Can you imagine someone ripping you off for a Payday candy bar? Something close to that apparently has been happening at the University of Texas, where the financial aid office maintained a list of the freebies showered on the staff by student loan companies. Payday candy bars caught my eye; however, there were other goodies, including barbecue lunches, lasagna, cakes, popcorn and ice cream.
Why would student loan companies want to give these folks sugar highs? Think about it for a second. Student loans are an $85 billion a year business and companies want to get their names on college and university preferred-lender lists.
Many colleges hand these lists to parents who need to borrow money and wonder where to turn. Families aren't obligated to obtain loans from these anointed firms, but the overwhelming majority does. After all, why wouldn't you trust a college to direct you to the best loans?
Maybe the better question, in light of the unfolding student loan scandal is this: Why should you trust your son or daughter's school?
The University of Texas student newspaper uncovered the candy bar shenanigans in May. The lenders on the university's list knew how to pamper college staffers, but some of their loans should never have been recommended to students. The resulting fallout led to the resignation of the university's director of financial aid after it was discovered that he owned stock in the parent company of a student lender he was recommending to students.
Unfortunately, this is not an isolated case. The scandal came to light this year when New York Attorney General Andrew Cuomo started examining the relationships between schools and lenders. While the investigation isn't complete, it's clear that many schools have put financial institutions on their preferred-lending lists in exchange for perks and financial kickbacks. Students be damned.
Obviously, this behavior is despicable. And if the people responsible aren't fired, they should at least be required to share face time with the professors who teach ethics on their campuses.
While it's discouraging to discover that financial aid offices are sometimes more interested in aiding themselves, there are steps that parents and students can take to find the lowest-priced loans:
Let students borrow first.
You are going to find the best interest rates on student loans backed by the federal government. These are called Stafford loans, which require students to act as the borrowers. The other federally backed option is the PLUS loan, which is used exclusively by parents.