Editorial: Lending advice or money?

Monday, April 2, 2007 | 7:11 a.m.

Wh en some college students call their school financial aid offices seeking information, their questions may actually be answered by private lending companies with which the schools have contracts.

Recent stories by The New York Times and Business Week magazine report that an increasing number of higher education institutions are farming out routine financial aid queries to loan companies that, quite frankly, have a lot to gain. One company, Nelnet, has contracts with at least 10 universities to answer student financial aid questions and made more than $68 million from student loans last year, the Times reports.

Students usually don't know that they are talking with a private lender, the Times reports, and the companies often are forbidden by contract from telling them so.

Even schools that don't have such contracts often provide students with lists of so-called preferred lenders. These lists are designed to help students wade through the thousands of loan providers, Business Week reports. But some of these lenders give schools incentives, such as payments based on the amounts that the school's students borrow.

Such arrangements have caught the attention of federal regulators and Congress. Sen. Edward Kennedy, D-Mass., has introduced a bill that would require schools to disclose any gifts or benefits they receive from lenders. The U.S. Education Department already requires that schools list at least three lenders, Business Week reports.

Loan company officials told the Times that their employees follow strict scripts in answering students' questions and do not promote the company's products. And officials at several universities said they use "secret shoppers" who pretend to be students and call the financial aid lines just to check up.

But the fact remains that thousands of college students are being deceived either in talking with private loan officers who they think are university officials or being pushed toward lenders that donate to or otherwise benefit the university. Such conflicts are not acceptable.

The nation's institutions of higher learning should be required to reveal relationships with companies that are paid or promoted to lend students money.