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Lender's 2 Tickets to Paradise

Lender's 2 Tickets to Paradise
October 24, 2006

It says something about the climate for financial aid and student loans these days that in many of his recent speeches, A. Dallas Martin has taken to reading his audience -- usually financial aid officers, lenders and others -- the ethics statement promulgated by his group, the National Association of Student Financial Aid Administrators.

For months, student groups and others have been accusing providers of student loans and, in some cases, college financial aid officials of putting their own interests ahead of students’, by engaging in ill-defined practices in which colleges promote certain lenders over others in exchange for a cut of the profits or, more commonly, gifts and other services. While Martin and others insist that the "bad actors" are very small in number, it is also true, he says, that the perception of widespread wrongdoing can be as damaging as any reality.

Which is why Martin and some financial aid officials and lenders are cringing over an "education summit" that EduCap, Inc., a prominent provider of alternative or "private" loans that does business as Loan to Learn, is sponsoring in February. The nonprofit lender has invited at least a couple dozen financial aid administrators (plus a "spouse or guest" for each) to an "all expense paid" meeting at the Four Seasons Resort on the Caribbean island of Nevis, at which they will hear presentations from and engage in discussions with "an array of eminent leaders from the worlds of business, education, technology, government, media and culture."

(As with many things about the conference, exactly who those leaders will be remains a mystery, as an official at EduCap, George Pappas, declined to provide a list of either speakers or attendees, though he said that a comparable gathering last year in Pebble Beach, Calif., featured the former astronaut Sally Ride; Chicago Mayor Richard Daley, the author A. Scott Berg; and Andrew Weil, the "integrative medicine" guru.)

Although lenders (and many companies and service providers of all types) sometimes cover at least some of the costs of those attending their conferences and meetings -- particularly members of advisory boards -- there is widespread consensus that the Loan to Learn meeting goes "over the top," as multiple people put it, in several ways: the fact that all expenses, including travel, are included not just for the aid official but for a guest; the cushy, offshore location (the standard nightly room rate at the Nevis resort in February is $655); and the fact that no agenda or speaker list is provided, even to those who've agreed to attend.

While private lenders are not legally bound by government rules that prohibit providers of federally backed loans from providing (and financial aid officers from accepting) incentives to use products or services, numerous aid officials said they were troubled by Loan to Learn's tactics.

"Every colleague I have talked to has declined the invitation," said Karen Fooks, director of financial aid at the University of Florida. A staff member in Fooks's office was invited, and the institution turned down Loan to Learn, she said, adding: "We're all very, very sensitive to the perception of being bought or not doing something in students' best interests."

Pamela W. Fowler, director of the University of Michigan's office of financial aid, declined her invitation in a letter last month to Loan to Learn's chairman and chief executive, Catherine B. Reynolds, who was a member of the Secretary of Education's Commission on the Future of Higher Education. Fowler said she was declining because Michigan law prohibits her, as a state employee, from accepting gifts valued at more than $25, and because she is a "staunch advocate for more rigorous enforcement of the current illegal inducement regulations by the U.S. Department of Education."

"Summits, conferences, trips such as this create and foster a very negative perception of the entire financial aid industry, not just those who participate," Fowler added.

In a letter in reply, which Fowler shared, Reynolds said that the conference was "not intended to promote a private loan program," but to "address issues in education and create a dialogue on the 'big ideas' and 'ideals' as they relate to higher education.... That is why we invite government officials, Pulitzer-prize winning authors and others."

The summit, Reynolds said, "is not an inducement nor is it illegal or in the same vein as many practices that have been criticized recently." The company, she said, "doesn't do business with the vast majority of invitees," who are invited "based on recommendations of their peers, not as a result of a target marketing list."

Pappas, Loan to Learn's senior vice president for strategic partnerships, said he could not release a list of the speakers because "some of the people we have coming are former heads of state and people involved in other government organizations, so we can't divulge the full list for security considerations."

The ritzy location, he said, was chosen because "when you’re assembing a world-class roster of speakers, you want to offer them a location that will be of interest to them."

The company is paying the way for attendees, Pappas said, because "many of their institutions are under severe budget pressures, and we want to make sure that anybody is recommended by their peers has an opportunity to attend." And the additional guest? "We do that because the conference is held over a weekend, and if we're asking somebody to leave their family over a weekend, it's just common courtesy that we would offer to have them bring someone, so it's not as difficult."

Tony A. Sutphin, Virginia Tech's coordinator for scholarship, Federal Work Study, and loan programs, was the only financial aid officer contacted who said he plans to attend the Loan to Learn conference. (At least one other financial aid director, at a private research university, was said by several peers to have accepted Loan to Learn's invitation but then to have withdrawn. This director, however, did not return e-mail and telephone messages seeking comment.)

Sutphin called last year's Loan to Learn meeting in Pebble Beach "by far the best conference I've ever been to," and said that while he went in expecting "to get the hard sell" from Loan to Learn about using its products and services, he was "shocked" when company officials "said nothing about, 'Here’s all about EduCap and our products.' " (Sutphin did acknowledge that Virginia Tech added Loan to Learn to its preferred lender list for private loans in July, though he insisted that "[the company] didn't ask. I just wanted to expand our Web site to add some lenders for our students' benefit.")

Sutphin said Virginia Tech's students benefited from the information and insights he gleaned at last year's conference, and "from me being able to call Mayor Daley." When this year's invitation came, he said, "it was a no-brainer."

For other financial aid directors, the decision was easy, too. Sarah Bauder, director of the student financial aid office at the University of Maryland at College Park, said she "absolutely would not attend" the meeting, because she was uncomfortable with the notion of a lender (and potential vendor for the university) paying her and a companion's way to such a meeting. "I just think that we need to be very careful," she said, "especially in this climate."

"I think a lot of our people would ask themselves, 'Is this something I should or shouldn't be doing?' " said Martin of the financial aid administrators' group, who added that his organization and lenders' groups have discussed the idea of applying the federal restrictions on incentives to the world of private loans, too. "Maybe there's nothing that's out of line. But we in education, given our roles in what we try to do, have to be a role model in terms of how we act. I wouldn't don't want to create anything that might look like a conflict."

 

 

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