Student loan regulation up for debate

Nancy Marshall-Genzer May 10, 2007

Student loan regulation up for debate

Nancy Marshall-Genzer May 10, 2007


LISA NAPOLI: There will be talk on Capitol Hill today about the multibillion dollar student loan industry. With the loan scandals looming, legislation has been introduced in both houses of Congress that would make lenders and campus financial aid offices more accountable. But some universities are pushing to keep policing themselves. Here’s Nancy Marshall Genzer on the debate:

NANCY MARSHALL GENZER: Students are bombarded with loan offers everywhere they turn. This ad is running on YouTube:

LOAN AD: Student Loan Financial Group offers the best benefits in the industry . . .

But even students who ignore the ads and turn to their schools for advice can be misled. Some financial aid officers have admitted getting kickbacks for steering student loans to certain lenders.

That would be illegal under the legislation in Congress. But does the government need to get involved?

Economists like Columbia University Professor Henry Levin don’t think so. He says the free market will make universities behave. Schools with good records could attract students with a sort of “scandal-free” logo.

HENRY LEVIN: It’s like a Good Housekeeping stamp of approval. Something that would indicate that we are a fair information institution in terms of loans and so on and so forth.

Congressman Tim Bishop says that might work if you’re selling, say, cereal.

The New York Democrat co-sponsored the student loan legislation. He says students don’t chose a college based on loan officers’ reputations and tuition costs.

TIM BISHOP: A student may be willing to borrow more to go to a school that he or she perceives as more prestigious than another school where the cost might be less.

That’s certainly true for George Washington University Senior Stacey Faust. When she applied, her thought was location, location, location. Faust fell in love with the school’s downtown Washington campus. Then she thought about how to scrape together almost $50,000 for tuition, room and board.

STACEY FAUST: I think students are vulnerable to predatory loan companies because college education is so expensive nowadays. Lenders know students have to borrow loans anyways. We’re kind of a trapped market.

That trapped market is worth $85 billion — big enough to ensure the debate over how to regulate student loans is far from over.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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