Finance for first-years: Students need to learn how to get loans

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Get smart, or get robbed. That was the message this week in the wake of college financial aid scandals. At least 60 schools are under investigation for employees taking money and gifts from loan companies that wanted their students’ business. Schools’ financial aid officers were offered incentives to ignore the best deals on loans for their students, and to instead recommend loan companies that gave the officers themselves perks.

While Carnegie Mellon is not on the list of suspect institutions, this scandal has hit close to home. Nearby Duquesne University and Carnegie Mellon peer institutions Columbia University and Johns Hopkins University are among the schools being investigated by the New York attorney general for seemingly incestuous relationships with student loan companies. Citibank, Sallie Mae, Nelnet, Education Finance Partners, and Student Loan Xpress — some of whom lend to Carnegie Mellon students — have been treating financial aid officials to dinners, Broadway shows, or stock options in exchange for student referrals, according to an April 18 report in The New York Times.

“It’s tainting the whole [financial aid] industry; there should be more controls,” said Linda Anderson, director of enrollment at Carnegie Mellon, referring to the widespread investigations. Who controls the $85 billion student loan industry? The Department of Education, unfortunately: They just put an administrator on paid leave (pending investigation) who had recently cashed in over $100,000 of stock in a student loan company, according to a Reuters article last week.

It’s time for Carnegie Mellon students to learn to monitor their own borrowing. The adults might not be impartial in their recommendations.

As annoying as some Computing Skills Workshops may be, the first-year requirement is a smart response to the exponentially increasing importance of computer and Internet literacy. It’s time for an equally smart response to Carnegie Mellon first-years’ increasing financial aid in the form of loans and post-graduation debt.

In recent years, the number of Carnegie Mellon students receiving financial aid loans has risen to nearly half the population, according to the Carnegie Mellon Factbook 2006–2007. The number of student borrowers has been on the rise nationwide for several years according to UCLA’s recent study, “The American Freshman: 40-year Trends.” High school seniors, though, have performed dismally (52.4 percent correct on average last year) in a nationwide financial literacy survey conducted by the nonprofit Jump$tart Coalition. Every day, we are borrowing more and getting dumber about it. It might have seemed safe to rely completely on college financial aid officers, but not anymore.

Make a first-year financial education course: one semester, three units. In exchange, students get the know-how to find the best-fitting loans for the next three or four years, and beyond. For students not borrowing to pay tuition, learning the basics of investing and debt will help ease the transition into the more gratifying world of self-reliance. Tepper shouldn’t be the only place on campus with access to the culture of the dollar.

“Loans aren’t one size fits all,” said Anderson last week, explaining why she doesn’t recommend any single private lender. Carnegie Mellon should teach students to find their fit themselves.

Carnegie Mellon students do not have to worry about their school’s ethical practices for the time being — it appears that our HUB humming beneath Warner Hall has been ethical in its dealings with student loan companies. “[Carnegie Mellon] has not received payments from companies that handle our students’ loans in return for steering students to them, nor, to the best of our knowledge, have Carnegie Mellon employees received gifts, trips, or other favors from these companies,” university President Jared L. Cohon stated in an April 9 e-mail to Enrollment Services employees. Anderson claimed that neither she, nor anyone in Enrollment Services as far as she knew, has received any compensation from student loan companies.

As laughable as it may be to take financial advice from this English major and self-professed financial failure, keep in mind that his dismal post-graduation job prospects will force painstaking fiscal responsibility, as much as he might want to blow everything on CoCo’s cupcakes and velour tracksuits. Not many first-years outside of Tepper are all that interested in fixed and variable interest rates, APR ranges, or federal versus private loans. That should change.

Students don’t have to stress about loans throughout the year, but a quick primer on financial basics as first-years can foster smart decisions from the start. Four years later, those smart decisions could be the difference between velour tracksuits and potato sacks.