Spring Break
Drexel's Loangate, it just won't go away
By: Robert Zaller
Issue date: 6/8/07 Section: Ed-Op
Originally published: 6/8/07 at 4:07 AM EST
Last update: 6/8/07 at 4:08 AM EST
Originally published: 6/8/07 at 4:07 AM EST
Last update: 6/8/07 at 4:08 AM EST
After a brief, demented show of defiance, Drexel University's administration recovered its collective mind and decided not to contest New York Attorney General Andrew Cuomo's suit against the cozy relationships between universities and student loansharkers, many of them charging double the market rate while paying cash under the table for preferential (i.e monopolistic) status. Maybe sanity erupted on Chestnut Street when the U.S. House of Representatives voted 414-3 to ban such practices. But the story's far from finished, and what it has to say about modern higher education is damning indeed.
The first thing to take note of is how big the student loan business is and, up until now, how unregulated it has been. Last year, students took out $85 billion in loans; that is, assumed $85 billion in debt. Few of them shopped for the best deal. Many of them simply opted for their university's so-called preferred provider. They entrusted their finances to the same folks who were providing their room, board, personal security, course advising, career counseling and much else. And, in case after case, they were ripped off.
The predators had a staunch ally in the U.S. government. Sallie Mae - the state-backed SLM Corporation, of Reston, Virginia - had been the largest single supplier of student loans in the country, prior to its acquisition seven weeks ago by a private investment group led by J.C. Flowers & Co. L.L.C. and including J.P. Morgan and the Bank of America. (Shares of Sallie Mae jumped from $46.76 to $55.05 overnight on the good news.) The U.S. Department of Education, meanwhile, maintains a giant database on the finances of millions of student aid applicants, which it has been helpfully forking over to private lenders, guarantors, loan servicers and universities - your personal data "shared" without your knowledge and consent. (The Secretary of Education is Margaret Spellings, if you'd like to let her know how deeply you appreciate this.)
The point person for sweetheart deals between lenders and universities would be, of course, the Financial Aid Director. At Columbia University, that was David Charlow, who held more than $100,000 in shares with Student Loan Xpress, the company whose services he hustled. Charlow was on a nickname basis with the company president, stayed at his home in California and complained when the tickets he received from him to an Allman Brothers concert weren't to his fastidious liking. At Johns Hopkins, it was Ellen Frishberg, who confessed to receiving $65,000 in fees and payments from the same company. At the University of Texas at Austin, it was Lawrence W. Burt, who bought 1500 shares in Education Lending Group for $1 apiece and sold them two years later for $10. (Charlow had the same deal, but for 7500 shares at Student Loan Xpress). At the University of Southern California it was Catherine C. Thomas, also an ELG investor.
The first thing to take note of is how big the student loan business is and, up until now, how unregulated it has been. Last year, students took out $85 billion in loans; that is, assumed $85 billion in debt. Few of them shopped for the best deal. Many of them simply opted for their university's so-called preferred provider. They entrusted their finances to the same folks who were providing their room, board, personal security, course advising, career counseling and much else. And, in case after case, they were ripped off.
The predators had a staunch ally in the U.S. government. Sallie Mae - the state-backed SLM Corporation, of Reston, Virginia - had been the largest single supplier of student loans in the country, prior to its acquisition seven weeks ago by a private investment group led by J.C. Flowers & Co. L.L.C. and including J.P. Morgan and the Bank of America. (Shares of Sallie Mae jumped from $46.76 to $55.05 overnight on the good news.) The U.S. Department of Education, meanwhile, maintains a giant database on the finances of millions of student aid applicants, which it has been helpfully forking over to private lenders, guarantors, loan servicers and universities - your personal data "shared" without your knowledge and consent. (The Secretary of Education is Margaret Spellings, if you'd like to let her know how deeply you appreciate this.)
The point person for sweetheart deals between lenders and universities would be, of course, the Financial Aid Director. At Columbia University, that was David Charlow, who held more than $100,000 in shares with Student Loan Xpress, the company whose services he hustled. Charlow was on a nickname basis with the company president, stayed at his home in California and complained when the tickets he received from him to an Allman Brothers concert weren't to his fastidious liking. At Johns Hopkins, it was Ellen Frishberg, who confessed to receiving $65,000 in fees and payments from the same company. At the University of Texas at Austin, it was Lawrence W. Burt, who bought 1500 shares in Education Lending Group for $1 apiece and sold them two years later for $10. (Charlow had the same deal, but for 7500 shares at Student Loan Xpress). At the University of Southern California it was Catherine C. Thomas, also an ELG investor.
