Is Your College Money Safe?
An In-Depth Look at a Scam that Hit CSU
roman Verzub
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Let's face it: college is expensive.
Beyond the price of classes and credit hours, we pay for books, gas, room and board, and other general living expenses, like food.
For many, the solution is to change their lifestyle - commuters who would otherwise drive, take the bus. Others take out loans, although increasingly many have turned to scholarships to help pay off the exhortation costs.
Yet, many students, eager for every dollar they can possibly get, often don't look into the scholarships and loans, oftentimes missing key terms like high interest rates or obligations, or even those that may show the possibility of something not quite right.
Case in point: The College Advantage Program.
Fliers distributed around campus describe the program in glowing terms - providing free rent, food, child care, books, health care, even tuition reimbursement. "EACH APPLICANT WILL BE GIVEN A MINIMUM OF $5,000," it boasts in large, bold letters. Furthermore, the very bottom of the page claims that "NO MONEY WILL HAVE TO BE PAID BACK FOR PROGRAM BENEFITS."
Yet, reading the terms of this bold program reveals that there is much more than meets the eye.
Sending an email to the address listed on the flier yields a response with a long message detailing "the administrative process" they will follow. It's the kind of long document nobody reads, and later felt they should.
For example, the document speaks of an IDA (Individual Development Account) and that students will need to mail the company "authorization... for transferring money to and from... [students'] primary banking account and IDA account."
Any unsuspecting college student, lost in semi-legal-sounding jargon of the e-mail and filled with hope resulting from the ample promises on the flier, might ignore that detail, and get scammed, essentially, out of as much money the company wishes to scam them out of.
The College Advantage Website has now expired. The website has been owned by the same owner of the Greater Cleveland PC Repair, which describes itself as "Cleveland's one stop computer repair shop" since June of this year. Calling the phone number of the flier yields a voice mailbox that says the box is full and cannot accept any new messages.
Furthermore, according to the Federal Trade Commission, there was a case involving a scholarship with the same name back in 2005 in which the defendants were ordered to pay a combined total of about $1.4 million to students for violation of the FTC Act by "misrepresenting that they would secure 100 percent of the funding necessary to attend college, reduce the out-of-pocket expenses to attend college; and fully refund consumers' money if they failed to secure 100 percent of the funding necessary to attend college."
In an attempt to cut down on student loan scams, several loan companies agreed to a new marketing code and a $1.4 million fund to "help educate students and their families about financial aid," according to the New York Times, citing New York Attorney General Andrew M. Cuomo.
This was a response to Cuomo's criticisms of 7 student loan companies - Campus Door, EduCap, GMAC Bank, Graduate Loan Associates, Nelnet, NextStudent, and Xanthus Financial Services - for their marketing campaigns, some of which made letters appear to have come from the federal government, while others advertised interest rates not available to most borrowers.
"These settlements are a major step forward in cleaning up an industry where false and misleading advertising practices have been all to rampant," Coumo told the Times. "It is unconscionable for lenders to entice students into loans that are not best for them."
One company, My Rich Uncle, though they weren't themselves criticized at all, decided to embrace the new rules on their own, saying they "wholeheartedly support the code of conduct and voluntarily agree... to abide by it," adding that their current advertising practices were already within the rules, and they had to change nothing about how they market.
Companies are now rushing to adopt the procedures to which they agreed as soon as possible.
Ben Kiser, a spokesman for Lincoln, Nebraska-based Nelnet, told the Associated Press the company's progress towards full compliance will occur in stages and that they will be fully compliant by Dec. of this year.
Spokesperson Beth Coggins has said that GMAC, which is based in Detroit and is owned and operated by General Motors, will be immediately compliant with the new code of conduct.
My Rich Uncle, owned and operated by the New York City-based MRU Holdings Inc., has advocated for increased transparency in the student loan industry for over a year, according to Raza Khan, president and co-founder of the company.
The code bans the use of logos and return addresses that appear to be from the federal government. It also forbids the sending of fake or false checks, rebate offers or offering free gifts (like iPods, gift cards, and GPS devices) to lure borrowers. Companies are also barred from writing blatantly misleading statements about their loan terms and benefits, or providing atypical cases - only available to a small percentage of borrowers.
It isn't just state leaders, however, who are concerned.
House Democrat George Miller of California, who is also the chairman of the House Education Committee, has raised numerous concerns about the marketing practices of some major lenders. He commended Cuomo, and criticized student loan companies involved in what he called "shady marketing schemes" including so-called "bait-and-switch" tactics, higher interest private loans, and masquerading as federal loans.
Also banned is the pyramid-scheme concept of paying students to get their friends to take out loans.
The code's adoption by the eight companies can put significant pressure for the reform of the entire student loan industry, according to Barmak Nassirian, a spokesman for the American Association of Collegiate Registrars and Admissions Officers. Greater transparency will help students and their families to make smarter choices about loans.
Coumo also said that students and families should be weary of companies refusing to adopt the new rules. He further said that they would continue to sue companies for similar deceptive practices, mentioning specifically Goal Financial LLC. Last Oct., 33 student loan direct companies were issued subpoenas, and the announcements by eight companies of acceptance of the new standards is considered to only be the first wave of settlements.
Reformation of the student loan industry is not a new thing for Coumo, who last year helped bring about an end to the policy of student loan companies providing financial kickbacks to the 22 schools considering them "preferred lenders". Several of those schools even agreed to contribute money to a new $12 million fund to help educate students and their families about similar issues.
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