New York Attorney General Andrew Cuomo's quest for the Governor's seat is exposing a deep flaw in the relationship between student loan companies and universities.
According to the New York Times [registration required], Cuomo's investigations led to the dismissal of Columbia University's financial aid director yesterday after the release of documents showing he promoted a student loan company -- Student Loan Xpress -- in which he had a stake, sending letters to parents and alumni on three occasions praising the lender.
Columbia joins other schools including Johns Hopkins and the University of Texas, Austin that have been caught up so far in this scandal. The fundamental problem is that schools don't pay much money to their employees even as they keep raising tuition. As with the rest of the U.S. economy, the gap is covered by debt -- in this case student loans.
And the student loan companies have been kicking back some big bucks to the financial aid directors to help them offset their lousy academic pay. Unfortunately, as Cuomo points out, these kickbacks may lead students to do business with loan companies whose terms were not in the students' best interests.
The greater the fallout, the better for Cuomo's gubernatorial ambitions.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
5-22-2007 @ 2:54PM
Marc McReynolds said...
> The fundamental problem is that schools don't pay much money to their employees even as they keep raising tuition. <
What a wierd piece of reasoning. So are you implying schools should raise salaries (begetting even larger tuition increases)? Or do you think the tuition increases are all going for top administrator's salaries and perks? Ever actually seen a college's budget?
"Schools" pay enough money such that employees are willing to keep working there with an acceptable level of turnover, same as anywhere else. People will always want more, and look for ways to get it -- free office supplies, loan kickbacks, whatever. Look at what multi millionaire CEOs have been caught doing and you'll realize it's not a function of pay level.
Tuition gets raised because the cost of energy, consumables and yes, salaries keep going up. Another huge cost for competitive colleges is that they must physically expand their campus at roughly the rate of their peers or become less competitive in the long run. It's a more complicated business than you seem to realize.
>As with the rest of the U.S. economy, the gap is covered by debt -- in this case student loans. <
The thinking again seems odd. A gap between what and what? Student loans relate to the tuition amount. Employee pay is part of what tuition is based on.
People with enough money to buy something outright (house, car, education) can pay cash -- otherwise they can try to get a loan for some or all of it. Took me ten years to pay mine back, but it was the best money I ever spent.
5-22-2007 @ 3:06PM
Chris Allen said...
Mr .Mcreynolds,
You're speaking in doublespeak... if you have a point to make, then make it. I don't think you get the problem... it's certainly not about accountability in paying off loans and whether or not it's "worth it"... most people would agree that you ought to pay off your loans, and yes, it is worth it!... it's about both corporate welfare and whether the tution increases are misallocated... time and time again 10 percent increases.... almost yearly. Subsidies that are lining the executives pockets in the student loan industry, yet the administrators are not making sufficent salaries from this blogger's perspecitve within the schools. I see this perspective... do I agree that this is a viable reason to take kick backs from the loan industry? No... but it's NOT about paying back loans and being the Horatio Algiers type...
5-22-2007 @ 4:01PM
beanspants said...
i would just say the blog blurb is poorly written, and forecasts issues that perhaps go beyond Cuomo's investigation.
The university i attended "promoted" Student Loans Xpress as well, and i had student loans through them while i attended, though my loans were sold after i graduated. they were a fine company. that is my praise of them. honestly, though, what do i care? there was no real competition -- the terms all the loan companies offered were almost exactly the same, so i'll take the one the school recommends.
and again, administrators not making enough money as the reason why devilish-deals were made with student loan companies is an unsubstatiated opinion. The profs made $150k a year starting, and financial officers, especially the ones making such decisions, were paid decently as well. what is enough? some people are just crooked and always want more.