Not HUGE news - loan scandal hits athletic departments

The steering of student loans to favored lenders, not those with the best rates, now has an athletics department spin. NY attorney general Andrew Cuomo is leading the charge. Thirty-nine universities (some stories say it's 40) have been asked for details. One example is Rutgers, which was paid $15K by University Financial Services to be on the sports website and also rebated $75 for every loan after the first 200. Schools include:

Dowling College on Long Island (the only one so far accused of wrongdoing)
Rutgers
Bowling Green
University of Texas at San Antonio
University of Texas at El Paso,
University of Houston
University of Texas-Pan American
Texas Christian University
Central Michigan University,
University of Detroit Mercy
Wayne State University [maybe that's why they beat us in hockey last year? [ecachockey.com]]
Georgia Tech
Georgia State
Others...



Some links:
[www.philly.com]
[www.detnews.com]
[www.ajc.com]
[www.themonitor.com]
[www.mysanantonio.com]
[toledoblade.com]

I hadn't been following this "scandal" before reading Bill's post and a couple of the links (hadn't heard of it, actually). The issue here seems to be that schools received money in order to direct students to particular loan providers. Honest questions: why/how is this illegal? Should it be? Seems like a legitimate partnership between the schools and financial institutions. Is it a question of violating tax-exempt status? Were the schools requiring students to use a particular provider and thus restricting competition? More information would be appreciated.

Why is this a bad thing? In the original (not just athletics related) dust-up, which came to light this past academic year, loan money was being provided at less-than-best rates. Students and parents expect college financial aid offices to help students get the best loans at the most attractive rates. In other words, to act in the best interests of the students. The allegations were that college loan officers, including at Yale and Columbia, steered loan business to firms who provided incentives to the colleges or loan officers (such as making them paid consultants). Where this happened, at minimum it may be shady or unethical, it may also be a violaton of the official's agreement with the university (some college aid officials have stepped down or been removed), and anytime someone is given money to sway the performance of his job, there's the issue of bribery.

Why could this be a good thing? Students should be wary of trusting anyone in a position of power. This is a nice reminder.

In the current Cornell Alumni Magazine, there's a recap of the scandal as it barely if at all affects Cornell. Cornell's hands appear to be clean and, even if a couple hundred, or thousand, students wondered if Cornell was on the up and up, Cornell issued no public statements. You need to read Cornell's reasoning (see CAM). It's hard to adequately convey here.

OK, thanks for the details Bill. I agree that unofficial agreements between college loan officers and providers and payments to the college employees is at best questionable. My quick reading of the links made it seem like this was more like an open, official partnership between schools and providers, which would be much less troubling to me.

I also agree that learning to be skeptical of authority is a good lesson for college students to learn.

Thanks for the pointer to the CAM article. If I haven't already received it and tossed it (I don't usually find time to read the mag) I'll check out the article.

[OT] That was a shameless plug for CAM because I'm on the alumni committee talking about how to make Cornell Alumni Magazine more interesting to a wide range of readers. There is some interest in using this thing called the World Wide Web to extend CAM's reach. There are a couple of jocks or supporters on the committee (Sports Illustrated's Rick Lipsey '89 for instance) and editor/publisher Jim Roberts has worked hard to get the committee populated with people under 35 and in some cases under 25. Plus we've got a Dow Jones person who spearheaded their web effort.

Imagine if CAM could build a sense of community online among a couple hundred thousand alumni the way eLynah has for a couple thousand sports crazies ...

Here's the link to the CAM article. [cornell-magazine.cornell.edu]
At it's best, a university can provide a service to its students by arranging for good loan rates from one or few financial institutions in return for encouraging students to borrow from those institutions. It's the power of large scale purchasing. That seems to be what Cornell did through a "competitive bidding process." Negotiations might work, too. If the university receives a benefit for the referrals, rather than the students, it's not clean. If individuals making decisions about the institutions to prefer receive benefits, then it's downright dirty. While the report suggests that Cornell has been doing exactly the right thing, except perhaps for not rebidding frequently enough, I think that Cornell's reaction to the business stinks. First, they are stonewalling and refusing provide any information. Second, they seem to be abandoning the beneficial aspects of the program and leaving the students to fend for themselves.