State of the Financial Aid business

Student Loans Best Practices - State of the Financial Aid business

There's been a stupendous estimate of news about the trainee loan and financial aid business lately. Those who effect the business know that New York State Attorney general Andrew Cuomo has been pressing settlements or lawsuits to both lenders and colleges, alleging unethical and illegal practices. The headlines have been filled with sensational claims of all kinds - some factual and some probably exaggerated to some extent. Let's take a balanced look at some of the practices being called into question.

Student Loans Best Practices

- earnings sharing. When a college sets up a earnings sharing agreement with a trainee loan company, the loan firm may offer the college a cost based on the loans taken out by that college's students, usually a percentage of the loan. While some argue that earnings sharing gives colleges more money to work with for defraying administrative costs or funding supplementary scholarships, it has been deemed a conflict of interest when colleges have a financial incentive to push students to a beloved lender when it may not offer the best benefits or bottom rates.

- occasion pools. Not every trainee who applies for a trainee loan will receive it, especially with private trainee loans, which are credit-based. When a college sets up an occasion pool agreement with a trainee loan company, the loan firm agrees to approve some students who would otherwise not be beloved for a loan. This allows more students the occasion to afford college who might not otherwise be able to, but can also provide loans to students whose families may not have the financial resources to repay the loans.

- Call center contracting. Running a financial aid office can be an spectacular, task, particularly at large colleges and universities with tens of thousands of students. When a college sets up a call center agreement with a trainee loan company, the loan firm dedicates a part of its customer service center to act as customer service for the college. The trainee loan company's employees may recognize themselves as employees of the college or employees of the loan company, depending on the compact terms. There are benefits to the college in that call center contracting reduces the burden and cost of a financial aid office for a college. However, call center employees may recommend their owner (the lender) over other lenders, even if other lenders have products with great benefits or lower rates.

- Advisory councils. To stay in touch with what's happening in the financial aid world, trainee loan clubs often convene advisory councils and request college financial aid officers to participate. In some cases, the trainee loan clubs pay voyage expenses for financial aid officers to attend advisory council meetings. In other cases, financial aid officers may be paid for their time. While advisory councils can help trainee loan clubs stay in touch with what colleges and their students need, some may comprehend the lender has an ulterior motive. By serving on an advisory council and accepting payments or reimbursements for expenses, financial aid officers may have an incentive to recommend a specific lender over others that may have great benefits or lower rates.

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