Do as I Say, Not as I Do

In October, College Board warned of dangers of sharp increase in private lending. This week, it expands its private lending business.

December 21, 2006
When the College Board held its annual news conference on tuition rates and student aid in October, student aid experts identified several trends as troubling. One of them was the increased student reliance on private loans to finance their education. Data released by the board showed that private student loans now total more than $17 billion and have grown at an annual average rate of 27 percent since 2000.

College Board officials and the report released by the organization that day noted that private loans typically have much higher interest rates than those in the federal loan programs, as well as far fewer protections for student borrowers. Adding to the problem: Many students don't understand the difference between private and federal loans and are stunned to find themselves with much more demanding repayment schedules than they expected.

The statements at the news conference were consistent with the views of many aid experts, who have been increasingly worried about private loans. So a few eyebrows were raised this week when Citibank announced that it was expanding its private loan operations through a "strategic alliance" with the College Board, which will be paid (a sum or percentage that both Citibank and the College Board declined to disclose) for the private loans it sells for Citibank. And while the College Board was criticizing the growth in private lending at its October conference, it didn't exactly point out that it has been in this business for some time.

With many guidance counselors already frustrated with the College Board over the last year's SAT mess-ups and wanting to discourage students from taking out private loans that in many cases may not be their best options, the news that the board was expanding its activities in private lending infuriated many.

"The College Board is the Enron of education. It is more interested in being big than anything else," said Brad MacGowan, a guidance counselor in Massachusetts who shared word of the deal with colleagues on an admissions listserv. "They are not about education and they are truly out of control."

Much of the anger being expressed has to do with the College Board's self-proclaimed role as an honest broker on issues involving financial aid and the fact that it profits from the private loans it sells. The board's Web site states that "as a not-for-profit education organization, the College Board can be trusted to help with your education finance needs, including private loans and federal Stafford and PLUS loans." It goes on to say that many colleges appreciate the fact that revenue from private loans is "continuously reinvested" in the board's programs.

Alan Collinge, founder of Student Loan Justice, a group that is an advocate for borrowers, said he was "very troubled" by the College Board expanding private lending at a time that there is "a huge spike" in reports that students aren't being well served by private loans. Many students don't read the fine print, he said, and his group is constantly hearing from borrowers who didn't understand the difference between private and federal loans.

While borrowers "should have read the fine print," Collinge said that the problem is that they don't, and they trust that groups like their colleges or the College Board must be offering them services that they need. "Students are going to say, 'I trust the College Board and they say to do it with Citibank, so I will,' " Collinge said. "And the College Board is going to be steering students in the direction of loans which may or may not be in students' best interest."

The College Board should be focused on making federally backed loans better for borrowers, and especially on increasing grant aid, Collinge said. And while he acknowledged that the board is in fact on record calling for more grant aid, he questioned the credibility of the board when it is getting "kickbacks" for its participation in private loans.

Robert Shireman, founder of the Project on Student Debt, said he would be monitoring the College Board in this area. He said that the College Board, like many nonprofit groups, is trying to find ways to make money. The potential conflict, he said, is that the board plays a role advising students, high school counselors and college financial aid officers.

"Certainly I would prefer an organization like the College Board to be providing advice that is completely untainted by any alternative motive," Shireman said.

Via e-mail, Cindy Bailey, executive director of education finance for the College Board, said that the expansion of the private lending program was a result of market demand from colleges. Bailey said that colleges "appreciate the perspective and sensibility we bring to the student lending environment and they also appreciate supporting an organization that they know is reinvesting revenue back into education programs and services for students and schools." But she said that many have wanted to have other private loan options for loan processing beyond Sallie Mae, which has been the only option for College Board private loans until now. Adding Citibank should improve services and choice, Bailey said.

She added that the College Board's involvement with private loans in no way changed it overall position that their growth "is troubling because they are more expensive than federal loans for the student. The problem is that the federal loan limits are very low when compared to costs, especially at high cost private institutions. When used prudently, private loans often make the difference between a kid attending the school that is the best match forhim or her and a school that maybe less costly to the family but that may not be the best match." Students, she added, should "be encouraged to work with their college and exhaust all financial aid options before pursuing private loans."

As to how much the College Board makes of the private loans it sells with Sallie Mae and will offer with Citibank, a spokeswoman said that information was "proprietary."



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