Nevada financial aid passes the test

The financial aid directors from the eight universities and community college systems that make up the Nevada System of Higher Education met quietly in April. A scandal was brewing over financial aid, and the discussion was sensitive.

Federal and state authorities were looking closely at the $85 billion student loan industry, which is dominated by the nation’s major banking companies. Sharon Wurm, director of financial aid at the NSHE’s Office of Academic and Student Affairs, had been snooping. She wanted to know if any student loan officials had ties to lending institutions — ties that could be perceived as too cozy.

She was looking for stock holdings, memberships on lender boards, gifts or any other financial ties that might create a conflict.

After the meeting and an “informal investigation,” NSHE Vice Chancellor Daniel Klaitch told the attorney general that there were no problems.

Wurm said: “I really don’t think we have any big issues in the Nevada System.”

The amount of financial aid provided to Nevada public university and college students has risen by $110 million in just four years. Financial aid is a loose term for a combination of grants, federally backed loans, scholarships, campus jobs and private borrowing.

During the 2001-02 school year, students received $189 million in financial aid. By the 2005-06 school year, students received $299 million in aid.

As much as $134 million of the 2005-06 financial aid package came from loans. Eighty-three percent of the package was used to pay tuition and fees at the University of Nevad, Reno and the University of Nevada, Las Vegas. Despite the growth in available funding, $42 million in tuition costs and fees were not covered by any financial aid, meaning students likely had to go to private lenders to make up for some of the shortfall.

The two universities each provide a list of what, until recently, were called “preferred lenders.” Financial aid officials rate them the best sources of private funds because each has a record of working well with students and with the school officials who seek to understand the loan details. It is this relationship between lenders and schools that state and federal authorities are scrutinizing closely.

The state’s two largest universities offer a stark contrast in the way students pay for college.

UNLV is a direct lender. Most of the school’s students receive loans straight from the federal government through the U.S. Department of Education. UNR uses the Federal Family Education Loan Program, in which money comes directly from commercial banks, credit unions and savings institutions.

UNLV is the only direct lender in the Nevada system. It too provides a list of private lenders, particularly for graduate students whose college costs may not be fully covered by federal loans.

Much of the recent scandal has ensnared financial aid directors at FFELP schools, including the University of Texas, Austin; Johns Hopkins University; and Texas Tech University. Recent reports also suggest officials at the University of Notre Dame may have had too cozy a relationship with some lenders.

According to recent testimony before the Senate Health, Education, Labor and Pensions Committee, financial aid directors at these schools had accepted money from banks that wanted to be included on a lender list and took payments as consultants for lenders doing business on their campus.

UNR offers lists of lenders for three different loan types. Each list contains virtually the same lenders: Wells Fargo, Nelnet, EFSI, Collegiate Solutions, StudentLoan Express, Wachovia, Bank of America and CitiBank. Lately, the school’s largest lender has been Union Bank & Trust.

Sandy Guidry, interim financial aid director at UNR, said a committee of five financial aid professionals send about 16 lenders requests for information each year asking for details on their student lending. After returning the requested information, lenders are invited to answer questions about their loan policies and customer relations.

“We bring all the lenders in and we grill them,” she said. “We’re actually pretty tough on them.”

This legwork has some lawmakers concerned. According to the most recent issue of Student Aid Transcript, a trade journal published by the National Association of Student Financial Aid Administrators, “This practice has led to increased concern among legislators, policymakers, and others as to whether inappropriate and/or illegal linkages are being established between the private loan terms offered by lenders and the PLL (preferred lender lists) treatment those lenders receive.”

At UNLV, students are offered a list of alternative lenders should their federal funds not cover the complete cost of their education. Because alternative loans are between students and lenders and based on the student’s credit, the universities are unable to track how many students take out these private loans.

UNLV publishes a list of lenders on its Web site. Wurm described this aspect of the industry as “very unregulated.”

Wells Fargo has been in the education loan business for 40 years, and today is the fifth largest lender in the country. In the 2004-05 and 2005-06 school years the banking company financed $8 million each year in annual education loans at UNR. The company also finances a number of private loans in Nevada. For reasons of propriety, though, Wells Fargo officials won’t reveal how much in private school loans it typically funds in a given year.

Spokeswomen Mary Berg and Staci Schiller said Wells Fargo once invited 15 to 20 university financial aid professionals from colleges across the country to participate in the company’s student loan advisory board. The bank would pay for the student loan directors’ lodging and travel.

Although Wells Fargo ended the practice in 2005, Berg says the advisory board was an asset for students, schools and the industry.

“We have had advisory councils and believe advisory councils are a valuable asset. These are not compensation positions,” the spokeswoman said.

On May 29, Wells Fargo released a set of “Responsible Education Finance Principles and Marketing Practices.” Among them was a set of criteria whereby the company agrees not to provide any items of value to schools or officials, including the lodging and travel expenses, revenue-sharing and opportunity loans, or loans to people who otherwise wouldn’t qualify — a practice being investigated by New York Attorney General Andrew Cuomo.

On May 30, the Consumer Bankers Association released similar guidelines.

“We actually welcome recent changes in the student loan industry,” Berg said. “We think all lenders should follow the same practices.”

Some changes have been made in Nevada.

“The financial aid directors (systemwide) met and agreed to drop ‘preferred’ from the lenders lists,” Wurm said. “My informal investigation into our institutions didn’t find anything.”

Wurm said that during her research she found neither revenue-sharing agreements, nor any officials with financial ties, such as investments, to any of the lenders.

“As a system, we don’t have established relationships” with lenders, Wurm said. “It is improper to promote one lender over another.”

Guidry, who has spent years in financial aid, says she was disheartened by the unfolding scandal.

“It’s disheartening to those of us who run an honest operation,” she said.

This story first appeared in the Business Press. Matt Ward writes for the Review-Journal’s sister publication and can be reached at mward@lvbusinesspress.com or 387-5298.

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