New York Attorney General Andrew Cuomo's investigation into the student lending industry brings into sharp relief a fundamental problem that the U.S. Department of Education has inadvertently created for parents and students in need of college tuition aid. The problem is time. There's not enough to make good decisions.
From September to December of a student's high school senior year, parents and students are busy trying to come up with a short list of colleges to which they'll apply. They're visiting campuses, filling out college applications and looking for scholarships. From January to March, they're filing financial aid forms, receiving acceptance and aid letters along with a blizzard of information from lenders "preferred" by their short-list schools.
Why don't students start earlier? The government doesn't let them. They can't file for tuition aid before Jan. 1 of their senior year. That leaves maybe five or six weeks, tops, to figure out how they're going to fill the gap between what they have to spend for college and what college is actually going to cost.
Little wonder that, in this crunch, they look for the easiest, fastest route to the money they need. More often than not, that route runs right through the list of "preferred lenders" suggested by the college of their choice.
It's a funny thing about that term "preferred." It does not refer, as one might think, to preferred lending rates or preferential treatment to college-bound students. It merely describes the preference colleges have for financial vendors. It's often no more than a matter of convenience. But, sometimes, it's something less savory.
Cuomo was curious about "commissions" paid to some colleges on the loan business they generate. He's looked into all-expenses paid trips for some college administrators, and, in one egregious case, an ostensibly college-based financial aid call center paid for and staffed by a student lender.
Advocates of sound financial aid policy have long been aware of the potential conflict of interest between colleges and lenders. Here are some ways to get around it:
Buy more time. If students and their parents want to have more control over decisions about financial aid, they need to start an entire year earlier -- in January of the student's junior year.
Cast a wide net. On the Internet and telephone, they should look for lenders with the best rates and repayment terms. There's no reason to be limited to the handful of lenders on colleges' "preferred lender lists."
Be calculating. Ask every lender: What is the total interest I'll pay over five, 10 or 20 years? Mount a serious search for scholarships. It's "free" money that does not have to be repaid.
If you start early on your search for college tuition assistance, you will have more time to think and compare; there will be less chance of paying too much.
Charlene Haykel is president and CEO of Simply College (www.simply-college.com), an information service for finding college financial aid.