As a high school junior in Wingdale, N.Y., Richard Mondello needed help navigating the student loan world. In his search for information online, he came across a daily podcast from the Student Loan Network, a loan provider. It taught him about scholarships, applying for federal loans, and loan consolidation. When he E-mailed in a question about how to explain his father's recent job loss, the podcast's host E-mailed it out to a listserv, and Mondello came home to dozens of replies from financial aid professionals.
"It was incredibly helpful, especially because I was a little stressed out at the time," says Mondello. Now a senior, he's been accepted to several colleges, including Tufts. He says he would first turn to the Student Loan Network if he needs private loans because he's familiar with the company.
By focusing on educational outreach instead of more overt forms of advertising, loan providers like Student Loan Network hope to earn students' trust while avoiding the high costs of traditional advertising venues, such as television. "That's the whole power of new media. The tools have gotten cheaper, and the ability to do interesting things has gotten bigger," says Christopher Penn, Student Loan Network's chief technology officer.
But consumer advocates are concerned that students may not realize or consider that these educational messages are coming from people who want their business, not unbiased sources. "It looks a little bit too much like disinterested information when in fact it is a student loan company.... There's a conflict there," says Robert Shireman, executive director of the Project on Student Debt, of the Student Loan Network's website and podcast. (Penn says the company affiliation is always clearly displayed.)
Blogs. The Student Loan Network is not the only lender reaching out to students this way. Chase, Sallie Mae, and others also use their websites to provide tools such as loan calculators and answers to common questions. Wells Fargo maintains a blog called Student LoanDown. MyRichUncle recently launched a free tool that uses audio commentary to guide students through the Free Application for Federal Student Aid.
"There's a pervasive and problematic conflict of interest when student lenders try to market themselves as impartial arbiters of information to college students," adds Luke Swarthout, higher education advocate for the U.S. Public Interest Research Group.
It's not just new-media ads that are raising concern. Last year, the Federal Trade Commission and New York Attorney General Andrew Cuomo began investigations into the potentially deceptive marketing techniques of direct mailings, which sometimes include official-looking documents and offers of rebates and gift cards in exchange for testimonials and referrals.
Recent TV ads run by providers such as Astrive, E-Loan, and Think Financial highlight the fact that students can quickly take out up to $40,000 a year and that they don't have to pay the loan back until after graduation. Consumer advocates say these statements might encourage students to take out more private loans than they need without considering cheaper options, such as federal grants or loans. Stephen Burd, a senior research fellow at the New America Foundation, says many colleges are affordable without the help of private loans at all. Plus, Burd adds, federal loans also are due only after graduation, and the subsidized ones don't accrue interest while students are still in school, as most private loans do—a fact not mentioned in the ads.
After seeing the Astrive ad, Mathew Smith, who teaches criminal justice at Youngstown State University, was so perturbed by its insinuation that the loans it offers students are uniquely different from those of other lenders that he decided to create a parody of it. In his homemade video, which he posted on YouTube, Smith re-enacts the Astrive ad along with commentary that uses humor to point out that loans can almost always be deferred until after graduation. First Marblehead, the company behind Astrive, says it considers the parodies a sign of the "connection we've made with our student audience." An audience that sometimes, at least, is savvy enough to know the difference between advice and advertisement.