Hey, It's Just How Business is Done

There seems to be an attitude among lenders and bankers that all of this ‘scandal’ about lenders offering kickbacks and inducements to financial aid officers to get on preferred lender lists* is really just ‘how business is done’. And all of us education-types just don’t understand how the world of business works.

They’re probably right about a lot of industries, where free lunches and free trips for customers are just part of selling your product, but those rules of business don’t apply when it comes to student lending—an industry supported heavily by federal (read: taxpayer) money, and that exists to promote college access and choice among those who couldn’t otherwise afford it. If the kickbacks and inducements increase the cost of loans to students OR to taxpayers, they undermine the public policy goals of the program and shouldn’t be part of business-as-usual in the student loan industry.

Of course, the question then is: have students really been harmed by these arrangements between lenders and financial aid officers? That’s a tricky question and we don’t (and might not be able to get) accurate information to answer it, but what is obvious is that these arrangements have the potential to harm students, and that potential for harm is serious enough that we need regulations to preemptively protect students. Let me offer up an analogy.

The healthcare industry has faced a similar predicament with doctors and pharmaceutical companies. Both the medical community and the federal government have established guidelines to curb the “gifts, meals, and consulting fees” pharmaceutical sales reps offer to doctors as part of their marketing strategy. But why even bother with guidelines it’s just how business is done? We want guidelines on pharmaceutical marketing because we all want to know that our doctor is prescribing medicine based on our medical needs and scientific research, and not which company offered the best lunch.

The same logic applies to student loans. Every parent and student wants to know that they can rely on the advice and guidance of their financial aid officers, without worrying about which lender happened to stop-in at the financial aid office before they got there. Just as the medicines you take can have a big impact on your health, so too can student loans have a big, long-term financial impact. For that reason, the argument that it’s just “how business is done” is both unacceptable and insulting to the concerns of parents and students who need the most affordable student loans possible.

*While this is clearly an egregious example of this kind of behavior, this email from a Bank of America representative (click on the image to the left) about what was ‘required’ of lenders to get on the University of Texas-Austin preferred lender lists is astonishing. At the very least, read about the tequila and wine.