College Loan Schemes

College loans: its an $85 billion per year industry. Lawmakers say they have uncovered a huge scheme where some schools and their employees have personally benefited from the students they are there to educate. You would assume the college you choose would be on your side and find you the best interest rate for a loan you will be paying for many years, but think again. Investigators say many college administrators have been taking payments and gifts from some top lenders, which may be a serious conflict of interest. Alex Miranda, a junior at a small college in New England, took out a loan for almost $40,000. "I just found out that our Dean of Admission was just probed a couple of weeks ago for accepting $36,000 from a loan company," Miranda says. Hes is not alone in getting such news. According to 32 Attorneys General, hundreds of schools may have had conflicts of interest in their dealings with lenders. With one year at a private university costing an average of $30,000, its difficult to foot the bill. Government loans just dont cover enough of the expenses so families must turn to a conventional lender. "I asked my daughter to contact the financial aid office at the school, and she sent an e-mail and they e-mailed her back with the name of their preferred lender. We just went with that company without realizing that we had options," says Melissa Engle, whos daughter took out college loans. Engle figured the school would guide her to the best lender. Thats what most parents think. In fact, 90% choose the schools preferred lenders. "Why wouldnt you think that the financial aid office had the best interest of your child who is going to your school? I mean, if you cant afford it all of sudden, they lose. So you would assume that theyre doing their best to help you out," says Engle. But, thats not whats happening at hundreds of schools according to New York Attorney General Andrew Cuomo. He and several lawmakers have alleged that either the schools or their financial aid officers were not acting in the best interest of their students. "Columbia University, John Hopkins University, great institutions had financial aid officers that had entered into arrangements with banks, with lending companies and were steering students to those lending companies and they were getting the gain," Cuomo says. Lawmakers say Columbia Universitys financial aid director was fired for taking at least a $100,000 in stock from the very lender he steered his students toward. For students, getting sound advice on choosing the right lender, can have lasting consequences. High rates on a loan can be devastating. Lucia Dipoi, 24, graduated two years ago. At the time, she took out $20,000 in private college loans. Her interest rate is over 12%, which means her monthly payments are $774. As a result, she says she had to change her career path. "When I was choosing my job, the student loans factored into what I could be doing. Ideally, I wanted to go work abroad. I wanted to go teach English as long as possible, which is not financially lucrative," Dipoi says. Cuomo and the State of New York have entered into a settlement with Columbia and Johns Hopkins, as well as with 24 other schools and 11 of the largest lenders to end conflicts of interest. "It was an injustice, it was a scam and we brought it to light. We passed a law in the state of New York that now outlaws it. Were trying to get the federal government to pass a similar law and I think well be successful," Cuomo says. While the colleges and school officials generally have denied any wrongdoing, as part of the settlement many have agreed to either reimburse students or to contribute to the National Education Fund. Both Columbia and Johns Hopkins say no student was disadvantaged, and both schools report they did not benefit but have taken action against their employees involved in this financial aid probe.