As the adage goes, more money, more problems.
However, as students, very rarely is it that our own personal wealth that causes these financial problems. More often than not, the money causing our problems either belongs to a bank or the federal government.
It doesn’t help, then, when schools that are supposed to serve students contract businesses that engage in predatory practices, which affect many people on campus. Private student lenders, like Sallie Mae and Higher One Holdings, Inc., which recently started overseeing Sallie Mae’s online payment services, have been employed by the University of California since 2004.
Within this nine-year window, both companies have been embroiled in student loan controversies. Thus, the contract with these organizations is up for renegotiation this year, and the University should look to discontinue its relationship with Higher One Holdings and relegate the services it rendered to smaller firms or financial institutions whose main business is not student lending.
In 2004, the UC Office of the President selected Sallie Mae Business Office Solutions through a bidding process to offer web-based student bill payments. Four of the UC campuses – Berkeley, Irvine, San Francisco and Santa Cruz – chose to join the optional program and currently offer web-based billing through Sallie Mae. The campuses have paid the company about $300,000 over the past two years.
The situation started to look bad in 2007 after a probe from then-New York Attorney General Andrew Cuomo. It was found that Sallie Mae had offered financial aid officers gifts, entertainment and paid-for travel in order to bring business to the firm. Sallie Mae settled out of court and agreed to a new code of conduct and a donation of $2 million to a fund devoted to educating college-bound students about financial aid.
It didn’t end there. In 2009, the Department of Education found that the company had overbilled the federal government for student-loan subsidies by $22.3 million. Additionally, in 2012, the firm settled for $24.15 million out of court after a lawsuit was filed claiming that Sallie Mae aggressively auto-dialed and auto-texted students in an attempt to collect outstanding debt, a violation of federal law.
In response to the continued controversy, the UC Student Association passed a resolution in the fall of last year demanding that UC break its contract with Sallie Mae.
Just this year, Sallie Mae sold the division handling the UC’s contract to Higher One Holdings, another educational finance servicing company. Higher One has been embroiled in controversy as well. The company was found to be charging excessive and expensive fees on its university debit cards in 2012.
The contract currently held by Higher One expires this year, and the University is widely expected to issue a request for new vendor contract options to handle the online bill pay.
It’s at this time that the UC will have the opportunity to take a stand against the predatory nature of the college loan market.
Contracting with large financial institutions, like Wells Fargo or U.S. Bank, which don’t make the majority of their profits from student loans will help to insure that companies working with the UC do not have a vested interest in predatory lending.
In an ideal world, contracts could be made with more local or moderately sized banks that have a proven track record of consumer protection. Even if the UC has to do additional groundwork to find a suitable fit, there is great value in establishing relationships with more socially conscious financial institutions.
Universities and private lending companies will always have something in common – students. However, by keeping companies with well-documented instances of predatory practices at arm’s length, the UC can ensure it will foster relationships with companies invested in protecting student interests.
Time and time again private student lenders have shown that they do not have students’ best interests at heart. Exploring other institutions could be the first step to curbing the predatory student loan market.
Email Nelson at rnelson@media.ucla.edu. Send general comments to opinion@media.ucla.edu or tweet us @DBOpinion.