SOURCE: GAPFA

May 24, 2007 09:00 ET

Graduate Student Advocacy Group Calls for Transformation of Student Loan Industry Practices

Elimination of the School as Lender Program and Reinstatement of NSLDS Access, Priorities of Graduate Professional Finance Association

TUSCALOOSA, AL -- (MARKET WIRE) -- May 24, 2007 -- The Graduate Professional Finance Association (GAPFA) has joined the nationwide call for change in the student loan industry. Issues such as limited loan options offered to students by School as Lender (SAL) Programs and the recent federal restrictions on lenders' access to the National Student Loan Data System (NSLDS) are part of a glaring need for heightened student awareness within the student loan industry. GAPFA was formed to help foster transparency and pro-student initiatives within the student loan marketplace.

"GAPFA is the only organization that gives a voice to graduate students on student loan issues, as opposed to the lenders and elected officials usually heard from in coverage of the industry," said Charles Jacobs, president of GAPFA and current MBA student. "Students today face enormous debt burdens and questionable partnerships between schools and lenders. Regarding restricted access to NSLDS, the last thing we need is a disruption to our ability to conduct comparison shopping. It seems no one is looking out for students' best interest, and if access to this system is not restored quickly, we won't even be able to look out for ourselves."

In the current debate over lender-school relationships, one facet that has been largely overlooked is the SAL program, in which the student borrows directly from the school, which utilizes its own Federal Lending Code. The loans are then held for a short period before being sold to a third party for a profit. At SAL schools, students are often presented with this one loan choice and are not given the opportunity to comparison shop for the loan that best suits their financial needs. The program has engendered an inherent conflict of interest between the schools' roles as lenders and their core missions as institutions of higher learning. There is almost no disclosure as well, and consequently most students are not aware that their school is profiting at their expense (see The Dis-Economics of the School as Lender Program at gapfa.org).

Another issue in need of immediate resolution is the suspension of NSLDS access. Prior to the recent suspension, students could easily conduct their own independent research into borrower benefit offerings by calling different lenders and consolidators and determining their deals. Eligibility for loan incentives today often depends on a student's loan portfolio, as a lender may offer different deals and almost all have a minimum balance requirement. Lenders could quickly ascertain this eligibility by accessing NSLDS. Now that only students and schools can access this database via a cumbersome application process, it's very difficult to get competing lenders to commit to a given rate incentive. This works to thwart competition and student choice as many students will simply consolidate with their current lender.

"This year student loan consolidation is no longer the slam dunk it was in the past. Rates have increased considerably and all graduating students now have new fixed rate Stafford loans," said Jacobs. "As a result, the primary benefit of consolidation for most will come from securing a superior rate incentive. The suspension of NSLDS access however has substantially limited graduating students' ability to conduct comparison loan shopping."

About GAPFA

GAPFA was founded in the Fall of 2006 by a group of concerned graduate students bothered by the lack of information and student voice within the post-secondary education market. Upon conducting further research, these students discovered a series of misinformation and unsound economic principles being promoted and practiced throughout the student loan industry. GAPFA officially launched its website in January of 2007, taking aim at fostering transparency within the student loan marketplace. GAPFA partners with other graduate student organizations to ensure a unified voice and representation regarding all student loan matters. The release of its first position paper on the ills of the School as Lender Program and all future position papers can be found at www.GAPFA.org.