Magazine article Newsweek

Student-Loan Secrets; A National Scandal over For-Profit College Lending Deepens

Magazine article Newsweek

Student-Loan Secrets; A National Scandal over For-Profit College Lending Deepens

Article excerpt

Byline: Pat Wingert

As millions of high-school seniors ripped open college-acceptance letters last week, a brewing student-loan scandal was dragging in a growing number of schools, for-profit loan companies and government officials.

In recent years, while college tuitions have soared and federal funding of student grants and loans have languished, the nation's for-profit student-loan industry has exploded into an $85 billion enterprise. Competition for students' business has become so frenzied that "it's become like the Wild West," says Barmak Nassirian of the American Association of Collegiate Registrars and Admissions Officers.

Now a growing number of complaints has prompted investigations by Congress, the U.S. Department of Education and, most aggressively, New York Attorney General Andrew Cuomo, who has sent letters to 400 schools and is probing 100 institutions.

Last month Cuomo announced plans to sue Education Finance Partners, a California firm, which he alleges has made illegal kickbacks to schools in exchange for placement on its coveted "preferred lenders" list. Lenders on such lists get the bulk of a school's private loan traffic. While some colleges say they use these payments to fund more student aid, Cuomo said they shouldn't be doing it "on the backs of middle- and lower-income students who will be paying off these loans for the next 30 years." The finance firm says it hopes to resolve the issue quickly. …

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