Ban banks: As usual, Ted Rall hits one out of the park

In his latest offing, the usually spot-on, hard-hitting Rall details how corrupt much of the “lending industry” has become over college student loans. Read for why we should, indeed, ban banks, at least from the student loan process.

The current student loan scandal highlights just how corrupt the system has become. It began when Attorney General Andrew Cuomo announced that New York State is investigating a company called Student Loans Xpress for sweetheart-deal stock transactions designed to enrich the company and corrupt financial aid officers at the expense of clueless college kids and their parents. (Student Loan Express' corporate parent is the CIT Group. CIT is a former subsidiary of Tyco, which itself became embroiled in a corporate scandal a few years back.)

According to Cuomo, financial aid officials at Columbia University, the University of Texas and the University of Southern California were paid kickbacks as compensation for steering students to them. (Disclosure: I'm a Columbia alum.) The three bought stocks and options at insider prices in Education Lending Group, the parent company of Student Loan Xpress until 2005, when it was sold to CIT. They then sold them at a profit that would make Donald Trump drool. David Charlow, executive director of financial aid at Columbia, paid $1 for each of 7,500 shares of ELG and dumped the stock two years later at $10 a share--a 450 percent annual rate of return on his "investment."

Student Loan Xpress, which uses phone-forwarding wizardry to masquerade as some institutions' financial aid offices, is recommended to students as a “preferred lender” at the three universities enmeshed in the scandal. As young, novice borrowers--most kids sign their first loan document at the tender age of 17--they trust their colleges' recommendations. "There's an implicit assumption that the financial aid office is an impartial, informed intermediary," says education expert Michael Dannenberg of the New America Foundation. “What we're finding out now is that some colleges and some financial aid administrators may not be so impartial.”

The mess is spreading. The Johns Hopkins University admits that its director of student financial services collected $65,000 in cash and tuition payments from Student Loan Xpress. The dean of financial aid at Widener University in Pennsylvania took in $80,000. John Ryan, chancellor of the 64-campus State University of New York (SUNY)system, is under scrutiny for his spot on the board of directors of CIT, where he collects $150,000 a year on top of his $340,000 salary from SUNY.

Even the feds couldn't resist dipping their paws into the student loan jar. Matteo Fontana, the federal Education Department official charged with overseeing student lending, made a cool $100,000 from a sale of ELG stock. The Bush Administration shouldn't be too surprised at Fontana's conflict of interest. (No pun intended.) It hired him straight out of Sallie Mae, a student loan mill that rakes in spectacular profits on 10 million student loans worth $126 billion.

I have to say I am so glad I got done with college more than 20 years ago, and grad school for a useless professional degree 15 years ago.