Showdown on Student Aid Ethics

At loan industry meeting, president of upstart lender confronts head of financial aid officials' group on gifts policy at its conference.
December 1, 2006

For the record, Dallas L. Martin's left arm was already in a sling at the start of a panel session Thursday on ethics in the student loan industry. So Raza Khan, president and co-founder of MyRichUncle, who sat to Martin's left and hammered Martin and the financial aid administrators he represents for their perceived moral shortcomings, can't be held responsible for Martin's damaged arm. But it would not be surprising if the president of the National Association of Student Financial Aid Administrators had some bruises, courtesy of Khan, after the event at the Consumer Bankers Association.

MyRichUncle, a relatively new player in the federal and private student loan market, has earned praise in some circles (among some student advocates and lawmakers) and scorn in others (especially among student-aid officials and lenders) for marketing materials implying that banks and other providers of student loans have offered “kickbacks or incentives” to get on colleges’ lists of “preferred lenders” and, more generally, that financial aid offices don’t necessarily have students’ best interests at heart. (In addition to the praise and scorn, MyRichUncle's tactics have also earned it plenty of headlines, which other lenders are quick to assert is probably not an accident.)

Thursday's session at the CBA Student Lending Conference, in Washington's Virginia suburbs, shed relatively little light or even heat on the issues that MyRichUncle has raised. But it did offer some intriguing theater, given that it put MyRichUncle on a dais alongside representives of the financial aid administrators and lenders that it has harshly criticized, in front of a largely hostile audience of guaranteed loan officials and aid officers. And it did so at a time when the Democrats who will control Congress come January have vowed to sharply step up their oversight of the student loan industry and the U.S. Education Department's regulation of it. 

Marke A. Thomas, a senior vice president at SunTrust Bank who moderated the panel session, introduced it by referring to 2006 as "the year of ethical issues," citing not just the issues MyRichUncle has raised but incidents like the now-aborted plan by another lender, EduCap, Inc., to sponsor a conference for financial aid officers on the Caribbean island of Nevis.  

Martin, who spoke first, began by recalling that when John Dean, who is special counsel for student lending to the Consumer Bankers Association, (NOTE: This corrects an earlier version of this article.) invited him to participate on the panel several weeks ago, he replied: "I always thought we were friends." Martin said he believed that the issues MyRichUncle and others had raised were "important for us all to take very seriously," because "whether those things are true or not, there are suspicions that cast aspersions on all of us."

He said -- and the lenders on the panel, Jon A. Veenis of Wells Fargo Education Financial Services and Willis J. Hulings III of the Education Resources Institute, largely echoed his views -- that while "the vast majority of people have behaved and behaved responsibly," there "have been some excesses" -- some lenders offering inappropriate incentives to student aid officers to promote their products, and a few financial aid officials asking for such incentives in exchange for favorable treatment.

The challenge for financial aid officers and lending officials alike, Martin said, is to "collectively make certain that we're all trying to abide by certain guidelines.... We can look at practices that are out there, and ask, How are we doing this? Are we being honest, are we being fair?"

Khan, who spoke next, began by noting that "they don't usually let the elephant in the room have a chance to speak." He then largely reiterated MyRichUncle's standard view, which is that students aren't necessarily getting the best advice from their financial aid offices because the aid administrators too often have conflicts of interest. But near the end of his PowerPoint presentation, he flipped to a slide that showed a bulletin board at NASFAA's annual meeting last summer on which lenders and other exhibitors posted notices about the gifts they were giving away to lucky winners during the convention.

With Martin at his side, lips pursed, Khan suggested that Martin and NASFAA might have more credibility in urging others to avoid conflicts if the organization stopped encouraging the giving of PDA's and other electronic devices. "Should the leader of this industry want to pursue change, he should perhaps look in its own house," Khan said. An uncomfortable silence followed.

Given a chance to respond at the end of the session, Martin described NASFAA's convention giveaways as "very typical of most trade associations," and "not necessarily out of line." But if he had his druthers, Martin said, "I'd just as soon it didn't happen. I personally would rather see gifts given to charity." Pressed further by Khan, Martin said that NASFAA's board would "continue to evaluate" its approach.

Perhaps more importantly, Martin suggested that it might be time for his organization and the Consumer Bankers Association to revive their efforts of several years ago to extend rules that govern ethics in the federal student loan programs to the private or alternative loan markets, too. Even a move like that might not fend off the heightened scrutiny that Sen. Edward M. Kennedy (D-Mass.) and other leaders of the new Democratic majority in Congress have promised to apply to lenders in the 110th Congress -- but it couldn’t hurt.

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