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States should look to Washington for loan practices

The New York State attorney general has taken it upon himself to alleviate the confusion surrounding the costs of student loans by initiating the College Code of Conduct. Although a long time coming, depicting the industry and the schools as criminal without effecting change in the federal legislation that actually allows for such activity will not cure the problem.

Having worked with financial aid offices at colleges and universities throughout Western New York, and indeed the rest of the nation, I can attest to the caring, professional nature of the officers and staff at financial aid offices. Theirs is a never-ending job: attempting to navigate ever-changing federal legislation, hundreds of loan products and lenders, work-study, grants, scholarships and the like for a student body whose financial needs are as disparate as snowflakes.

I can also attest to the fact that a majority of those in the student loan industry do not stray outside the parameters of the attorney general's just-released College Code of Conduct.

If the attorney general is truly concerned about the overall affordability of higher education, he will not simply stop with private lenders but also look into institutions that use the government's Direct Loan program.

This is especially of concern to those going to school in Western New York, where more than half of the student population attends a school that subscribes to the Direct Loan program. (The portion of students attendingDirect Loan schools nationwide is approximately 20 percent.)

A student who consolidates student loans with the Direct Loan program can qualify for only a .25 percent incentive-based rate reduction but would be able to qualify for up to 2.25 percent in rate reductions via what is known as the Federal Family Education Loans Program (FFELP). These reductions can save a student $12,000 on a $30,000 consolidation loan.

In fact, the worst result a student can have with a FFELP provider is the best result the Direct Loan program can offer, yet the majority of students in Buffalo are directed to the Direct Loan program (or given no direction) for consolidation. This goes directly against the Code of Conduct's rules regarding preferred lender lists, as the Direct Loan program is the preferred lender list of these institutions.
College preferred lender lists must be based solely on the best interests of the students or parents who may use the list without regard to financial interests of the college. This ensures that preferred lenders will be those the school has determined should be preferred by students as opposed to preferred by the school.

In the end, perhaps New York and other states should be looking to the federal government for legislative relief against the tactics of a few large lenders, as opposed to bullying the financial aid officers and lenders who simply follow rules as they currently are written.

Thomas Heneghan is senior vice president of

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