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The Student News Site of Stony Brook University

The Statesman

The Student News Site of Stony Brook University

The Statesman


    Student Loan Controversy Stirs at Schools

    The New York State Attorney General’s Office is currently conducting an investigation that involves a conflict of interest and illegal conduct in student loans. The Office has issued letters to several universities and colleges throughout the country to inform them that they might be involved in this. It is not currently known whether SBU is under investigation.

    In the letter, the Office has expressed concerns that include, revenue sharing and referral fees. The main concern is the Apreferred lender@ programs, which could involve deceptive practices. The letter lists several of these practices, including, ‘Agreements between particular lenders and schools for services, benefits, or payments in kind without disclosing the terms to potential borrowers; these include Apreferred lender lists@ where schools reap various benefits for Asteering@ student loans to certain lenders; and in such cases, the schools= benefits may be at a cost to the students.’

    Some of the lenders were offered or were solicited to offer, financial and other benefits to the school and its borrowers to be included in the list. In addition, some of the lenders were found to have agreements with each other to sell loans and were otherwise related.

    The letter further discloses other problematic practices, such as, not informing parents and students about the basis for selection and specific benefits of using their preferred list of lenders. Some of these benefits comprise of competitive upfront rates, repayment benefits and services. Lenders were also recommended without informing the students and their parents that advertise repayment benefits do not travel with a loan it is sold on the secondary market.

    According to the letter, the student and/or their parent’s choice of lender was denied or faced impediments, such as, ‘misleading prospective borrowers that they are required to use a lender recommended by the school through counseling or other means, unnecessarily delaying certification of a lender not recommended by the school.’

    The letter pointed out that not every college or university practices this. However, it stressed the importance of informing students and the parent borrowers of the necessary information so that they don’t accumulate unwarranted loan debt and are able to make informed choices.

    The letter added that schools should comply with The Higher Education Act, the Truth in Lending Act and other relevant federal law so that there is New York Executive Law ‘ 63(12) and General Business Law ‘ 349 and 350 and other relevant state laws are not deceptively or illegally violated.

    Because most loan negotiations are made in the spring, the letter offered suggestions so that any conflict of interest or illegal conduct could be remedied immediately. It suggested that students and parents should be completely informed about the construction of its Apreferred lender@ list. This obligates the school to inform of any financial benefits it has received for placing the loan vendors on this list.

    Most significantly, the letter said, ‘Students and parents should be able to comparison shop … without necessarily limiting research to the school’s list of preferred lenders.’ The letter also added that students have the right to the lender of their choice when they complete a Master Promissory Note for a student loan. Students and parents should also be able to guarantee their ‘back-end’ benefits, which include discounts for a certain number of consecutive timely repayments, even after the agreement is sold to another lender. Both the school and the students and parents are strongly advised to get this in writing.

    Lastly, the letter also recommended that ‘students and parents should be informed that Asignature@ loans from a school (Aschool as lender@) may be repurchased by a lender. Moreover, the school cannot require the student to use the school as his or her Federal Family Education Lending Program (AFFELP@) lender.’

    The Office is currently distributing a pamphlet informing students and their parents about student loans B, including preferred lending B. The pamphlet is available to college guidance counselors around New York State and can be obtained from the Office’s website at

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