Is it a good idea for the country to have for-profit student loan companies so heavily involved in the student financial aid process? Might they not encourage higher prices and more borrowing? 

Higher Ed Watch already has called on the government to stop subsidizing for-profit student loan companies.  Taxpayers don't need to pad shareholders' bottom lines.  At least non-profit lenders theoretically return their earnings to students.

But maybe the for-profit lenders should be thrown out of the temple of higher education completely.  Evidence of abuse continues to mount.

Let's start with the number one student loan provider, Sallie Mae.  Sallie dominates the student loan market.  They are more than five times as large as their nearest competitor.  They pull in profits in excess of $1 billion a year, again for a portfolio of debt dominated by government guaranteed and lender subsidized student loans.  These folks aren't great innovators like Apple Computer and aren't inventing a cure for cancer.  No, they've got a sweetheart deal from the government: guaranteed profit and virtually no risk.

Through their subsidiary, Noel-Levitz, Sallie Mae provides to colleges what the industry calls “enrollment management” and “financial aid leveraging” services.  College officials are trained in how to maximize revenues and minimize institutional financial aid.  In other words, Noel-Levitz trains colleges how to secure high paying students and exploit the willingness of parents to borrow.  It has the effect of loading up low and middle income families with debt -- provided by yes, Sallie Mae.

Education Trust, a non-partisan, non-profit think tank who we respect, issued a recent report linking Sallie Mae style “enrollment management” to the disastrous shift of grant aid away from low and middle income students.

And take a look at the second largest provider of federal student loans, the Nelnet corporation.  Nelnet has been pilloried with bad press for a giant reverse money laundering scheme (they turned clean money into dirty federal loans).  The Department of Education's Inspector General recommended last month that Nelnet give up over $1.2 billion in improperly claimed taxpayer subsidies.  Nelnet admits that they have exploited the student loan system, but Nelnet defends their practice as legal.  Should it be?  How many kids could graduate from college debt-free if that $1.2 billion went to students instead of Nelnet?

Then there is Bank of America promulgating the same misleading guide to student financial aid as fellow for-profit Loan to Learn.  Both companies not-so-subtly encourage students and families to avoid low cost federal students loans in favor of their high fee, high interest rate interest rate private student loans.

In fact, for-profit Loan to Learn is becoming a poster child for bad behavior.  The United States Students Association has filed a Federal Trade Commission complaint against them for misleading advertising.  And the company was excoriated in last week's New York Times for attempting to bribe financial aid officers with a more than $3,000 Caribbean getaway trip.   (Note: Higher Ed Watch broke the Caribbean junket story.  Two days later, Loan to Learn canceled the trip.)

Higher Ed Watch doesn't want to overstate matters.  Clearly, the rise in student debt surely is driven by rapidly rising college costs and relatively flat federal grant aid.  But it is probably not a coincidence that student debt has risen as have services provided to institutions of higher education by the for-profit loan industry.  And as for-profit student loan providers play a bigger role in our financial aid system, we're seeing more and more taxpayer rip-offs of college aid (money that should go to students) and more and more corruption in higher education.

The entire system needs an overhaul.  Here's one man's idea.

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