Student loan probe not likely to hit here.

Byline: Greg Bolt The Register-Guard

A widening investigation into allegations of kickbacks and sweetheart deals in the student loan industry already is generating refund checks to students at some East Coast universities, but students here shouldn't get their hopes up.

None of the colleges in this area participate in the kind of lending program that's getting schools in trouble in other places. Because area schools aren't doing much business with the lenders that are coming under investigation, none are likely to be drawn into the probe.

Unlike the schools under scrutiny, the University of Oregon, Oregon State University and Lane Community College all participate in the federal Direct Lending program, in which student loans are issued and serviced by the federal government. Schools that have run afoul of the New York attorney general's office are in the Federal Family Education Loan Program, in which private lenders issue and service student loans.

Both programs provide what are known as Stafford loans, federally subsidized loans to students. Fixed-rate Stafford loans are a mainstay of education financing, often providing the bulk of a student's total education financing and the lion's share of loans.

With Direct Lending, students work directly with the federal Department of Education to obtain their Stafford loans. The department grants the loans, and borrowers send payments to the government.

Under that scenario, no private lenders or banks are involved. And, UO financial aid director Elizabeth Bickford said, the federal government isn't interested in offering kickbacks to get your business.

"There's nothing in it for us from a financial aspect," she said. "We don't get anything from anyone."

Where problems have arisen is in FFELP loans. These also are Stafford loans, which means they carry pretty much the same interest rate as those in Direct Lending, but they are provided by banks and commercial lenders.

Student loans have become a huge business, especially as tuition has skyrocketed. Student loans are an $85 billion-a-year business, and that's produced some hot competition among lenders.

Many schools in the FFELP maintain what are called preferred lender lists, which they give to students looking for a financial institution to provide Stafford loans. The lists can have as few as one or as many as a half dozen or more lenders, and lenders are keen to get on them.

The idea is to help students choose among the many lenders offering student loans. Universities typically put those that offer the best deals on fees and services on the preferred list.

Where schools have run into trouble is taking deals in which they receive money from a lender based, for example, on the volume of loans issued to students. Even if the money goes into the school's scholarship fund, such practices at least create the suggestion of a conflict of interest.

The New York investigation also uncovered cases in which college student loan officials served as paid advisers to lenders on their preferred lists, owned stock in the companies or accepted other gifts or assistance that posed a conflict of interest problem.

Some schools and lenders have settled out of court by agreeing to pay into a financial aid education fund, and a few schools have agreed to refund to student borrowers money they received for doing business with particular lenders.

Direct Lending schools aren't entirely out of the picture. Most of them - including the UO, OSU and LCC - have a relatively small number of students who choose to go with private lenders. Most often that's because they have exceeded the federal loan limits or aren't eligible for the Stafford program and need private loans to pay for their education.

But because the amounts are comparatively small, lenders have little incentive to offer the same deals. The UO, for example, generates almost $100 million a year in Direct Lending loans but less than $10 million a year in private loans. OSU generates about $85 million in direct loans and $7 million in private loans.

The choice between Direct Lending and FFELP usually boils down to a school's view of which serves students best. Kate Peterson, assistant provost for enrollment management at OSU, said she has worked at schools under both systems.

"I support both programs," she said. "Each one has its pros and cons."

In any case, Direct Lending schools generally are breathing a sigh of relief as each day seems to bring more bad news for the private lenders and their university clients.

"We're immune from the controversy because we don't have any brand name association with a bank. Our funds are delivered direct from the Treasury to the student," said Bert Logan, director of student financial services at LCC. "We're luckily and happily not within the radar of all that."