Be Wary of Loan Letters
Official-looking mailings can bamboozle students
Jessica Coulter, a first-year law student at Regent University in Virginia Beach, Va., worried when she started getting letters marked "confidential" and "open immediately" in the mail shortly after taking out student loans. Because they looked official and time-sensitive, she assumed they were from her loan company. When she opened them, she found information about loan payment programs, some of which suggested immediate deposits. "I got really scared. I thought the whole point of loans was that you don't pay them back for three years," she says.
After consulting classmates with student loans, Coulter learned that the letters were just advertisements. Now, they quickly go from her mailbox to the trash. But she is hardly the only one fooled by such letters.
Hard sell. According to student loan borrowers and consumer advocates, loan companies increasingly send solicitations that resemble actual loan documents or government-issued letters. "Direct-to-consumer marketing for student loans has exploded," says Luke Swarthout, higher education advocate for U.S. PIRG, a public interest advocacy group. "We're seeing the propagation of these types of aggressive, sometimes misleading mailings."
Rebecca Thompson, legislative director for the U.S. Student Association, says students are especially vulnerable to such solicitations. "It's confusing for the average student ... especially if it is the first time they have ever taken out a loan," she says, adding that many students don't know which loan company they are actually using.
Collegiate Funding Services, part of JPMorgan Chase, sends solicitations marked "final attempt" in red on the envelope. The letter inside says it is from the "Student Loan Department" and bears an insignia with a book and leaves inside a circle within a circle. The federal Education Department's insignia is a tree within a circle inside a circle.
Swarthout expressed concern that such an insignia could be confused with that of the Department of Education. He also takes umbrage with the first sentence of the letter, which reads, "We're writing to make sure you are aware that if you don't contact us now, you could end up paying significantly more on your monthly student loan payments than necessary." While Swarthout acknowledges that the statement could be true, because the company offers loan consolidation services, he says consumers could interpret it as meaning they have to call or their current rates could go up.
Greg Hassell, spokesman for Collegiate Funding Services, says that the letter is not deceptive and that there is no suggestion that it is from the government. "It's clear who it's from and what it's for," he says.
Graduate Loan Associates, a San Diego-based loan consolidation company, also stamps its letters with a circle-within-a-circle insignia that reads "Department of Student Finance." (Graduate Loan Associates did not respond to repeated requests for comment.) Letters from Class One Associates, also in San Diego, are stamped with a spread-winged eagle, a symbol often associated with the U.S. government. (The company said no one was available to comment.)
Sallie Mae, the nation's largest student loan company, sends letters marked "final notice" to potential customers, but the company says it does so only when there is an offer with a pending deadline inside, such as an expiration date for preapproved status. Tom Joyce, a Sallie Mae vice president, says, "It is, at best, misleading to use the term 'final notice' on those marketing solicitations that either have no deadline or contain no time-sensitive information. Eligible student loan customers can consolidate at any time, so anything that implies a final notice should be reserved for a pending deadline, such as an upcoming interest-rate change, or for an expiring offer, such as a special borrower benefit rebate or discount."
Joyce criticizes what he sees as increasingly aggressive and misleading materials distributed by other lenders. "I look at some of that stuff, and I'm fooled by it-and I'm in this business," he says.
Making a case. Deanne Loonin, a staff attorney at the Boston-based nonprofit National Consumer Law Center, says, "If people think they're getting [letters] from the government, then it could be an unfair business practice." To build a case against a company, a consumer who was confused by the mailings would probably have to show that emotional distress or harm was inflicted, such as signing up for loan services under a false pretense, she adds.
The Education Department's Federal Student Aid Ombudsman, which resolves disputes between federal loan lenders and borrowers, says it has received some 100 complaints about loan consolidators using marketing materials that suggest they are affiliated with the federal government. The ombudsman generally forwards such complaints to the Federal Trade Commission, the agency responsible for administering consumer protection laws. The FTC reports that it has received 583 complaints about deceptive marketing practices by student loan lenders and consolidators since 2000. One consumer filed a complaint in February after her daughter was misled into believing that a consolidator was a government agency and as a result shared her Social Security number with the company. The FTC would not say whether it was investigating student loan marketing practices.
So far, Loonin says, she knows of no cases of student loan borrowers taking companies to court for allegedly deceptive marketing practices. But that could soon change. Coulter, the law student, says, only half-jokingly, "I'll sue them in 2
This story appears in the April 16, 2007 print edition of U.S. News & World Report.