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Preventing a financial aid disaster

July 2nd, 2008

I just finished talking to a listener of the podcast who wanted to take out a private student loan. I can’t get into specifics (non-disclosure), but let’s just say that approving this loan would have netted a nice chunk of change for the Student Loan Network, enough that it’s way, way past beer money, into new MacBook Pro territory. My listener has spotless credit and would have been approved by any lender with no issues.

I told them no.

They wanted to borrow over $50,000 for a photography certificate program from a reasonably prestigious college here in New England. Not a bachelor’s degree. Not even an associate’s degree. Just a certificate.

After a heartfelt conversation, I suggested finding a less expensive school and finding an apprenticeship with a master photographer to learn the inside trade of photography from a master, rather than from an overpriced certificate program. Photography is one of those professions where it doesn’t matter what your academic credentials are as long as you can take damn good photos.

Over the lifetime of the loan, they’d end up paying close to $120,000 in principal and interest for the certificate; upon graduation from the photography program, they’d immediately owe about $500 a month for the next 20 years - if interest rates remained relatively low.

Ultimately, approving our private student loan would probably have been disastrous for the borrower. Chances are, with just a photography certificate, they’d probably default on the loan down the road, and of course, except under exceptional circumstances, you can’t discharge student loans in bankruptcy, so it’s a debt they’d be saddled with for a long time.

This is where the system breaks down. Had they applied for the loan online, the computers would have done the math and probably calculated that with their current FICO score and financial background that the loan was okay and would have issued it.

The computers are wrong.

Yes, the surface details appear okay, but the loan has long term consequences that a credit approval algorithm can’t predict, and my listener would have put themselves in a terrible financial position, thinking everything would be all right because they were approved.

While I’m sorry that this cost the Student Loan Network some money in the short term, I know that it’s absolutely the right choice for the borrower and their family. Profitability is vitally important to my business, but so is not screwing over my friends for a buck.

This is also why it’s so important to have a good relationship with your financial aid administrator. The people who work in your school’s financial aid office can foresee things that the computers simply can’t. Ignore the sensationalism in the press about financial aid officers and go talk to yours if you need to borrow for school.

If you’re considering taking out a lot of money for school, stop and ask someone first. Ask your financial aid administrator, ask a trustworthy lender, but ask a human being, because once you sign on the dotted line, there’s no going back.

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  • Good on you, Chris. I'm reminded of one of the sad stories you shared in your EASFAA presentation about the people who had resorted to radical means of paying for college.

    It reflects well on the Student Loan Network that you have a student's overall well-being in mind. For this I applaud you.
  • Bravo, Chris. It makes it much easier to sleep at night with this kind of business ethic. There have been many times in my own business where I turned down the fast, easy money. It left me financially poorer than I might have been, but I don't have to look over my shoulder, either. If you ask me, that's a fair trade-off.

    Putting other's welfare high on the list of priorities is always a good policy.
  • Nicely done, Chris!

    There are more stories like this that we'll never hear: about people in higher ed who put the student well-being above all else. Thank you for sharing.
  • @Dave: I wish more of those stories WOULD get told though, you know? It would probably be a lot more comforting to parents and families to know that for the most part, people working in higher ed do have a genuine concern for the well-being of their students. Not everyone, to be sure, but the vast majority.
  • Good for you Christopher,

    That's very similar to what happened to the banking industry when it was handing out mortgages to individuals not qualified to get them.
  • Good job Chris and more importantly good for sharing this with as many details as possible because hopefully others will learn from the story and think twice.
  • Bravo Chris, good advice. I bet that certificate program is being offered by a private for-profit institution which is motivated by the bottom-line, not the best interest of the students. If credentials is what you want, better to get more valuable ones like a BFA or BA from a state supported institution and really take the time to learn the art, history, aesthetics, and practice of photography and have a well rounded education. And if one already has a degree, or does not want one, through workshops and/or continuing education and/or extension courses one can learn a lot. There is no need to spend more than the cost of a two-year associates or four year bachelor education from a state-supported institution on a certificate program. The numbers do not make sense. There's a reason why the Maine Workshops are so popular, beginner as well as pro photographers go there to hone specific skills, and over time it's more valuable that a concentrated certificate program. Caveat Emptor! The invisible hand of the market is ruthless, knowledge and information has to be searched out to balance marketing and hype from those trying to sell you education.
  • This is what makes you genuine and a good friend as well as a watchtower for your company to do right by consumers. I like the stance that the Student Loan Network takes on helping people and not padding their bottom line.

    Thanks for watching out for people.
  • Kudos; and this may just net you more business! It kind of makes a case still for the need for human interaction, the issues completely missed by databases and processors.

    I had a similar case a few years ago with a potential franchisee. We needed the $$ badly, but it would have meant short term gain and very long term pain to us and the franchisee. I sent his cheque back FedEx - 1 year later he quietly invested in our new start-up and he ended up with a 12% return inside a year. Good acts beget good things.
  • Wow if all business can give advice like you !
    Merci
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