Student Loans

Ethics before stock options

THE FEDERALLY subsidized student loan industry contends that it brings choice and competition to the world of university finance. With many private firms lending money to college students, the argument goes, schools get to choose the lenders that offer the best services at the best rates to recommend to their students. With guidance from their universities, students can sift through multiple options to find the loan packages that suit their needs.

But this week an ongoing investigation of the ties between universities and private lenders revealed that financial aid officers at Columbia University, the University of Southern California and the University of Texas at Austin once had significant financial interests in the parent company of a private lender, Student Loans Xpress. That company, it turns out, is on each school's list of "preferred lenders"; that is, the private firms that each school recommends for its students. According to documents gathered by New York Attorney General Andrew M. Cuomo, the financial aid officer at Columbia received more than $100,000 from selling the company's stock.

These facts do not prove outright wrongdoing. But they do demonstrate that considerations other than price and service quality might influence which lenders university officials prefer that their students choose. Who knows how many financial aid offices have been tainted by improper stock holdings, gifts or other inducements?

Students entering college have a hard enough time wading through mountains of application and financial aid paperwork, not to mention the stress of completing high school, often taking on thousands of dollars in debt and, perhaps, moving away from home. They must be able to rely on university financial aid offices to give unvarnished advice about student loans. Otherwise, the system will lack the fair competition that the industry champions, and students will be shortchanged.

Columbia President Lee C. Bollinger called the episode "completely unacceptable," and a spokesman said the university supports a code of conduct Mr. Cuomo drafted that forbids significant financial ties and other improper connections to private lenders. All U.S. universities should follow Columbia's lead and promptly adopt common-sense ethics rules. A bill sponsored by Sens. Edward M. Kennedy (D-Mass.) and Richard J. Durbin (D-Ill.) might soon force them to avoid such ties and provide to their students much more information on the lenders they recommend.