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Higher Ed Watch Investigation: Student Loan Companies Infiltrate College Financial Aid Associations
We have long been concerned about the close ties between the student loan industry and the National Association of Student Financial Aid Administrators (NASFAA), an organization that lobbies on behalf of college aid officials. These ties have been so strong in recent years that the group's policy positions on student loans have more often than not mirrored those of the Consumer Bankers Association and Sallie Mae.
NASFAA's leaders deny that lenders have influence over the organization's policy positions. In arguing this point, they often note -- as the group's former president Dallas Martin did in an interview with The Wall Street Journal last year -- that the association prohibits loan industry officials from serving on its national board or voting "on policy and membership issues."
What they fail to mention, however, is that these rules do not apply to the organization's state affiliates and regional associations. In fact, by most accounts, these groups depend heavily on student loan providers for both leadership and financing.
At Higher Ed Watch, we set out to investigate the extent of lenders' involvement in NASFAA's state affiliates. We looked at the membership of the organizations' executive boards, committee chairmanships, and equivalent leadership positions. We were able to obtain data for 37 of the 49 state chapters (Delaware, the District of Columbia, and Maryland have one group). Password protections and nonfunctioning websites prevented us from being able to access information on the other 12 chapters.
The results are striking. All told, of the 892 individuals serving in leadership positions at these 37 state affiliates during the 2007-08 academic year, 170, or 19 percent, were members of the loan industry.
In some states, these ties are particularly strong. For example, in four states, loan industry officials were actually in charge of the NASFAA affiliates. In Rhode Island, the president of the Rhode Island guaranty agency served as the state chapter's president, while the leader of Rhode Island's state-affiliated non-profit lender served as its treasurer. Officials with American Education Services, the Pennsylvania Higher Education Assistance Agency's national brand, led the Delaware and the District of Columbia affiliates. An official with EdFund, a national guaranty agency based in California, was the Maryland chapter's president.
Even if not run by lenders, some state affiliates have a particularly strong lender presence. For example, at NASFAA's Arizona chapter, loan industry officials make up 48 percent of board members and committee chairs, including the organization's treasurer, treasurer-elect, and the co-chairmen of the membership, state legislative affairs, and newsletter committees. The joint DE/DC/MD group also contains a large number of lenders, with loan company officials making up 45 percent of its leadership positions.
In total, only five of the 37 state financial aid officer association affiliates had no lenders in leadership positions, while 13 had at least one-quarter of their leaders come from loan companies. (The table below shows the proportion of lenders in leadership positions at each of the state chapters.)
In addition to occupying major leadership positions, lenders can also assert their influence via corporate sponsorship of websites, newsletters, and the associations' annual conferences. For example, 12 state affiliates display ads for loan companies on the main page of their website. Of these, Georgia's state chapter had the most sponsors, with ads for 11 different banks and loan companies.
The powerful role that the loan industry has played in helping lead and finance these organizations can be seen in the stances they have taken on some of the most controversial loan issues in recent years. Many of these state financial aid officer groups helped lead the opposition to the Student Aid Reward (STAR) Act, a bipartisan bill that would have rewarded colleges that entered the Direct Student Loan program with additional need-based grant aid. Schools and students participating in the Federal Family Education Loan Program would have lost nothing.
State financial aid officer organizations also bitterly opposed efforts by New York State Attorney General Andrew Cuomo, Congress, and the U.S. Department of Education to strengthen regulations that forbid student loan providers from offering illegal inducements to colleges to secure applicants for federal loans and require colleges to include a minimum of three lenders on their preferred lender lists.
Some state chapters even received a reprimand from NASFAA's leadership for pushing a proposal, championed by the loan industry, to raise the interest rate on PLUS loans taken out by parents and graduate students through the Direct Loan program.
NASFAA's leaders know that the ties between lenders and its state affiliates are problematic, but they don't seem to know quite what to do about it. In a recent interview with Higher Education Washington Inc., Philip Day, the association's relatively new president, talked of "a candid conversation" he recently had with the leaders of the group's state and regional chapters: "They need to start reassessing the extent, and I think most of them are, to which they allow representatives of lending institutions to be engaged in the governance structure, particularly in leadership roles, of their regional and state associations."
At Higher Ed Watch, we believe that stronger action is needed. At the very least, the state chapters should be held to the same standards as the national organization -- meaning that lenders should be barred from holding leadership roles and voting on policy issues. And frankly, they should stop accepting student loan bank money as well. Only then will the organization as a whole begin to represent all student financial aid administrators, not just those at schools participating in the Federal Family Education Loan Program.
Stephen Burd contributed to this report.
Ax to grind
Half of this is taken out of context or distorted. For example, the STAR Act was reprehensible legislation because it would have offered a financial inducements (in NAF-ese and Cuomo-ese, a kickback) to FFELP schools to switch loan programs, even though students would lose the benefit of FFELP's lower interest rates and fees.
It put schools in the position of putting the school's interests ahead of students.
Perception and reality
Ben, Stephen: I think that this article raises legitimate concerns; however, as someone who's been on both sides (school FAA and lender rep) I don't see lender participation in state associations as sinister as your article portrays. As a lender representative (I am no longer associated with that employer), I served on a state and regional association board. In one role, I was on the conference committee, in another, I was a non-voting member of the board. In both roles, I was there to volunteer for the organization only. I never marketed products in those meetings. Of course, a certain amount of "good will" was created by those volunteer activities. One thing I agree on is that it is troublesome to have vendors in association executive council voting roles. Some associations limit vendor volunteer activity to non-voting roles. Even with the most honorable intentions on the part of a vendor/executive council leader, the perception of a conflict of interest is there.
Tell the Whole Story
Higher Ed Watch has picked some examples that need further explanation to the casual reader. It is obvious that they are proponents of Direct Lending. When the program was first introduced, there was an offer of $10 per student processed for a Direct Loan if the University would add Direct Lending to their Program Participation Agreement. This quickly dropped to $5 per student processed and shortly thereafter, the offer disappeared and was not included in further discussions. Certainly an inducement was offered.
The STAR plan, introduced twice by Sen. Kennedy, was an inducement to schools to switch to the Direct Lending Program. At the time it was introduced, the FFELP was healthy and competition was driving the commercial lenders to offer a broad spectrum of benefits to the students. The job of the financial aid office is to get the best blend of benefits and service to the students. With this in mind, few supported the STAR plan. When I read the language in the Bill, it appeared that if a school had included the DLP on the PPA, they were already in DLP and would not benefit from the STAR plan which was focused on new converts.
The term “illegal” presumes that there is a law that specifically prohibits the behavior that is under question. While there were several isolated egregious cases of a loss of common sense and perhaps infractions of state ethics codes, there were, at the time, few, if any, acts that were illegal. Thus the term illegal inducement is out of place in this discussion. In general, the lending industry assisted schools to better serve students.
Finally, the difference in PLUS Loan interest rates of 7.9 vs 8.5 was first portrayed as a technical error that would be fixed in the next HEA Reauthorization. When the HEA was slow to be reauthorized, schools and associations did attempt to bring this to Congress’ attention. It then became abundantly clear that this was just the first shot at the FFELP program which became an all-out assault in the CCRAA.
While I will concede that I was surprised to see the number of lender in positions of responsibility in many state associations, it is possible to remedy that by some relatively simple by-law changes.
what "chapters" or "affiliates?"
State and regional financial aid associations are not "chapters" or "affiliates" of NASFAA in any way, shape or form, and NASFAA has no control over those individual groups' policies regarding how lender/guarantor membership or leadership is handled. In fact, if a regional President is not employed by a school, that person may not take his/her seat at NASFAA Board meetings because of NASFAA's rules regarding non-school members not serving in leadership roles with NASFAA. I happen to agree completely that lenders and guarantor employees should not serve in leadership capacities in any aid associations, but blaming NASFAA (with which this blog obviously has many an axe to grind) for policies in say, Rhode Island or Arizona, is like blaming the White House for something your town's mayor did. But even more disturbing is the obvious fact that you spoke to no one about this phenomenon. This topic has been discussed ad nauseum in aid associations for years. Many of us who work on campuses are very challenged to give the necessary time commitment to these associations to serve in leadership or even just active roles. Financial aid administration is becoming a more and more demanding profession all the time; there is no "down time" as there was years ago, the students and parents are understandably more confused and demanding, regulations pile up, what we do is a bigger part of the school's strategic enrollment and retention plans, etc, on top of the fact that we now have PR campaigns to mount just to prove that we're not all on the take. Lender reps, on the other hand, are told by their supervisors to get out there and make face time...and what better way than to volunteer for every committee they see? When I've served as an association president or committee chair, I had no trouble getting more volunteers than I needed for things...if you count the lender and guarantor reps. The real aid administrators are too busy holed up in their offices 50-60 hours a week to add a lot of volunteer work to their schedules. Many bloggers insist that they are journalists, and a good journalist would have gotten some more information for a story like this.
Inaccurate as usual
In addition to the usual biases (many of which have been noted by other commenters) there is a key inaccuracy in this piece, namely that regional and state associations are affiliates of NASFAA. This is not true--in fact, the regions and many of the state groups were actually founded before NASFAA was. There is cooperation among all, of course, since they all have the same goal of helping students and informing aid administrators, but the regions and states are independent entities.
Head in the Sand
You can define affiliates however you want to, but the definition I see in the dictionary is to "associate with a group". I think the following qualify for that definition:
If people think all of the associations are not tied together they must have their heads in the sand. We as members of the financial aid profession were just too lazy to do the work to keep the leadership of the associations in the schools. Now it is time to get off our butts and do it right!
Board Members
I find this article interesting, especially coming from an organization that has a Wal-Mart Executive VP on its Leadership Council (entry fee - $25,000 min). Isn't Wal-Mart the organization that is spending millions of advertising dollars trying to shore-up it its tarnished image of being unfair to its employees (do you really want health insurance for your kids, are you crazy?), brutal on small businesses and bullying in dealing with small town zoning boards? How does this compare with having relatively low level bank employees volunteering to help with small state organizations who seem to always have trouble getting enough volunteers from the schools for the reasons stated above? I guess you take what you can get. To paraphrase the current tag line, "Who's your donor?"
The Structure of Aid Organizations
The issue of whether or not state and regional associations are affiliates is more a matter of semantics than substance. My experience as a state and regional president and national chair has been these professional associations are closely connected. As president of the Oklahoma association (OASFAA), I was automatically a member of the Southwestern association (SWASFAA) board of directors. As SWASFAA president, I was a member of the NASFAA board of directors. This progression of representation moves logically from the smallest number of constituents (schools) at the state level to the regional level with more schools and more varied concerns, to representing the concerns of financial aid administrators across the nation.
We should not lose sight of the fact that the reasons for participation at the state and regional levels are different for school financial aid administrators than for lenders. As a school aid administrator, I look to my state, regional, and national organization to assist me in providing the best services and ensuring access for my students. School FAAs measure success by enrollment and ultimately, completion of an educational objective, hopefully with the least debt possible. Lenders measure success by the amount of profit earned in a given period.
As the preeminent financial aid organization, NASFAA has a responsibility to provide direction and guidance to its members regarding standards of conduct and organizational membership. I have long thought NASFAA needs to be more proactive in providing leadership in these areas to regional and state organizations. I believe we should give Dr. Day, NASFAA’s new CEO, an opportunity to review NASFAA’s primary mission and responsibilities before we assume that nothing will change at the national level.
Charlie Bruce
OASFAA President: 1987-88
SWASFAA President: 1990-91
NASFAA Chair: 2002-03
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