A little on the side

Two weeks ago, George Pappas, a senior vice president for EduCap Inc., a nonprofit financial services company that has, nevertheless, made billions of dollars through student loans, canceled its proposed Feb. 2-5 "educational summit" in response to negative publicity. This summit was meant to be an opportunity for lenders to meet with educators and financial aid officials from various universities. However, rather than consisting of a boring conference hall filled with temporary booths, where gray-haired university functionaries wearing name tags pick up fliers from unnaturally friendly salespersons, this was an all-expenses paid weekend for about a hundred invitees (plus guest) in the Caribbean paradise of Nevis. In return for this weekend excursion, its estimated cost being at least $655 a night, EduCap presumably hoped that universities would be persuaded to add the company to the schools "preferred lenders" list -- the very short list of loan companies universities recommend to their students. \nYeah, we can see how that might give people a bad\n impression.\nAnd we're not alone. On Nov. 1, The New York Times reported that Sen. Richard J. Durbin of Illinois has "called on the inspector general of the education department to investigate whether companies that lend to students have engaged in inappropriate activities by offering inducements, like gifts or cash payments to universities and their officials in an effort to increase loan volume."\nWhile it's hard to say how effective the incentives really are, it's only reasonable to assume a free iPod, DVD player or cocktails might have an impact. It's not just personal freebies either. Companies like Citibank and Education Finance Partners give money back to the universities for "loans to international students and those with poor credit, determined partly by how much other students at the institution borrow" (The New York Times, Oct. 24). Purdue, for example, is one of the schools that receives money from its deal with Sallie Mae. The financial aid officers interviewed by The New York Times repeatedly claimed that the money thrown to universities for these programs was not enough to have a significant impact. Only one (an official at New Jersey's Monmouth University) was willing to estimate the figure at about $2,000 a year. Joyce Hall, executive director of Purdue's financial aid division, said "the school is not being asked in any way, shape or form to steer a percentage of loan volume." Well, of course it's not being "asked," that would be unethical; still, we're skeptical that Sallie Mae is providing this money out of the goodness of its heart. \nEven a perceived conflict of interest ought to be enough to discourage loan officers from taking any money at all.\nAs of yet, there are no known conflicts from IU's financial aid office, and we expect it to remain that way. Considering just how many students depend on loans for their very future, the University should adopt procedures that automatically discredit any company that tries to influence the school's preferred lenders list by means other than offering the most competitive rates.