Advice on Student Loan Options Takes On Added Importance

Despite the scandals, the financial aid office is not a bad place to start. Ask for their recommendations, and ask whether there are lenders that offer lower rates. For private loans, get actual rate quotes from at least three companies. The charges can vary a lot. Don't trust the "as low as" rates that lenders advertise.

What are preferred-lender lists, and are they good or bad for students?

Colleges usually recommend a few lenders, or even just one. These lists have been at the heart of the controversy.

Students usually use lenders suggested by the financial aid office. If they are chosen based on what's best for the borrower, that's fine, and it can help simplify an already overwhelming decision-making process for students and families. But if campus officials are getting gifts, trips and [questionable payments], then the recommendations are tainted.

What sort of reforms do you expect in the industry as a result of the investigations?

We're already seeing campuses canceling questionable arrangements with lenders, prohibiting gifts, and revamping or even eliminating their preferred-lender lists. I expect this trend to continue, and that Congress will ban or restrict many of the disturbing practices that have been revealed in the past few months.

If done right, the result will be a much more transparent, accountable and consumer-friendly student loan process.