College "Preferred Lenders" List Not Always Preferable
Many colleges have preferred lender lists in hopes of helping students who are new to the financial aid process. There are more than 100 lender options, and unbiased advice is the most beneficial to students. To live up to a school’s standards of reliability, preferred lenders should be selected impartiality. Listed lenders should stand out for their ability to provide students with the least expensive and most comprehensive financial options. Because student loan rates are similar, some schools claim to consider help availability, loan regulation clarity, and client privacy when selecting lenders.
However, allegations of unethical and illegal, inducements have generated questions about the reliability of preferred lender lists. New York Governor and former Attorney General Andrew Cuomo accused countless schools and lenders of mutually benefiting from placing certain lenders on preferred lender lists. In 2007, Matteo Fontana, a general manager working for the Department of Education's Office of Federal Student Aid, was charged with misconduct for owning at least $100,000 worth of stock in Student Loan Xpress, a student lender giant. Since then, over 100 schools and lenders were investigated in an effort to rid the financial aid process of corruption.
Considering the high dependency on preferred lender lists (Cuomo stated that, "90% of the students take the 'preferred lender'"), it is important for both undergraduate and graduate students to be informed. Choosing a lender requires personal research. Ask schools about the options that go beyond their top choices.
There are a number of guidelines that schools should follow when giving loan advice to students. If your school does not comply with any of the following, seek further details.
- If a school chooses to create a preferred lender list, make sure a list of not-included lenders is available.
- Schools should have equal processing for lenders that are not on the preferred list.
The Higher Education Act has created regulations for student lenders. To be a government guaranteed Federal Family Education Loan Program (FFELP) member, student lenders must abide by the following:
- Lenders cannot secure customers by giving out loans that exceed a student’s cost of attendance, once all forms of financial aid are taken into account. The cost of attendance considers tuition, fees, housing, food, and necessary school supplies/expenses.
- Lenders cannot give financial aid administrators prizes, bonuses, or payments in exchange for placing them on preferred lists. Nor can they give incentives to financial aid administrators for persuading students to use their services.
- Lenders cannot offer students, alumni, or other sales representatives inducements for convincing others to use their services.
- Lenders cannot send unsolicited mail with loan application forms to students or their parents.
Recent revelations in the college funding industry lead to additional, stricter, regulations. Remember to always check the fine print before singing anything.
Last Reviewed: June 2017
- Access to Information May Mean More Cash for College
- College "Preferred Lenders" List Not Always Preferable
- Common Financial Aid Questions
- Federal PLUS Loans Available to Graduate Students
- Fellowship Breakdown
- Financial Aid Myth-Busting
- Grants & Fellowships
- Organize Your Financial Aid Documents
- Pay for School
- Pell Grants Increase While Lender Subsidies Decrease
- Scholarships, Grants, Fellowships, Internships and Loans Explored
- Student Financial Aid
- Student Financial Aid - Important Terms
Latest College & Financial Aid News
June 23, 2017
by Susan Dutca
When it comes to earning scholarships for college, some students have the "go big or go home" mentality and chase the big buck scholarship opportunities. Landing a huge scholarship may take more work - meaning more time spent on the application process and essays, needing strong recommendation letters and competing against a pool of highly-qualified students. If you're motivated to land a large dollar scholarship that can potentially pay for your entire college tuition, check out these generously-endowed scholarships: [...]
June 22, 2017
When it comes to college applications, most students worry more about whether or not their grades are high enough, whether their essays are well-written, or if they have enough extracurricular activities. College recommendation letters are often lower on the list of priorities and are often hastily asked for close to the deadline. However, college recommendation letters are often one of the most common ways to distinguish between quality applications. Below are several ways to avoid getting tepid college recommendation letters that make your otherwise quality application look lackluster. [...]
June 22, 2017
by Susan Dutca
Everyone knows big-name companies such as Google or Coca-Cola...but did you know that these companies also offer scholarship opportunities to help you pay for college? That's right! If you love these quality products and services, you may be interested these generously-endowed scholarships. Check out this list of brand name scholarships offered by the companies with which you are most familiar: [...]