Editorial: Targeting student loans

Saturday, April 21, 2007 | 7:09 a.m.

Continuing questions about student loan lending practices have revealed that not only are universities receiving financial incentives from private lenders for steering students their way, but also that such perks may have been paid directly to university officials.

Previous stories by The New York Times have revealed that some colleges and universities actually routed students' financial aid inquiries directly to private lending companies with which the schools had contracts. Students often did not know - and typically were not told - that they were speaking with a private lender rather than a financial aid counselor from their school. Other schools provided students seeking aid information lists of preferred lenders.

In return, the colleges often were paid incentives by the lending companies based on the amounts that the school's students borrowed. And, the Times reports, some university financial aid directors also have received incentives such as consultant's fees or company stock.

So far, three large lending companies have reached agreements with the New York attorney general in which they will pay $2 million or more each and change some of the ways in which they seek universities' business, the Times reports. University systems in Texas and California are also investigating student lending practices.

It also turns out that loan companies have accessed databases that contain the personal financial information of millions of students who are seeking federal financial aid. Education Secretary Margaret Spelling on Tuesday instituted a temporary ban on that practice.

Rep. George Miller, D-Calif., also has called on the U.S. Education Department to "take emergency action" and ban colleges and universities from compiling lists of preferred lenders that are given to students who are seeking financial aid, the Times reports.

It is unconscionable that the privacy and confidence of millions of college students have been violated by loan companies with the full knowledge and cooperation of university officials, who were personally benefiting or the filling their schools' coffers with financial inducements from these lenders. Congress should order a full investigation that will force universities and colleges to reveal whether they are being paid to promote companies that are loaning their students money.