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Academic greed

Money | Perks for financial aid administrators may have left students with higher loan bills

Issue: "'Darkest moment'," April 28, 2007

University administrators for decades have raised prices at a rate that would make anyone else-at least outside the health-care industry-blush ("No way down," Aug. 27, 2005). Somehow they have escaped the "greedy" label, with the public mind much more focused on "big oil" than on "big academia."

But this month has brought a sudden dose of accountability to at least a part of higher education financing. An investigation by Andrew Cuomo, New York's Democratic attorney general, revealed an often-cozy relationship between financial aid officers at universities and the companies that provide student loans. It's a relationship, Cuomo says, that hurts students.

Cuomo found that at several universities, financial aid administrators had received sports tickets, lavish trips, and even stock options from lenders. This, he said, created a conflict of interest as those administrators then chose which companies to place on the schools' "preferred lender" lists, from which most students take out loans. The investigation also found that lenders were running financial aid call centers for universities, with employees often identifying themselves as university workers to callers.

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Six schools agreed to reimburse students for what the investigators said were inflated loan costs. Several schools also suspended their financial aid directors and agreed to a "Student Loan Code of Conduct" that prohibits gifts from lenders to university employees and reforms call center procedures. "Loan decisions," said Cuomo, "should be made in the best interests of the students, not in the best interest of the school."

The investigation is now spreading to other schools. Cuomo led an April 17 conference call about his findings with officials from other states, and Congress is considering legislation to outlaw financial and other ties between lenders and schools. The result could be a national spotlight on an industry-higher education-that rakes in money but is not accustomed to financial scrutiny or allegations of greed.

Balance Sheet

BUSINESS: A poll released last week suggests that Wal-Mart may be gaining favor with the public. Westhill Partners conducted the survey for Wal-Mart Watch, a critic of the retail giant, and found that 71 percent of respondents had a "somewhat favorable" view of Wal-Mart. Sixty-nine percent gave Wal-Mart that rating in last year's survey.

HOUSING: The housing industry received some good news and some bad news last week. The good news: The Commerce Department reported that new home construction was up 0.8 percent in March, higher than analysts had predicted. The bad news: New mortgage applications were down for the fifth week in a row, according to the Mortgage Bankers Association, as rates on 30-year fixed mortgages rose to 6.22 percent last week.

PRICES: A big jump in energy prices sent the Consumer Price Index up 0.6 percent in March, the largest increase in almost a year. The core CPI, which does not include energy and food, rose only 0.1 percent for the month, but other reports suggest that energy prices have continued to rise sharply in April. The Energy Department said the nationwide average price for a gallon of gasoline hit $2.88 last week. Gas prices have increased 71 cents in the past 11 weeks.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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