Loan Solicitations Get Scrutiny
The investigations of the student loan industry broadened this week as a key member of Congress asked the Federal Trade Commission to look into how lenders approach students.
Rep. George Miller, chairman of the House Education and Labor Committee, asked the FTC to investigate the confusing and possibly deceptive marketing practices of student loan companies.
Miller says he became aware of a problem after concerned students brought him letters from lenders that threatened higher payments if the recipient failed to respond and contained what appeared to be official government logos. He posted two examples on his website.
"They're designed to confused students," says Miller. He adds that the letters aim "to frighten people into action, as opposed to thinking about, 'Is this a loan you want to make?' " He likened the solicitations to predatory lending on a population already overwhelmed by the cost of college.
In April, U.S. News reported that students are increasingly receiving solicitations from lenders that appear to be from the Education Department or related to actual loans, when in reality, they are advertisements for loan services from private lenders. Some letters have "final attempt" marked on the envelope and bear insignias that are similar to that of the Education Department.
Miller's latest request comes on the heels of an ongoing investigation into student loan practices. The probe has already resulted in a temporary shutdown of the Education Department's student loan database after reports that lenders were improperly using the database for marketing purposes. This week, the department asked lenders to sign certifications acknowledging the database rules and said it would consider reinstating access once the paperwork was complete.
And an inquiry by New York Attorney General Andrew Cuomo has revealed that universities and financial aid officers had accepted money, services, and other perks from lenders in exchange for directing business their way. The four main lendersSallie Mae, Citibank, Bank of America, and JPMorgan Chaseas well as nearly two dozen schools have since signed codes of conduct that prohibit such exchanges.
Congress is considering bills, including one sponsored by Miller, that would require schools to develop their own codes of conduct as well as further restrict gift-giving between lenders and schools.
In his letter to FTC Chairman Deborah Platt Majoras, Miller described the letters from lenders in the examples he came across as using "startling language to scare students toward their products. Unfair and deceptive practices such as these cannot continue unchecked."
An FTC spokeswoman declined to comment except to say that the agency is reviewing the letter. The agency reported last month that it had received 583 complaints about deceptive marketing practices among student loan lenders since 2000.