Cutting the Kickbacks Out of Student Loans

It should be easier to find a good college loan deal by next fall.

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It should be easier to find a good college loan deal by next fall. The U.S. Department of Education this month issued regulations banning colleges from accepting kickbacks from lenders. By next summer, colleges that recommend lenders will have to give students at least three choices, explain why they prefer those lenders, and remind students they are free to seek out better deals on their own.

Congress is preparing even more consumer-friendly laws. One proposal expected to have a good chance to make it to the president's desk in the next several weeks is a "sunshine" act that would require lenders to tell students exactly how much a loan will really cost over time.

While the response to the recent student loan scandals is winning cautious praise from consumer advocates, some colleges warn that unintended consequences may end up hurting students. Some colleges, leery of violating the new rules, have stopped making any loan recommendations. And several lenders say the reforms and rate cuts passed by Congress earlier this fall have cut their profits so much that they can no longer offer rebates to students who pay their bills on time.