Heads are Rolling in the "Non" Profit Student Lender World!

This article brought a smile to face.  Apparently, the Government woke up and said, "Where's my money?" and the scuzzy lenders in a multitude of states are saying, "Baby, I got cha money."  Joking.  The Nonprofit Lenders from numerous many states got a lot of explaining to do and they don't have the federally subsidized money anymore.  They gave it out like sample crack rocks on the middle school playground.  


The laundry list of misdeeds follows:


1. An Iowa Nonprofit Student Lender would pay cash to an alumni association for "steer[ing] students to the nonprofit's loans" in the form of  "questionable executive compensation and perks, deceptive advertising and tens of millions of dollars in unwarranted federal subsidies."


2.  The same Iowa Nonprofit paid 50 colleges $1.5 million from 2002 to 2007 "to reimburse colleges for administrative costs associated with counseling borrowers, certifying loan applications and disbursing its private loans" which presents a "a potential conflict of interest between their pecuniary interests and the best interests of prospective borrowers." 


3.  A Rhode Island Nonprofit sold loans to a For-Profit Loan Giant, Nelnet, but allowed Nelnet the right to issue the loans under the Rhode Island Nonprofit's name.  With RI's name, Nelnet opened up a College Planning Center which  "provided free financial aid advice, often encouraged students to take out Nelnet loans. But it did not identify its affiliation with the for-profit to students... In fact, it continued to call itself 'a free resource offered by the Rhode Island Student Loan Authority' in marketing materials." The Treasurer of Rhode Island, aka Captain Obvious, says that a nonprofit should be accountable to the people of Rhode Island and not to an out-of-state loan provider.

4.  A fishy financial practice of financing new loans with proceeds of old loans, was used by for-profit and nonprofit lenders, thereby cheating taxpayers out of $809 million.  

5.  The Government thinks that the Executives in charge of these Nonprofit Student Lenders are making too much money."Executive pay at some nonprofit lenders also has come under fire. Out of 10 independent nonprofit lenders that filed federal tax documents for 2007, eight had top executives whose salaries were greater than the average compensation earned by heads of similar-sized nonprofit financial institutions, according to an analysis of data provided by the Economic Research Institute, a compensation consulting firm."  Pointing out the obvious, once again:  "Nonprofits' executives "on the one hand, publicize their strong belief in public service but, on the other hand, will enter public service only at a salary commensurate with private employment"  

6.  The Connecticut Nonprofit Student Lender awarded "perks ...to executives and board members. The nonprofit, for example, spent $1,884 on three stretch limousines and one sedan to take board members to a holiday party, $660 on four tickets for executives to attend the Big East Basketball tournament in March 2007 and $6,580 for four club seats to the University of Connecticut 2008 football season, according to a recent report by state auditors. Executives also spent more than $3,000 at a golf club in 2008. The former president approved his own expenses after a weekend and vacation day spent golfing."  

Government ain't too happy about any of this.  

I don't really see how some of these practices are different than what was done in the subprime mortgage scandal.  Mortgage brokers were given more money when they closed a deal on a subprime mortgage, even though the 30 year mortgage was probably the best type of mortgage for most mortgagors--or no mortgage at all in most cases.  Here, the Financial Aid offices of Higher Education are being paid to push a loan down your throat.

It reminds me of another enlightening moment I had when I was a second year.  I needed some more money because of an emergency of some sort and I went to Financial Aid and they handed me the Access Student Loan docs to fill out.  It dawned on me, that there could be another lender out there.  Why am I not being given an option.  So, I asked if there was another loan that I could take out.  

"Nope, we only work with Access."

Wondering if the Dean of my school was on the Board for Access.  Furthermore, wondering if the issue of Deans serving on the Board of Lenders will ever be addressed.

I'm not even sure what the exact connection is between nonprofits and the Department of Education and taxpayer money... but I'm happy as heck that someone is fixing scenarios that seem wrong or a bit unethical.