Marketing Rules for Student Lenders: How They've Changed
In 2007, Andrew Cuomo, the Attorney General of New York State, spearheaded an investigation into devious student lending practices and partnerships between lenders and universities. Up until recently, many universities encouraged students to sign up for loans with “preferred lenders” who gave financial aid employees luxury gifts and other kickbacks in return for their business. The borrowers and their families were the losers in this transaction, often incurring higher interest rates and unfavorable terms on their loans.
But these weren’t the only shady practices student lenders employed to get more business. Some lenders made a practice of marketing directly to students as well, and the marketing methods they used weren’t always above-board. As part of the outcome of the investigation, several lenders were ordered to change the way they marketed their students loans.
Among the lenders charged with deceptive marketing practices were Graduate Loan Associates, Xanthus Financial Services, EduCap, GMAC Bank, Sallie Mae, NextStudent, NelNet, Goal Financial, and Campus Door.
Another lender, My Rich Uncle or MRU Holdings, also agreed to follow
the new marketing code of
conduct—even though it was not found guilty of misleading marketing
practices by the Attorney General.
Following are some of the deceptive practices these lenders employed to
persuade individuals to take out student loans with them.
It used to be that student lenders would shower borrowers with expensive free gifts when they signed up for loans—gifts that included iPods, cell phones and even new laptops. Under the Student Loan Code of Conduct, lenders are no longer allowed to offer extravagant gifts to students to lure them into taking out a loan.
Using logos or marketing materials that look like they come from the government
Before the student loan scandal broke, it wasn’t unheard of for private lenders to use logos that resembled that of government aid agencies—a deceptive practice that could lead students to believe the private companies were affiliated with federal lending programs, which offered lower interest and fixed rate loans. Today, student lenders are not allowed to mislead students by using deceptive logos and other marketing materials to give the impression they come from the government.
Sending false checks and rebate offers
We’ve all received those false checks in the mail for thousands of dollars from credit card companies—checks that actually contain the amount of a new balance on a line of credit. If you “cash” that check, you have to pay it back—with interest. Student lenders once made a common practice of sending checks and false rebates for tuition to students—but that’s no longer a permitted practice.
Misleading students about their loan terms and benefits
The student lenders involved in the investigation are no longer allowed to let students think their interest rate will be lower than it is, that it’s fixed when it isn’t, or mislead them regarding other fees and costs of their loans.
Highlighting low costs available only to a small amount of borrowers
Some student loan companies presented their loans as if the ridiculously low interest rate was available to everyone—when in fact only a small fraction of applicants were given that rate. Today, those student lenders are required to disclose the rates they actually offer on most loans.
Even though every student lender wasn’t involved in the student loan scandal—and wasn’t required to comply with the new code of conduct—no lender should use these deceptive practices to reach out to students.
Be wary of student lending firms offering expensive gifts in return for signing up for a private loan; lenders who use logos that look like they come from the government; fake checks and rebate offers sent in the mail; and other deceptive practices. If lenders use these marketing practice on your campus, complain to your school financial aid office—and don’t be taken in.
New York Times: Marketing Code for Student Lenders
New York Office of the Attorney General: About Student Lending
Consumer Affairs.com: Sallie Mae Settles Student Lending Probe
New York Times: Student Lender to Pay $2.5 Million Settlement
New York Times: Another Student Loan Company Settles with New York
New York Sun: Student Lenders to Adopt Code of Conduct
Distance-Education.org: Five Steps to Killing Your College Debt
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch