Des Moines Register
10-29-07
E-mails detail loan firm's drive for profits
Iowa's college students are among the most deeply in debt in the nation.
By JENNIFER JACOBS
REGISTER STAFF WRITER
E-mails written by managers of Iowa Student Loan Liquidity Corp., the nonprofit
organization that dominates Iowa's college loan industry, show how the agency
uses aggressive marketing tactics and seeks "continued hypergrowth."
Iowa's college students are among the most deeply in debt in the nation. That
fact has led state lawmakers to examine whether Iowa Student Loan's strategies
could be partly responsible.
The topic is on the agenda for a meeting today of the Iowa Legislature's
Government Oversight Committee.
Although Iowa Student Loan was created by state government, it is a private,
not-for-profit corporation. Today, the agency plays a lead role in guiding
thousands of young Iowans in how to pay for their college educations.
Watchdog groups warn students not to rely too heavily on loans to pay for
college, especially private loans, which are those offered by a bank or a loan
agency such as Iowa Student Loan.
But Iowa Student Loan's top managers talk about "locking in business" in the emails, which were in the possession of a state official and were obtained by The
Des Moines Register through a public-records request.
Asked whether Iowa Student Loan is preventing meaningful competition in Iowa,
chief executive Steve McCullough said no. The organization not only does not
have the ability to prevent competition, it does not seek to do so, he said last
week in a written statement.
"As does any other competitor, ISL has to earn this business by providing the
best terms for Iowa's students and families," McCullough wrote.
He said the benefits Iowa Student Loan offers students "are demonstrably the
best."
"We believe that Iowans are smart consumers who make choices based on price,
convenience and reliability," he said.
Iowa Student Loan had filed a lawsuit to try to block the Iowa Board of Regents
from releasing to the Register certain e-mails about its business strategy from the
state computer of Greg Nichols from the time when he was both a Board of
Regents employee and a member of Iowa Student Loan's board of directors.
Iowa Student Loan settled its lawsuit in August. Afterward, state officials released
most of the e-mails the newspaper sought.
The word "profit" is used 11 times in a single e-mail about Iowa Student Loan's
marketing campaigns.
Another e-mail, dated 2003, shows that Iowa Student Loan held 95 percent of the
private loan volume in Iowa by dollar amount and 86 percent of the volume in a
federal education loan program.
The loan agency has been "engaging in an aggressive, offensive strategy to
bring in new loan volume," McCullough wrote in a memo to the agency's board of
directors.
Here are details from the e-mails Iowa Student Loan tried to block from public
disclosure:
Ethics violation investigation: One e-mail mentions that someone asked Charles
Smithson of the Iowa Ethics and Campaign Disclosure Board to look into whether
Nichols violated state ethics rules during his service on Iowa Student Loan's
board of directors.
Nichols accepted $1,000 per meeting for sitting on Iowa Student Loan's board at
the same time he worked for the Board of Regents. Iowa law says state
employees cannot be paid by anyone other than the state for duties that are
required as part of their state employment.
Iowa Student Loan lawyer John Hintze tried to find out who called for an
investigation of Nichols, the e-mail says. "(Smithson) did not disclose who put
him up to requesting it," it says.
Smithson said Friday that he is looking into the general issue of possible conflicts
of interests for state employees serving on outside boards.
Nichols asks in another e-mail for office space in Iowa Student Loan's building.
Asked if this use of its office space by a state employee could be seen as
"anything of value," as contemplated under the ethics law, McCullough answered
no.
He said all board members are given access to conference room space for
occasional use.
Exclusive referrals: Federal law gives undergraduate students the absolute
choice in their student loan lender.
One Iowa Student Loan e-mail with a market share chart says the "percent of
Iowa schools referring exclusively to Iowa Student Loan" was 61 percent for
private loans.
It also says its market share was 60 percent for so-called FFELP loans, or the
Federal Family Education Loan Program. The federal government subsidizes
commercial lenders for distributing this type of federal loan to student borrowers.
Asked to explain this, McCullough wrote: "The e-mail document, which is a
confidential strategic planning memorandum, refers to the fact that schools
assemble preferred lender lists. The 'exclusive' here indicates that 60 percent of
the schools in Iowa have preferred lists composed of lenders that also do
business with ISL."
But, he said, students are free to choose any lender to issue their college loans.
Iowa Student Loan works with 300 such lenders in Iowa.
Criticisms have been raised by public policy advocates and lawmakers about
preferred lender lists.
But they are OK as long as there are no "automatic referrals," according to
federal education officials.
Des Moines University agreement: One e-mail states that Des Moines University
has a "school-as-lender" agreement with Wells Fargo, the giant nationwide bank.
Under these legal but controversial arrangements, schools make loans to their
graduate students and then make a profit by selling the loans to a lender.
Congress enacted a moratorium on the deals last year after critics complained
about colleges profiting from the loan debt of their graduate students.
No new agreements can be made, but existing ones can continue as long as
colleges invest the profits in need-based financial aid.
It was McCullough who suggested about four years ago that Des Moines
University consider such an arrangement, university President Terry Branstad
said last week. But the school picked Wells Fargo's bid instead of Iowa Student
Loan's.
That prompted McCullough to send an e-mail to select Iowa Student Loan
employees in January 2004: "We need to consolidate the heck out of DMU
loans."
Meanwhile, Wells Fargo, in the wake of criticism about school-as-lender deals,
has decided to no longer enter into such arrangements.
Branstad said his school's deal with Wells Fargo will end in February.
But he defended such deals, saying if the university does not lend graduate
students money, they will borrow money elsewhere. He said he would rather see
the profits go to the university, which will use every dime for financial aid, instead
of to loan companies.
Another Iowa Student Loan e-mail put the size of its school-as-lender program at
$64 million.
Iowa Student Loan established a goal of setting up new school-as-lender deals
with Iowa State University graduate students and Drake University law school
students. Neither happened.
Today, Iowa Student Loan has only one such an arrangement: with Palmer
College of Chiropractic in Davenport. The terms of that deal are confidential,
McCullough said last week.
Even graduate colleges that offer loans to students under a school-as-lender
program are required by law to allow students to borrow from other lenders.
"One-stop shop": Another Iowa Student Loan e-mail reads: "In order to lock up
the market share that we achieve, we have taken on the role of electronic
information handling agent for schools as well as their 'one-stop shop' customer
service center."
That's a reference to Iowa Student Loan's digital loan processing system, called
iLink.
Colleges use iLink for free to process loans from any lender.
McCullough said in the written statement last week that " 'Lock in business' was a
poor choice of words. ISL receives no competitive advantage from providing it."
Federal law forbids lenders from offering colleges illegal inducements to gain
loan business.
Other e-mails also talk about a general strategy "to 'lock in' business."
"Hooking" students: Another e-mail says that one way to "hook" students to
consolidate their loans through Iowa Student Loan is to pay professional
associations to push the consolidation strategy.
The strategy described in the e-mail was to target the Iowa Pharmacy
Association and NCMIC, a malpractice insurance company for chiropractors.
McCullough declined to say in his written statement last week whether those
deals happened or which other associations Iowa Student Loan currently pays to
endorse its loans.
College Planning Centers: Iowa Student Loan spends about $2 million a year
running its College Planning Centers, which give more than 50,000 students and
families a year tips on college planning and financing.
Asked whether parents might be better served by seeking neutral advice from
college financial aid employees or the state-run Iowa College Student Aid
Commission, instead of a loan company, McCullough said they would not.
He said the centers operate separately from Iowa Student Loan. The centers'
employees do not make or recommend loans, but they do give independent and
objective advice, he said.
The service helps younger students who have not made a final college selection,
he said.
No one else in Iowa has come forward to offer such a service, he said.
An e-mail shows the goal for the centers was to do 300 financial aid nights
around Iowa for high school seniors, 250 college planning nights, 11,000
newsletters or e-mail reminders, and 50,000 mailings in fiscal year 2005.
Reporter Jennifer Janeczko Jacobs can be reached at (515) 284-8127 or
jejacobs@dmreg.com