Lenders Cheat Students Out of Lower Cost Loans

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In NYTimes Orwellian-speak, this article had a headline of "Lenders Sought Edge Against U.S. in Student Loans"--Linda

"In a fierce contest to control the student loan market, the nation’s banks and lenders have for years waged a successful campaign to limit a federal program that was intended to make borrowing less costly by having the government provide loans directly to students.

"The companies have offered money to universities to pull out of the federal direct loan program, which was championed by the Clinton administration. They went to court to keep the direct program from becoming more competitive. And they benefited from oversight so lax that the Education Department’s assistant inspector general in 2003 called for tightened regulation of lender dealings with universities.

"At Indiana University in 2004, for example, Sallie Mae, the nation’s largest student lender, offered $3 million that the university could use for “opportunity loans” to some students if it left the direct loan program. Indiana left the direct loan program but said the $3 million was not the reason; Sallie Mae currently administers their loan program.

"Bank of America, which won the University of Virginia’s student loan business, said in its 2002 proposal that certain possible incentives had “the potential to violate” federal law. The bank, which said such a discussion was normal in the bidding process, suggested that it discuss the issues with university officials “during the oral presentation phase of the process.”

"All of this has helped give private lenders clear dominance of the $69 billion federal student loan industry. The lenders, who defend these practices, say they are winning business primarily because they offer lower interest rates than the government and often lower fees.