The US’ 85 billion dollar a year student loan industry in under high legal scrutiny. In the race to compete for America’s highly dependent student borrowers, private lenders have been caught in some foul play. This is according to Andrew Cuomo, New York’s high-powered attorney general, who has ordered subpoenas for more than 100 higher education institutions and 13 lenders suspected of suspicious bargaining. The core of the investigation is the ‘preferred lender’ lists that are created to help students choose amongst the vast amount of loan options available. Apparently, lenders have been offering lucrative incentives in the form of shares, free travel, debt write-offs, and phony fees, to institutions who give them a place on their preferred lender list. US loan market competition has also engulfed the public sector. Lending companies have been offering universities money to pull out of the federal direct loan programme, a move to gain speed in the 69 billion dollar federal student loan industry. The federal direct loan programme, initiated by Bill Clinton, aimed to be cheaper for students and taxpayers as interest rates are paid back to the government as opposed to private lenders who lend through the government (in a special relationship). Since the government has divorced itself a bit from private lender, competition has escalated. Those like Sallie Mae, the nations largest private lender, who lends through government backed programmes, has turned away from the government, recently announcing that it has been bought out for 25 billion dollars by a consortium of private equity firms. While many European countries have just begun to toy with the idea of student fees, let alone student funding to match those fees, this capitalist conundrum in the US seems estranged and perplexing. It has yet to be seen how America will balance the private-public student loan landscape. US Federal student aid website
Sallie Mae Student loan provider
New York district attorney website