Colleges and universities, including minority-serving institutions, will have to include at least three different funding sources on any “preferred lender list” they give to prospective student borrowers, the Department of Education says.
On Wednesday, the department briefed reporters on the changes, saying it will propose rules this week to carry out the new policy to improve accountability in a student loan system that has come under increased scrutiny. Preferred lender lists were among the prime targets during an investigation by New York state Attorney General Andrew Cuomo earlier this year. Cuomo and other critics claimed that the often short “preferred” lists denied choice to students and that some colleges may have acted unethically in compiling such lists.
Education Secretary Margaret Spellings said the department was moving “pro-actively” on the issue to ensure that students had a choice of lenders.
The department also announced it is seeking more information from 55 medium and large colleges and universities and nearly two dozen lenders regarding loan practices that appear to tilt in favor of specific companies.
Among the 55 colleges and universities in question, 48 had a single lender who provided 95 percent or more of the total student loan volume. At the other seven colleges, a single lender had at least 80 percent of the loan volume.
“We’re not accusing them of anything illegal at this time,” said Sara Martinez Tucker, undersecretary of education.
But she said the department wants information about any agreements between these institutions and specific lenders, including financial or other benefits provided to colleges or officials. Colleges must provide students and their families with a choice of lenders, she said.
The department would not release the names of the 55 institutions asked to provide the information. A spokeswoman said the information may be available only after filing a Freedom of Information Act request.
The list of 55 institutions was compiled by the Department of Education after initially asking more than 900 colleges and universities to provide information on their lending practices.
In another effort to promote accountability on student loans, department officials said they are holding monthly meetings with the Federal Trade Commission on student loan complaints from consumers. The meetings are part of the department’s loan oversight and monitoring efforts.
After focusing on preferred lender lists, Cuomo recently said his office will broaden its investigation to include misleading or aggressive tactics used by loan companies who market to students and parents.
“Reforming the student loan industry requires investigation of all aspects of this market to ensure that one reform, like cleaning up preferred lender lists, is more than just a thumb in the dike causing the bad practices to shift to another area of the market,” he said.
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