The Plot Thickens: Students at 921 Colleges Choose the Same Lender

Scandal after scandal rocked the $85 billion student loan industry over the last year. The latest news: students at over 900 colleges chose the very same student loan lender. Coincidence? The Department of Education says no and has finally decided to take action.

The Department of Education recently announced that stern warnings were issued to 921 colleges and universities that failed to pass the Department's red flag test.

Jeff Baker, a liaison at the Department's federal student aid office, reported that the 921 campuses that received the strict warning were singled out because 80% or more of the student body at these campuses chose to work with just the one lender.

'That was a little flag to us that perhaps, just perhaps, the institution isn't quite being open enough to their students and parents about who they could borrow from,' said Baker at an annual meeting of the National Association of Student Financial Aid Administrators.

The findings that raised the red flag came from research completed last month in the wake of scandals involving all-too-convenient relationships between lenders and various colleges and universities.

Allegations have been erupting all over the country since the beginning of the year. Numerous administrators are being charged with receiving kickbacks and other lucrative perks because they steered students into working with a specific lender.

John Hopkins University, charged with violating New York student loan practices, recently agreed to donate more than $1 million to absolve itself in an investigation.

So far, there is no hard evidence as to whether or not students are paying higher interest rates because of this questionable behavior, but it's likely that reports will surface soon.

The Department of Education did not name the 921 colleges and universities that received the letter, but did note that the warning was meant to serve as a reminder that such practices are illegal and to encourage schools to look into their individual practices.

Any institution that violates the established student loan policies could be subject to substantial fines and barred from participation in the FFELP (Federal Family Education Loan Program). The Education Department said that it plans to continue monitoring the situation and will be examining data on a regular basis to check for suspicious trends.

This move was the most aggressive action that has been taken so far, but critics of the Department say the involvement is long overdue and not nearly enough to curb what has become a very serious problem.

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