Selling Out Students to Sallie Mae

Yesterday, we praised colleges that have resisted lenders efforts to use open government laws to get personal data about their students for marketing purposes. Unfortunately, not all higher education institutions are as vigilant in protecting the privacy of their students information. Case in point: the University of Miami.

According to excellent reporting in the St. Petersburg Times, many University of Miami incoming freshmen were surprised this summer when they received pre-filled out master promissory notes from loan giant Sallie Mae even though they never actually applied for a loan. The students were particularly shocked to see that the notes included personal information, such as their Social Security numbers and birthdates, which they had not authorized the university to release.

It turns out that the university had authorized Sallie Mae to originate loans for incoming students who simply had filled out the FAFSA. University officials explained to the St. Petersburg Times that they consider the act of submitting a FAFSA to be synonymous with applying for a federal loan. Therefore, they don't believe that they violated the privacy interests of their students when they handed over that data to Sallie Mae.

We have a different view. Students fill out the FAFSA to determine whether they are eligible for federal student aid. Colleges use that information to alert students of the amount and type of aid that is available. Students must then confirm whether or not they want to take out a federal loan. Those who opt to borrow have to choose a loan provider and loan amount before their loans can be originated.

Regardless, students who fill out the FAFSA have an expectation of privacy. They don't expect the government or their school will turn over their private information to commercial interests.

We would like to know what if anything the University of Miami got for entering into this deal with Sallie Mae. The University's financial aid director told St. Petersburg Times that the university's "relationship" with Sallie Mae allowed it to legally transfer the student data based upon information students had provided on the FAFSA, but he would not elaborate on the terms of the deal the school struck with the loan company in 2003.

Colleges such as the University of Miami like to shortcircuit the student loan provider selection process so they can steer students to their favored lender. In the case of the University of Miami -- and in many others -- that lender is Sallie Mae, which controls, by itself and through its affiliates, about 96 percent of the school's total federal loan volume.

University financial aid administrators enter into agreements with Sallie Mae and others for a variety of reasons, one of which is that it makes their jobs much easier. Instead of having to worry about processing loans with multiple lenders, they can funnel student business to one loan provider, which also happens to provide gifts and payments to schools entering into such arrangements.

This pre-filled out master promissory note is a questionable business. It's one thing for an informed, impartial intermediary to recommend a lender. It's another for college aid offices to be in cohoots with a lender in order to actively shepherd unknowing and trusting students into a significant financial transaction.

In the case of the University of Miami, there are potential violations of federal higher education law and education rights privacy law. We hope the U.S. Education Department will investigate the situation at Miami and other institutions that steer their students to lenders that provide pre-filled out master promissory notes. Financial aid administrators have a sacred trust to safeguard their students' personal data. They certainly shouldn't be allowed to breach that trust just to make their lives easier.