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At 18 Indiana schools, one lender dominates
August 23, 2007
WASHINGTON -- Eighteen Indiana colleges and
universities are among more than 900 nationwide where a single lender
handled the majority of federally backed student loans last year.
Federal
officials and student groups worry that some of the 921 schools may be
steering borrowers to lenders the schools prefer to use, regardless of
whether it's the best deal.
In some cases, students who didn't shop for the best loans may have cost themselves thousands of dollars.
Federal
education officials sent letters to the schools June 29, reminding them
they are barred from pressuring students to choose specific lenders.
Education officials say the letters weren't based on any evidence of
wrongdoing.
"When we see patterns that are troubling, we will act on them," U.S. Education Secretary Margaret Spellings recently told reporters.
Such steps could include regular monitoring, fines and, in the worst cases, removal from the federal loan program.
Indiana
and Purdue universities, Wabash College and Rose-Hulman Institute of
Technology are among the schools that received letters.
Preferred-lender lists are designed to ease confusion for students, who may choose from more than 3,000 federally qualified lenders. But such lists can discourage students from shopping for themselves.
"An 18-year-old incoming freshman who has never borrowed anything before will look at the (preferred) list and assume it's the better lender to choose from," said Rebecca Thompson, legislative director for the United States Student Association, an advocacy group. "That's often not the case."
Most lenders handling federal student loans charge the maximum 6.8 percent interest rate allowed under federal law, said Thompson.
Federal loans max out at $5,500 per year. When that's not enough, students often turn to the same lender for private loans because it's convenient. Private loans can carry much higher rates.
Lenders also differ in the fees they charge and how they punish borrowers who don't make timely payments.
With
students leaving college in 2004 with an average $19,200 in loan debt,
according to The Project on Student Debt, those charges can add up.
Not everyone agrees that focusing on schools where one lender dominates the loan market is the best approach. Haley Chitty with the National Association of Student Financial Aid Administrators calls the strategy "overly simplistic."
"Market share is not an indication of the loan terms and benefits that students receive," he said. "If a school has five lenders on a preferred lender list and one lender has the best loan rates and borrower benefits, it would make sense that most students chose that lender."
Carmen Berkley, 22, said financial aid officers at the University of Pittsburgh gave her a brochure listing several lenders, but she wishes she had received more guidance.
The Georgia native, who graduated Aug. 3, took out private loans with interest rates as high as 19.5 percent. She is carrying $70,000 in debt.
"No one really said, 'Here are the interest rate options. This is what a deferment means. This is what paying the interest means right now,' " Berkley said.
--Ledyard King, Gannett News Service