Loaning and Betraying

The headlines have, in recent months, popped up with shocking regularity. First it was financial aid officers getting perks from student loan companies. Then top college and federal officials had profited handsomely after receiving stock in companies they monitored or suggested to students. Now everything related to the college loan industry seems suspect, from the loan workshops many students are forced to attend when they graduate—which are often lender-run marketing sessions in disguise—to activities bordering on outright bribery. New York is even suing one university.

The rapidly expanding student loan crisis has, in short, revealed that colleges work in students’ best interests with surprising irregularity. Instead, the colleges all too frequently collude with lenders to inflate already-healthy profits, or at the very least, create the appearance of grave impropriety.

These activities have struck such a nerve because students blindly put trust in their schools to lead them through the jungle that is the loan industry. Sending a student to a preferred loan company—essentially guaranteeing that company business— when that company does not provide the best possible loan betrays that trust. It is tantamount to educational insider trading in that these practices hide information from affected parties.

This is only compounded by the presence of federal funds. One of America’s core principles is the idea of individualism and meritocracy, and federal student loans serve that end by providing all talented Americans with the opportunity to climb the social ladder. Colleges and loan companies are thus not only betraying students but also the American government and the American dream.

The monetary incentives for such behavior are reaching unimaginable proportions. The student loan industry is approximately a $14 billion per year industry, and it is growing. All it takes to create a cash cow is to establish a niche at a few universities. Ultimately it falls to colleges to resist the temptation to make a quick buck and stand up for their students.

That universities are failing to do so has been brought to light both by investigations by New York Attorney General Andrew M. Cuomo and a series of articles by The New York Times. Cuomo should be commended for shining a spotlight on this issue much like his predecessor, New York Governor Eliot L. Spitzer, used his office to fight Wall Street fraud. Cuomo has forced many colleges to settle or agree to a code of conduct governing relations with lenders. Thanks to these efforts, bad press and the threat of legal action will keep offending colleges on their toes. Once the scandal has subsided, a skeptical eye will be turned towards student loans for many years to come.

Such public and legal pressure is preferable to federal legislation or regulation. Institutions of higher education are autonomous and largely free from federal red tape for a reason—so they can pursue their educational mission. Even the best intended federal regulations may infringe on the ability of colleges to educate their students. Besides, with so many colleges and universities using different loan schemes and such strong incentives to find new ways to send business to a particular lender, federal legislation would only provide a temporary bandage to a growing wound.

Thankfully, Harvard has not been mired in this controversy; the College does not even have a preferred lender. But as students at a university where all is well, we should not ignore the plight of students being swindled across the country.