The Chronicle of Higher
Education
By: Eric Hoover
Financial-assistance companies mail
enticing offers, but educators question whether they deliver The letter charmed Chris Azulay's
mother, in Aurora, Colo. "Would you like to have the peace of
mind," it read, "knowing your student CHRIS will never have to drop
out of college due to lack of money?" A letter from the same company, suggesting it could
"secure 100 percent" of the costs of college, hooked Angel Gillispie's parents, in A similar mailing lured Amanda Miller just as she was
mulling her college options, in At the presentations, held near each family's home,
representatives of the company pledged to obtain a combination of grants,
scholarships, and loans to cover all college expenses. They also promised a
full refund if the company did not deliver. Each family signed a sales contract, agreeing to pay
$975. But all three say they ended up disappointed. They say their students
received no scholarships or grants through the company, nor did their parents
receive the promised refunds. The sworn testimonies of those families and six other
former clients of the Despite increased scrutiny from law-enforcement agencies,
the financial-assistance industry continues to boom. As tuitions soar and
more students seek financial aid, businesses are flooding mailboxes with
offers to reduce families' out-of-pocket expenses for college. Some of the companies deliver useful services, and some
do not. But many educators, particularly high-school counselors, contend that
even the industry's more-reputable companies charge families for information
and services that are already available free. Some companies command fees of
up to $1,500 to search for scholarships, to help match students with
colleges, and to fill out the Free Application for Federal Student Aid form,
which the government uses to determine aid. In response to those concerns,
the National Association for College Admission Counseling recently pledged to
create a tracking system to monitor the companies, some of which set up
booths at the organization's conventions. For families, anxiety over the college-admissions process
can make offers from the companies seem attractive. "They put stars in your eyes," says Teresita Diaz de Martinez, who signed a contract with the
Ms. Diaz de Martinez says the $925 she and her husband
agreed to pay the company at first seemed like a modest investment compared
with the money they were planning to spend on their daughter Maria's
education. But the family received only a general list of available aid
awards, not the personalized list of scholarships and grants that they say
the company promised them. And Maria failed to win any aid. The family also says the company erred when it filed
Maria's federal financial-aid form in the spring of 2002, putting the wrong
Social Security number on the papers. Once, the company sent the family a
mailing intended for another client with the same last name. Delays in the
filing of her form forced Maria to take out loans to pay for her first
semester at She asked the company for her money back. But in an
October 2002 letter, the The president of the company, Alan Baron, says,
"Everyone who deserved a refund received one." He adds: "We've had substantially the same guarantee
since 1985 -- we don't fail to deliver very often, and when we do fail, we
issue a refund." Ms. Diaz de Martinez did receive one more letter from the
company last fall: a reminder that it was time to pay the renewal fee. A GOVERNMENT CRACKDOWN
The lawsuit against the The commission estimates
that since 1996, the companies it has sued defrauded 275,000 clients, who
paid a total of $47.2-million for the services. Gregory Ashe, a senior staff
lawyer at the FTC who heads the project, says the nature of the college-aid
companies has changed. A decade ago complaints from consumers typically
involved scholarship-search services that solicited customers through telemarketing.
Many of those companies have folded, however, following years of consumer
warnings and the proliferation of free scholarship searches, like FastWeb, on the Internet. Mr. Ashe says that
complaints to his office now tend to involve companies that sell more-generalized
college-assistance services at sales presentations, usually held in hotels.
Financial-aid experts who track the industry estimate that at least a dozen
such companies send bulk mailings to students inviting them to the events,
which typically end with high-pressure sales pitches. The invitations -- many
resembling official documents or personal letters -- often suggest that the
students have been selected or chosen to receive them. Most of the mailings,
however, are hardly individualized. The companies buy name-and-address lists
from commercial list brokers -- which sell information about students for as
little as 13 cents per name -- or, in some instances, from high schools. While many college
counselors have charged that the companies get students' names from the
College Board, that organization insists that it sells information about its
PSAT and SAT takers only to accredited colleges and to government scholarship
programs. "There are innumerable sources for these lists, and people cultivate
them heavily," says Bradley J. Quin, executive
director for admissions and enrollment services at the College Board. Last year two companies that
collected personal data from millions of students -- the Mr. Ashe says that the
commission's recent efforts have slowed the industry down. Since 1996, the
FTC has returned $560,000 in refunds to families. The agency says its
investigations have resulted in federal court orders prohibiting 11 companies
from making any more misrepresentations, and permanently barring some
defendants from marketing scholarship services at all. In August, the FTC announced
a settlement with National Student Financial Aid, a In some cases, the
companies' guarantees involve tricky language. If a guarantee does not
specify the proportion of loans and grants promised, a company could then
contend that it had delivered for a client by securing a loan that covered
100 percent of the cost of college. "One of the problems
we've seen is that salespeople will talk a big game, but the contract was a
lot more limiting as to what the company did," Mr. Ashe says.
"There's a lot of regurgitating information back ... in a slick, glossy
report. The problem is, consumers don't see what
other customers' reports look like. We've looked at scores of portfolio books
where the strategies and college recommendations were all identical." Reining in the industry is
difficult. Some companies that have drawn federal scrutiny have changed their
names and moved their businesses to other states. Some have simply tweaked
their pitches. "One thing the industry seems to have done in response is
that they have started being very careful as to what they say, to avoid
anything that is a clear-cut misrepresentation," says Mark Kantrowitz, publisher of finaid.org, a free Web site that
contains comprehensive information about financial aid. In other words, there are
ways to take advantage of customers without breaking the law. "The fact
that someone's charging for something which is otherwise free is not by
itself deceptive -- it's not a scam," says Mr. Ashe, the FTC lawyer. 'I COULD HAVE USED THAT MONEY'
On the Web site of College
Partnership, students are greeted with a paraphrase of Thoreau's advice:
"Go confidently in the direction of your dreams: Live the life you have
imagined." Siniva Taumoepeau
contends that the value of its services is what's imaginary. A freshman at Mount Saint
Mary's College, in The company, based in The scope of the College
Partnership's business is revealed by its filings with the U.S. Securities and
Exchange Commission. For the nine months ending in April, College Partnership
reported a 71-percent increase in revenue, to $14.1-million. During that
time, it signed 12,258 customer contracts. In a previous incarnation,
College Partnership was penalized by the Federal Trade Commission. In 2001,
the agency required the company, then called College
Resource Management, to drop or alter specific claims it had been making. The
FTC found that despite promises to give personalized service to students, the
company had merely provided generalized information, and that it had falsely
represented that families would receive substantially more financial aid with
its service than without. The agency also said that the company had failed to
furnish consumers with a notice of their right to cancel the service within
three business days. Doug Rother,
College Partnership's president and chief executive officer, says it has
"cleaned up" its operations and bought out the previous company's
owners. "We've got a clean bill of health," he says. "We make
big disclaimers everywhere. We don't make guarantees." He also defends the use of
mass mailings to market his company. "How else do you make people aware
that there's an alternative" to high-school counselors? Mr. Rother asks. "The implication is that we should keep
people in the dark and not let them know there are many alternatives." Until recently, the company
had an advisory board, whose members included independent and high-school
counselors, and even the vice president of one university. Earlier this year,
however, that board disbanded. Mr. Munger,
who served on the board for about two years, says that the compensation was
minimal -- a $3,000 annual stipend plus travel expenses -- but that he saw an
opportunity to help the company improve its practices, including its
solicitations. He says he resigned reluctantly. "My feeling was that
there was no ulterior motive to deceive, at least in any of the company's
upper-level management," he explains. "At the same time, we all
know that the company, as a publicly traded company, has an obligation to
make money. So to a certain extent, they're going to do what it takes to make
money. So if our proposal for a change starts to cut into profit margin,
there is a rub. That's where you start to see the kinds of things that are
misleading or very carefully worded, leading to potential ripoffs." "It's so very
difficult," he says, "to ensure quality
control on presentations at each of these ventures." PRESSURE TO PRODUCE
A former salesman for the He worked for the company
for about a year before hearing complaints that it was not following through
on its promises, he says. He had given hundreds of presentations, in hotel
meeting rooms and families' homes, earning $300 for each sale he made. The
company, he says, required him to pay for the lists of students' names --
which he bought from high schools for $1,000 to $2,500 -- and to rent hotel
space. Each month it was up to him to earn that money back. Still, he was enthusiastic
about the service, so much so that he signed a cousin and personal friends to
contracts. "It was an enjoyable job -- helping people, getting up there
in front of people," he says. After his cousin and several clients told
him that the company had failed to send any useful information, however, he
was "devastated." After all, his business card
at the time bore the slogan, "We Secure 100% College Funding." "That's the trick --
they could always get you college loans, and that's how they could
cover" the 100-percent funding guarantee, he says. "They were
sending them scholarships that were out of date. Hell, they weren't even
sending them scholarships students were qualifying for." Employees of college-aid
companies are quick to say that their field is full of unscrupulous operators
but that their own company is an exception. For example, Shawn Anderson,
director of the Educational Assistance Council, based in Still, some college
counselors complain that the company's letters misleadingly resemble
government mailings. One recent letter to a student, for instance, came in a
brown envelope that read, "For Immediate Attention of Parents &
Student -- College Aid Document Enclosed." Inside was an application for
the company's services. Mr. Anderson says the
mailings are not intended to give families the wrong impression. "Under
no circumstances do we represent ourselves as anything other than what we
are," he says. As some of its mailings
indicate, the company has a " In an e-mail message, Mr. Geranios explains that the address is a "multi-use
space" through which the company helps clients with questions about
public policy and aids high schools in developing college-planning
strategies. "Staffing varies and is based on project demands," he
says. FREE ALTERNATIVES
Glenda Rose, a college
adviser at College-assistance companies
prey on low-income and minority students, Ms. Rose contends. Other college
counselors say that even if companies are not homing in on them, such
families, particularly those with first-generation college students, are more
vulnerable to the pitches. A recent Harris Poll,
commissioned by the Sallie Mae Fund, found an "information
divide" in families' knowledge about financial aid. Among those making
less than $50,000 per year, 60 percent said they needed more information
about how to pay for college, versus 37 percent of those making more than
$75,000 per year. Nearly half of the parents with incomes of less than $25,000
per year said they had "no idea" how they would pay for college.
Additionally, 66 percent of African-American families and 62 percent of
Hispanic families said they did not have enough information about financial
aid, compared with 44 percent of white parents. A frequent theme at the
presentations of the college-assistance companies is that high-school
counselors are too busy to help each student through the admissions process.
Mary O'Reilly, a counselor at "You can make the
statement that counselors are spread pretty thin," she says, "but
you have to ask, Did the family take advantage of what was available at the
high school? Did they make an appointment with the counselor? Did they come
to financial-aid night? Did they go to college fairs?" Many states have agencies
that offer free information about the college-admissions process. Lisa Smith,
outreach coordinator for the Arkansas Student Loan Authority, regularly treks
to college nights and financial-aid workshops throughout the state, talking
to families about searching for scholarships and how to navigate the
admissions process. Her office completes about 5,000 free scholarship
searches per year. College-assistance firms
"make it sound so good," Ms. Smith says. "A lot of the parents
are nervous. Once they hear the sales pitch, they're like, 'Oh, yeah, this is
great.'" At its annual conference
this month, the National Association for College Admission Counseling passed
a resolution to "explore the creation of a systematic
information-and-tracking system to fully inform members about questionable
scholarship and financial-aid service providers and expand the type of
consumer information that we may distribute to students and parents about
their rights and preventative measures." That's welcome news to Ms.
Rose, who has lobbied for the association to scrutinize these businesses for
years. "The worst part about this whole thing is that our own
professional organization does not take a stand about this," she says.
"It's the fox guarding the henhouse." The association's practice
of renting exhibit space at its conventions to the financial-assistance
companies, including Edifi, for thousands of
dollars in fees, also irks Ms. Rose and other counselors. In past years, the
College Partnership has had a booth, but this year Nacac
did not permit it to exhibit, says Mr. Rother, head
of the company. Joyce E. Smith, Nacac's executive director, says she takes the issue
seriously and investigates complaints from members about specific companies.
"We don't have any responsibility for the companies in terms of how they
market themselves," she says. "We try to give them feedback about
how service might be coming across to our members. If they are doing
something abhorrent or inappropriate, they cannot exhibit in our exhibit
hall. But I can't make a judgment about whether someone has priced their
program appropriately, that they can't be in there to hang their
shingle." Ms. Rose says she has known
too many students who have had bad experiences with the companies to give
them the benefit of the doubt. "They're selling dreams and they're
selling hopes," she says, "and people are so hungry for it." She describes what students
have told her about their disappointing experiences with college-assistance
businesses. There is Monica, for
example, whose family signed a contract with a college-assistance company in
her senior year at North Miami High. Monica had a 2.1 grade-point average and
was ranked 333rd out of 469 seniors. She had not passed the reading portion
of her high-school competency test, necessary for graduation. "She was
having a hard time," Ms. Rose recalls. Ms. Rose keeps a copy of the
official "planning report" Monica received from the company.
"The most exciting part of a student's report is our customized need
analysis and estimated gift and self-help financial-aid packages on each of
the recommended colleges," it read. "One of the colleges we
analyzed for Monica was Harvard. With an annual cost of $30,682.00, Monica
could receive over $82,124.96 in gift aid over a four-year period!" PHOTO (COLOR): Teresita Diaz de Martinez, with her daughter Maria, of PHOTO (COLOR): Lisa Smith,
outreach coordinator for the Arkansas Student Loan Authority: "A lot of
the parents are nervous. Once they hear the sales pitch" from the
companies, "they're like, 'Oh, yeah, this is great." PHOTO (COLOR): Edifi, a college-assistance company, sent this invitation
to a high-school student. ~~~~~~~~ By Eric Hoover |
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