New York's Watchful Eye

Two news stories this week indicate that New York is leading the charge on higher education accountability. First, the NY State Department of Education is threatening to close the for-profit Katherine Gibbs School after finding major deficiencies, including not having enough faculty or remedial classes. Second, Attorney General Cuomo is sending out requests for information to national student loan companies on their marketing practices and also to universities on how they select which companies get on their ‘Preferred Lender’ lists.

Preferred lender lists are lists of lenders that financial aid offices recommend their students use for their loans. These lists can be as short as one lender or can include several options, and students almost always choose a lender off this list. For lending companies, getting on preferred lender lists is essential to maintaining high profits; it gives them access to federal loan business, but also to more lucrative private loan business. Of course, when high profits are involved, there is the potential for shady behavior – lenders aren’t supposed to bribe financial aid officers to get on preferred lender lists, but some smaller loan companies are accusing them of doing just that. It will be interesting to see how the Attorney General’s investigation shakes out, and whether it impacts the Department of Education’s proposed regulatory changes on loan company and university practices.

More accountability is a good thing. In the end, students and taxpayers are the ones that will benefit the most from a more watchful eye on the activities of for-profit colleges and student loan companies.