (google ads, I think) that direct students to some of the worst offenders in this student loan controversy...
Ironic...
You claim My Rich Uncle does have better terms and then link to an article about My Rich Uncles rates being better. That article references recommendations by Mark Kantrowitz, who faced scrutiny of his own for...drumroll please...accepting stock from My Rich Uncle for being on their advisory board.
http://www.insidehighered.com/news/2006/07/21/mru
I am now convinced that you really don't know this industry as well as you may think. My Rich Uncle is an average lender at best. They did bring this controversy to light, but their motivation was anything but honorable. They were tired of being shut out by aid offices that didn't like their aggressive style, and their ridiculous name. Their "truth campaign" really was just a marketing campaign.
OK, to be fair to Mark K with respect to my last post: to his credit, he did donate his stock--but I cannot recall the timing of it (i.e., if it was before or after it was discovered). And I really can't fault an advisory board member for directing anyone to the company that they advise. They wouldn't be on that board if they didn't believe that the company had potential.
Mark has also researched the topic of borrower benefits. Price on these student loans should only be one element of a student's decision to borrow, since so few lenders actually pay out those benefits. Students lose the benefits if they are late, file for forbearance and deferment, or consolidate their student loans.
There is one lender that is pretty consistent about paying out their benefits, and that is T.H.E. On paper, their benefits don't look as attractive. They, however, will pay out the benefit as long as the borrower is not 60 days or more past due, and the student gain regain the benefit an unlimited number of times. So, more students benefit. I think their approach is probably the fairest out there, since most of their borrowers will actually save money compared with other lenders (and no, I don't work for them or sit on their advisory board, I've just done my research).
The first comment here mentions problems with Direct Lending. This very blog pointed out a huge error at the Department of Education in the billing of Direct Consolidation Loans. I believe you admitted that this was a "black eye" for Direct Lending. Now do you understand why so many aid offices DON'T support Direct Lending? This is just one of many many bungles with this program. Do you still think it is the way to go?
The other thing we have to realize about MRU is that they run an entirely paper-based process. They do not participate in any of the electronic standards created by the student loan industry to process student loan records in a fast, secure, and accountable fashion.
The average financial aid office will not be able to process loans via paper in a timely fashion. It increases the paperwork burden (which has been going down over the years in aid offices), increases the chances that a loan note may get lost (at the school, lender, or in the mail), and delays the receipt of student funding.
MRU has poor products, poor customer service, and has managed to snowball an entire group of people (including the author of this blog, Senator Kennedy, AG Cuomo, and others) into believing that all financial aid administrators are looking out for their own hide instead of the best interests of their students. Yes, this has exposed some nefarious business practices at a small handful of schools - but that's not an excuse to smear all of the hard-working, underpaid professionals in this industry.
If Direct Lending was the greatest thing since sliced bread, why haven't more schools flocked to it?"
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