January 8, 2009
Fifth Third Bank could potentially lose its right to participate in the Federal Family Education Loan Program, the Department of Education's program that allows private banks to offer Stafford Loans and PLUS loans. An audit by the Department of Education's Office of the Inspector General suggests that Fifth Third may have offered illegal inducements to third-party lenders. Lenders that participate in FFELP, such as Fifth Third, are legally allowed to act as trustees for third-party non-FFELP lenders, allowing the non-FFELP lenders to make or purchase federal student loans. Fifth Third's actions in some of these "eligible lender trustee" agreements have come under scrutiny, resulting in the audit and harsh recommendations from the Office of the Inspector General.
Fifth Third and the now-defunct Student Loan XPress entered into eligible lender trustee agreements with three lenders: MSA Solution Inc., Pacific Loan Processing Inc., and Law School Financial. The two FFELP lenders then paid these three trustees premiums to generate higher volumes of student loans. According to the audit, this violates federal law and could cost Fifth Third its status as an FFELP lender. The Office of the Inspector General also recommended that the Department of Education further penalize Fifth Third through fines and the withholding of federal guarantees on the over $3 billion in loans generated through these agreements.
This is not the first time an FFELP lender has come under fire for lending practices. Over the past two years, numerous lenders have been investigated by the Department of Education or New York Attorney General Andrew Cuomo for questionable actions ranging from bribing schools for places on preferred lender lists to recycling loans through a loophole to claim millions of dollars in federal subsidies.
March 24, 2009
Student loans are becoming increasingly difficult for the average college student to obtain. However, it appears at least one group is able to borrow private loans with relative ease: 80-something hospice patients in Florida. A student loan scam recently uncovered in St. Petersburg, Florida involved two stolen identities and between $15,000 and $18,000 in loans.
An 80-year-old woman and an 83-year-old man had their identities used to take out private student loans from Sallie Mae. A news story in The St. Petersburg Times describes the fraud as "poorly executed," involving blatant and inconsistent forgeries, including a fake ID with nothing changed but the picture--not even the 80-year-old's birth date. Private student lenders have previously come under fire when student loan scams were revealed, as private loans are by far the easiest type of student loan to fraudulently receive.
While many student loan scams don't even involve the pursuit of a real college degree, this one appears to have been perpetrated by a nursing student who had previously cared for the two victims of identity theft. The woman accused of identity theft successfully completed coursework at Keiser Career College and received her Licensed Practical Nurse certification in the fall. Bail is currently set at $40,000--already more money than she would have owed had she taken out the loans herself.
July 22, 2009
After New York Attorney General Andrew Cuomo brought to light questionable practices some college financial aid offices engaged in when creating preferred lender lists for private loans, the fallout was felt nationwide. While colleges and lenders have reformed their practices in the face of new regulations, lawsuits against colleges and lenders are still being addressed.
Yesterday, Emerson College in Boston, one of the schools accused of receiving kickbacks in exchange for making it difficult for student borrowers to take out private loans from lenders not featured on their preferred lender list, settled with the attorneys general bringing the case, and agreed to pay a total of $780,000 to students who had been forced into student loans with less favorable rates. Payments will range from $25 to $833 and will cover the extra interest students are paying on their loans, compared to loans they could have obtained.
These cases serve as a reminder to weigh your options carefully before agreeing to borrow a student loan. Apply for federal financial aid and do a scholarship search first, then compare multiple lenders to be sure you are getting the best rate. Even in the face of a lingering credit crisis and a weak economy, not to mention President Obama's plan to change the face of the student lending industry, it still pays to do your research before taking out a loan.
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