Friday, December 15, 2006

Student's Right to Choose their Lender

By law, a school participating in the FFEL (read: bank based) student loan program, must allow a student to borrow with any lender they choose. Many schools present student with a list of "preferred lenders" who the school believe are good institutions for their students to borrow from. Regardless, schools are supposed to allow a student to borrow with a lender off of that list. Now comes new allegations from the folks at MyRichUncle that schools are blocking or delaying students from borrowing through them.

Why would a school delay certification you ask? From talking to a mixture of lenders and financial aid folks it seems like reasons could range from well meaning oversight (a financial aid official may never have heard of this lender and worry about the service that the student would receive) to bias from preferential relationships that some schools have with lenders. One other explanation suggested to me is that certain large lenders provide schools with software that makes it easier to process their loans-and MRU may be a "more difficult" loan to process as a result.


Anonymous said...

Are you sure there isn't any extra money being offered to the schools to use a preferred lender?

Anonymous said...

If you support the STAR Act, you should have no problem with a lender offering extra money to a school to be on its preferred lender list.

After all, the STAR Act would let the government offer extra money to schools to become its mandatory, not preferred, but mandatory lender.

Sounds like an inducement to me.

What's good for the goose is good for the gander.

Anonymous said...

I am pleased the author supports the right of students to choose a lender.

The STAR Act would deny students that right--schools that switch to the direct loan program would be forcing students to borrow only from the government. Those students would have no choice of lenders.