Financial Aid 101

Aspiring college students and their families face enough confusion and stress in choosing a school and figuring out how to pay for it without having to wonder whether the student loan system is rigged to pick their pockets.Recent revelations about shady-looking practices in the student loan industry reflect badly on lenders, financial aid offices and the federal Education Department.

An investigation by New York state Attorney General Andrew Cuomo has brought to light relationships between lenders and school officials that have hallmarks of conflicts of interest, the most disturbing being an Education Department official who owned extensive stock in a loan company he was supposed to oversee.Colleges were steering business to favored lenders, sometimes for a cut of profits. In other cases, lenders gave gifts to school officials to help win a place on preferred-lender lists.

Some universities have allowed lenders to run call centers that left students with the impression that they were talking to school personnel.On top of that, The Washington Post reported that some loan companies were mining students' confidential data, not to verify information but to market products to them.Not all of the activities have been illegitimate, but they look questionable enough to significantly undermine trust in the integrity of the system.It's a taxpayer-subsidized system that's supposed to help students finance their education, but it resembles an $85 billion-a-year industry geared more toward the interests of the businesses involved than the customers.

Cuomo is scheduled to testify today at a hearing of the House Education and Labor Committee. His investigation, which has reached into other states, has put momentum behind congressional efforts to remake the student loan business. And it's a good thing.Direct loans through the federal government account for 80 percent of college student loans. But private lenders, who issue government-guaranteed loans, handle 20 percent -- more than $17 billion last year.House and Senate Democrats have introduced the Student Loan Sunshine Act, which would bar loan companies from giving financial aid officers gifts, require public disclosure of any special agreements by which a company makes a preferred-lender list and direct schools to encourage direct government loans before the more expensive private alternatives.

Students need assistance in sorting through the options, and it makes sense for schools to give guidance -- but based on low cost and good customer service, not cushy deals and dubious favoritism.Congress also could consider transforming the system to direct loans only -- a harder political choice because it would eliminate private companies from the mix.Whichever improvements Congress decides upon, lawmakers should ensure that the student loan program advances its main goal, which is to help students pay for college, not to turn profits for private businesses at taxpayer expense.

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