By any measure, the cost of financing a higher education has soared over the past two decades.
Not surprisingly, a new breed of direct-to-consumer lenders has evolved to help cover these costs, but most do anything but help. From lenders who promote "pioneering" benefits that have been around for years, to those who offer private loans in exchange for 4 percent of your future earnings, the industry is saturated with predatory lenders who are in the business of misinformation. Their weapons of choice: Catchy marketing and fine print.
Students are bombarded with marketing from lenders that tout one percent reduction up front, immediate one percent later, and so on. But a closer look reveals that it is all the same game: Promises are made but never realized, and certainly never published. I would love to have a microphone that broadcasts to every student in the country and says "whenever you hear 'consecutive payments' or 'automatic debit,' run for the hills." No matter how you dress it up, a rock is still a rock.
Now more than ever, financial aid officers (FAOs) are not only responsible for helping their students secure funding, but also saving students from predatory lending practices through financial education and advocacy.
When I arrived at New York Medical College (NYMC) in 1984, it was very clear that becoming a doctor was an expensive proposition--well worth it, but expensive. My role immediately would change from being a financial aid counselor who essentially brought money into the school, to a counselor who had to prepare students for the investment they were making in their medical education.
According to a 2004 Association of American Medical Colleges (AAMC) report, "Medical school tuition and young physician indebtedness," between 1984 and 2003, the consumer price index less than doubled. However, in that same 20-year period, private medical school tuition became 2.7 times higher; public medical school tuition became 3.7 times higher; and overall medical education debt became 4.5 times as high.
In 1996, in an effort to reduce NYMC students' debt burden, the school's Office of Student Financial Planning informally surveyed the lending community. With the help of Dr. Susan A. Kline, Vice Provost of University Student Affairs, Executive Vice Dean of Academic Affairs, we approached a non-profit education lender in hopes of developing a better way to arrange financing for higher education.
In making the choice, it was paramount that the lender be a not-for-profit organization because that was an indication that their main constituents were students, and their driving force was reducing debt. For-profits, on the other hand, compete with stockholders and various other interests, and much of the time students lose. Another key element: customer service.
Our Office challenged the lender to absorb a 3 percent origination fee (charged on each loan by the Department of Education), which was costing each student between $5,000 and $6,000 over four years. The lender met the challenge and became the first to offer financing with zero origination fees.
Shortly thereafter, this lender became the first in the United States to return its profits to borrowers through bonus rebates and incentives. Unlike traditional incentives, the rebates require neither direct debit arrangements nor consecutive prompt payments--common borrower benefit tactics used by many high-profile lenders.
According to the website www.FinAid.org, less than 10 percent of borrowers qualify for the full term of their prompt payment discounts. Much like manufacturer rebates on products, few people who qualify actually get the rebates. Lenders have applied that concept to student loans. In addition, it has become very difficult to find published data that outlines borrower benefits and the percentages of students who qualify.
Financial aid officers need to be proactive and in many ways be consumer advocates for their students. Being truly proactive includes looking out for the best interests of the students. We must expand our role from simply bringing in financial aid to becoming teachers of financial literacy when it comes to student loans. Because honestly, do you really expect students to know what to look for or to read the fine print regarding the incentives being offered? If a new drug comes on the market and it has a very high effective rate, doctors would be remiss for not informing patients about it. Similarly, we have to be good about informing students of changes because they depend on us.
In addition, it is our responsibility to keep students aware of legislative and industry changes that benefit them.
For instance, the historically low interest rate environment in 2005 prompted discussions among leading financial aid officers on whether students could secure low rates by consolidating their debt prior to graduation.
After encouragement from the Office, this lender became the first national lender to take the position that in-school students could and should consolidate. As a result, nearly all of NYMC's students locked in interest rates ranging from 2.75 percent to 2.95 percent.
This high rate of success can be attributed to NYMC's Office of Student Financial Planning because we proactively reached out to students and educated them about the process. We held lunchtime and evening sessions; one-on-one and group sessions; wireless laptop sessions, that enabled students to do everything online in our presence; took calls and e-mails at home; the list goes on.
This isn't a complicated model to replicate. All anyone simply needs is a financing education plan and the drive to take advantage of opportunities as they present themselves.
Just as our office is one model for the academic community, there are lenders that can serve as models for the loan industry.
Most importantly, this program did everything its executives said it was going to do: maintained excellent customer service and support; lowered origination fees; began to pay out monthly bonuses to nearly 100 percent of graduating students; and above all else, clearly published these promises.
In the end, it all comes down to FAOs being very involved with students-- having their best interests in mind, gaining their trust, and keeping lines of communication open. That alone can save students millions of dollars in the long run.