Wow.  This stops just short of casting all financial aid administrators as lazy and corrupt.  I'm sure that would come as a surprise to the thousands of financial aid professionals across the country that only act in the best interests of their students.

Isn't there any possibility that the vast majority of schools choose a private lender based on the rate and benefits that the lender will provide to students?

For example, I would have like to have seen a comparison of the benefits that University of Miami students receive from their lender versus other lenders, or better still, versus the government program.

I know that at least Penn State does:  http://www.psu.edu/studentaid/eaccess/empn_instruct.shtml?reload

Is the New America Foundation arguing that Penn State and Miami - and other institutions of higher education that do the same - are breaking the law?

In response to Matt's comment - the ease of having only one lender is what Financial Aid Administrators self-describe as the reason for having one or only a couple preferred lenders.

In the case of my alma mater, Purdue, they have only one preferred lender.  They cite the ease of having only one lender, but in reality, it is the $2.8 million they generate in their agreement with Sallie Mae that leads to one, exclusive preferred lender. This student loan system is corrupt beyond belief and we are going to reform the system.  NASFAA is so in bed with the Student Loan Industry that they have lost all credibility. There is a degree of arrogance among the financial aid administrators such that they feel they are exempt from ethics and conflict of interest issues.

Most Financial Aid Directors are interested in serving the students, but most have also naively eliminated competition from the market in their exclusive deals thereby diminishing the level of service and increasing the price we pay for debt servicing of our education. 

Isn't the University of Miami where long-time Clinton friend and former Clinton cabinet member Donna Shilala is president?  

I wonder what sanctimony NAF would have invoked if the president there had been, say, a Bushie or Reaganite. 

 

Not only has Purdue sold out.  Indiana University and IUPUI have also done the same and the students could have gotten better deals from other lenders in the state.  The Department of Education has been made aware of this on numerous occasions and has done nothing.

To compare three facts of our industry:

 1. Schools steer loans to preferred lenders and in exchanged receive funds from those lenders.

2. The last 4 years has seen an increase in mid sized lenders who undercut Sallie Mae with their rates and benfits but don't give funds to the schools as they are giving it to the student directly.

 3. These lenders do not get listed on many large schools' preferred lender lists.

It would be fair to assume then that these schools are interested more in the income they can receive vs. lowering the cost to their current students.

 

I think financial aid administrators are pretty honest about what their interest is:  administrative simplification, which in turn leads to less labor intensity and thus less cost.  In the vast scheme of most postsecondary institutions, the financial aid office is not generously funded.  An administratively simple option will win out over one which allegedly provides better "benefits" to borrowers.  That said, even a brief persusal of the rfp process will indicate that FAAs definitely do consider borrower benefits when choosing a lender for the preferred lender list.  What they sadly do not consider is the quality of servicing five or ten years out of school.  Particularly with the perception that default rates are relatively low, schools seem completely uninterested in doing a detailed analysis of which lenders are going to be providing the best customer service after the borrower leaves school.  Speed of loan disbursement wins out.

You also have to remember that this is essentially a zero sum game.  Lenders receive an interest rate guaranteed at a certain level quarterly by the government and can decide to offer some schools' borrowers more benefits and other schools' borrowers less benefits, but those "benefits" do not come out of the lender's generosity; they come out of the taxpayer's largesse and, indirectly, from lower benefits to "less desirable" schools' students.  Lenders are essentially deciding to use some of your taxpayer "investment" to provide borrower benefits to some of their customers.  In other words, the existence of borrower benefits show that taxpayer subsidies are far too high.  While this "subsidy sharing" is of course better than the situation before competition from DL began, when lenders all charged the maximum fees, interest rates, etc., it would seem vastly more logical in a social program such as federal student loans to reduce the confusion for students and FAAs by figuring out what level of subsidy would provide a nationally even level of terms, conditions and benefits.  If not, why not get rid of FFEL and DL, as many have proposed and let the market rule:  private loans.  Then you will see out in the open what goes on behind the scenes with FFEL borrower benefits.  Students at cosmetology schools will face borrowing costs radically higher than students at ivy league universities.  Plus, now with full interest deductibility and tax credits, federal student loans are not as necessary as they used to be.

If you are going to have a social program, such as federal student loans, then don't pretend that students can haggle with lenders to bid down the cost of their loans, or even that lenders compete to offer schools a better deal for those schools' students as a whole.  As a social program, the cost should arguably be exactly the same for everyone in the USA.  Why should some students get zero fee loans just because they live in N. Carolina or Iowa?  This is a national program.  If we think prices should vary among hundreds of lenders, that is fine, but it means we don't need the involvement of the federal government, except in the general consumer protection area, as we do for credit cards and automobile loans.  We know that in FFEL the ivy league student pays more than she would in the free market so that the cosmetology student can pay less.  It sounds like this 35-year consensus is collapsing.

Here's some invective from the other side: 

Al Lord and his golf course are not responsible for the inflation in the temple of higher education!  The money changers don't keep raising the price of higher education on young borrowers.  Note:  Citizen Cuomo likes to call student borrowers young borrowers, by calling them young borrowers it implies a certain amount of naivety that doesn't exist among Americans who are legally able to enter into contracts, who see through political shenanigans (also known as voting), and who can decide whether to volunteer to kill the enemies of the state.

But wait, we've found the real cause for higher prices in higher education.....COMPETITION from "illegitimate higher education institutions"!  COMPETITION in other industries usually drives down prices, but the laws of economics are turned upside-down in higher education, COMPETITION increases prices (don't shake your head, physics hasn't ruled-out the possibility of parallel universes)!

Amazing.