Case Study: The Value of School Certification Of Private Student Loans

Earlier this week student lenders, financial aid administrators and consumer advocacy groups signed a letter urging Senators to require school certification of private student loans.  The rationale cited for their support of this practice included: 

"Requiring school certification that confirms students’ attendance and loan eligibility — as is currently required on all federal student loans — discourages unnecessary borrowing which could lead to delinquency and default during repayment. It also gives financial aid administrators an additional opportunity to counsel students about less expensive forms of financial aid and ensures that students do not inadvertently disqualify themselves for less costly aid."

Well, add another reason to that list of benefits of school certification:  it reduces fraud.  It is hard to envision that this Arizona man could have perpetuated this fraud by applying for hundreds of private student loans and being approved for close to $700,000 if such a school certification requirement was in place.  His case certainly hearkens to the "not so good ole days" of direct-to-consumer (DTC) loans (from Arizona Republic): 

"The government said from 2002 to 2007, Gallagher submitted over 200 student loan applications over the Internet to various financial institutions seeking more than $11 million in fraudulent student loans.

Gallagher was successful in obtaining approximately 42 fraudulent student loans totaling over $686,000."

Seems like an opportune time to lock the barn door before the next lax lending cycle comes around again.