Colleges Keep Pushing Certain Lenders
Nonprofits that could save students plenty in loan costs are still often not promoted on schools' lists
The New Hampshire Higher Education Assistance Foundation, another nonprofit, which offers no-fee loans that cut interest rates by 1.5 percent for electronic payers. NHHEAF also knocks $250 off the principal for students who make 12 on-time payments.
All Student Loan, a California nonprofit, which offers no-fee loans in which students who pay on time and automatically can cut their interest rates by as much as 2.25 percentage points.
Many of the colleges contacted by U.S. News said they hadn't had time to add low-cost lenders to their lists in time for this academic year but hoped to do so by next year. Others said that they limited their lists to lenders with other advantages, such as student advisers or good service to the school.
Indiana University, for example, tells students they are free to borrow from any lender, but it recommends students and parents take out loans serviced by Sallie Mae. Indiana even has Sallie Mae employees answer calls to the financial aid office of one of its seven campuses. Sallie Mae offers to waive fees and knock as much as 1.5 percentage points off the interest rate for IU students who sign up for electronic payment and make their first payment on time.
James Kennedy, IU's director of financial aid, said he is sticking with Sallie Mae because the nation's largest educational lender is offering one of the best deals available. In addition, Sallie Mae's processes work smoothly with IU's. But the recent scandals have caused the university to make some changes. It will phase out its use of Sallie Mae phone advisers by the fall, Kennedy says.
Liberty University, in Lynchburg, Va., also does not include any nonprofits on the list it provides students. Instead, it suggests five of the nation's largest lenders and tells students they are free to borrow from others. But when students call Liberty's financial aid office, Sallie Mae employees often answer the phone. Sallie Mae offers Liberty students no-fee loans and promises to knock 1 percentage point off the interest rate for students who pay electronically and on time. Those terms could cost students several hundred dollars more than the lowest-cost loans.
Robert Ritz, Liberty's director of financial aid, said the school will phase out the Sallie Mae call centers by October 1. In his six months in the job, Ritz says he has already expanded the lender list from one—Sallie Mae—to five. He expects to revamp the list again next year and has already put out feelers to nonprofit and other low-cost lenders.
Drew University, a private college in Madison, N.J., has also expanded its list from just Sallie Mae to three lenders this year. Some of the lenders it suggests now offer to waive all fees and cut as much as 1 percentage point off the rates. Others offer cash back after a couple years' on-time payments. But loans from the nonprofits would be likely to save students and parents hundreds of dollars.
Drew spokesman David Muha said Drew originally chose Sallie Mae because it provided lots of services to the school. The school feels it made as many changes as it could to the list ahead of the start of the 2007-08 school year. It plans to offer more lender choices in the future, Muha says.
New York Attorney General Andrew Cuomo, who headed the investigations into the loan industry earlier this year, says that schools should provide lender lists only if the lists are generated through research and comparison shopping. "It's not OK when the school is recommending a lender because the school has a financial incentive," he says.