The
loan industry's romancing of school officers
continues year-round. Major lenders appoint
university officials to ad hoc advisory boards,
which hold regular meetings at high-end resorts. The
lenders say the get-togethers allow school officials
to offer insights into lending. Critics say the
meetings are junkets. Lenders also ply university
officials with free lunches and golf outings.
"It's an endless stream of
invitations," says Ellen Frishberg, the
financial aid director at Johns Hopkins University,
who turned down a Sallie Mae offer of tickets to a
concert this month by Huey Lewis and the News.
"It's quite comical at times."
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To
win loan business, some lenders offer sweeteners the
government can't match. At Tuskegee University,
for instance, Sallie Mae offered to provide loan
counseling for students and install free software
for the financial aid office, and even promised
free extra workers to perform tasks typically done
by objective counselors. "I have only praise
for Sallie Mae," says Barbara Chisholm,
Tuskegee's financial aid director. "They
are making sure we have what we need."
Sallie Mae has introduced another, even more
controversial, tactic to lure schools away from the
direct-loan program. Three years ago, the company
created something called "opportunity
loans," in which Sallie Mae agrees to lend
money to students, at the direction of schools.
These loans are not part of the federal program, and
the government does not guarantee repayment in the
event of default. Sallie Mae is more than willing to
shoulder the risk. Here is why: These private loans
are available only if a school, in return, promises
to leave the direct-loan program and market Sallie
Mae's separate federally backed loan program to
students. Unable to borrow unlimited amounts under
federal programs, many students can use opportunity
funds. Colleges like opportunity loans because they
keep enrollment up and tuition flowing.
The
loans are catching on. Schools including Seton Hall
University in New Jersey, Harding University in
Arkansas, Austin College in Texas, Tuskegee, and the
University of California-Los Angeles all offer
Sallie Mae opportunity loans. They all also have
exclusive arrangements to market federal loans from
Sallie Mae or its partners to their students.
However, some education experts believe opportunity
loans amount to improper inducements. Federal law
prohibits lenders from offering direct or indirect
inducements to educational institutions, including
"points, premiums, [and] payments" to
obtain federally backed loans. "It is like
someone coming to me and bribing me," argues
Leo Kornfeld, an education official in the Clinton
administration.
Sallie Mae says opportunity
loans are legal. The company defends them as a way
to help students with bad credit or no history of
credit. "We think an individual's credit
as they enter school is not indicative of their
credit when they get a job," says Barry
Goulding, a senior vice president at the company.
Education Department officials seldom pursue
inducement cases. Officials say that opportunity
loans are legal if offered simply as a benefit to
schools. However, Sallie Mae could have a problem.
In an April 2002 E-mail obtained by U.S. News,
Sallie Mae proposed this deal to Pace University,
which is based in New York City: If Pace made Sallie
Mae its "exclusive lender," the company
would provide $4 million in opportunity loans over a
four-year period. The school declined the offer.
U.S. News disclosed the contents of the E-mail
to two Education Department officials. Both said the
offer merits further investigation.
