Universities Opt to Stop Sharing in Student Loan Profits

[May 4, 2007.]

A number of universities are signing codes of conduct promising that they will not agree to revenue-sharing with student loan companies. The educational institutions have also pledged not to accept any gifts, meals, or trips from lenders.

The Attorney General of Missouri, Jay Nixon, filed an agreement with Washington University in St. Louis County Court. The university had had a one-year pact with California's Education Finance Partners. Under the agreement, the university would have gotten money if a sufficient number of loans were sent to the lender. The agreement expired last year.

Meanwhile, Illinois' DeVry University and Career Education Corporation have signed a similar no-perks agreement with the Illinois Attorney General. The actions seem to be prompted by an investigation into the $85 billion student loan industry launched by New York's Attorney General.

In a written statement, Washington University administrative officials said, "The university sees the code of conduct as an opportunity for it to serve as a leader in the higher education community in voluntarily adopting practices and procedures designed to offer confidence-building assurances to all students and families entering the student-lending arena." Under the code, the university must clearly spell out the process used for choosing preferred lenders.

A number of observers are concerned that universities are making profits from student loans. They see such a practice as being unethical and compromising the integrity of the educational institutions involved.

According to the St. Louis Post-Dispatch newspaper, financial aid officers at a trio of University of Missouri campuses belong to advisory boards of student loan companies. As a result, they get reimbursed for traveling to the board meetings. The university is now reportedly reviewing the practice.

Consumer advocates worry that such cozy relationships between colleges and student loan firms could hurt individual college students in the end. From the actions taken by a number of universities, it appears that college officials are listening to the concerns and taking them seriously.