This time every year, the financial aid office at Loyola College is inundated with calls from just-admitted students asking for advice on how to finance the university's more than $45,000 annual cost.
About two-thirds of Loyola students have to borrow to pay for college, and families often ask the school for help in choosing from the hundreds of lenders vying for a piece of the $85 billion aid industry.
"We do recommend certain lenders based on our experience with their loan servicing ... and also the interest rate and origination fees," said financial aid director Mark Lindenmeyer.
Such recommendations of "preferred lenders" are at the center of a national conflict-of-interest probe that threatens to tarnish the image of the student-loan industry. The investigation has frustrated aid officials, who say they are acting in the best interest of students.
Like Loyola, most colleges maintain lists of lenders they endorse as reliable sources of low-cost loans for students and their parents. Though colleges will typically process loans by any valid lender, a school's seal of approval is lucrative for a loan company because families tend to use companies recommended by their campus.
Colleges also can benefit from preferred lender relationships. At some Maryland schools, loan companies pick up the cost of printing financial aid brochures and other material. And they sometimes provide personnel to supplement financial aid office staff during peak periods.
At the University of Baltimore, preferred lenders pay for production of a folder given to financial aid applicants. "It is a significant savings, and it allows students to have something they wouldn't have otherwise," said Chris Hart, a university spokesman.
In such arrangements lie the potential for serious abuse, according to critics such as New York Attorney General Andrew Cuomo, who has been investigating relationships between colleges and preferred lenders.
Last week, Cuomo announced a $2 million settlement with the SLM Corporation, or Sallie Mae, the country's largest student lender, in which the company agreed to stop paying college financial aid officers who serve on its advisory boards and to discontinue the practice of providing staff support to schools.
Cuomo, members of Congress and the U.S. Department of Education are looking into whether undisclosed financial arrangements between schools and lenders undermine the best interests of students and their families.
The New York investigation led to the suspension of financial aid administrators at several colleges, including the Johns Hopkins University. Ellen Frishberg, director of student financial services, was put on paid leave while Hopkins looks into $65,000 allegedly paid to her - in consulting fees and tuition payments for a doctoral degree - by a preferred lender.
Cuomo also said he had concerns about revenue-sharing agreements between lenders and universities, including New York University and the University of Pennsylvania. In a multimillion-dollar settlement, the universities have agreed to return to student borrowers money that lenders paid the colleges in exchange for loan business.
Some of the colleges defended the agreements on the grounds that their share was funneled back into need-based financial aid programs.
The problem with cozy relationships between lenders and colleges, critics say, is that they might provide the schools with an incentive to steer borrowers away from nonpreferred lenders with better interest rates or lower fees. Though most student loans are federally backed products with interest rates capped by the government, private providers compete on fees, repayment terms and customer service.
While decrying alleged cash and stock payments by preferred lenders to some financial aid officers, many college officials believe Cuomo's investigation has unfairly impugned the financial aid profession and overstated the harm to students.
"I haven't received one question from one student or one parent, and I have not seen the harm," said Sarah Bauder, financial aid director at the University of Maryland, College Park, where seven companies are on the preferred lender list. "We're dealing with money. Any guidance that you can give students is beneficial."
Bauder said UM's preferred lenders are selected after her office conducts a formal review of the marketplace, analyzing both loan terms and the lenders' reputations for customer service.
Loyola's Lindenmeyer said recommending lenders protects students from unscrupulous banks that tack on hidden fees or resell their loans to companies without a proven track record.
Many advocates for borrowers agree that colleges should guide students and parents to reputable lenders. Families turn to financial aid offices for advice in navigating a complex system that leaves the average student borrower more than $19,000 in debt after graduation, according to the Web site finaid.org. Parents often are saddled with tens of thousands of dollars in additional loans.
"There is a need for financial aid administrators to provide their interpretation as to which loans are more beneficial," said Robert Shireman, director of the Project on Student Debt. "The alternative to preferred lender lists is trusting what the banks are telling you."
But advice ought to be free of even the perception of a conflict of interest, say Shireman and other experts. "Schools have such a special relationship with students that they need to be careful to avoid even a suggestion of bias," said Mark Kantrowitz, who publishes finaid.org.
Bauder said several UM financial aid administrators serve on advisory boards of preferred lenders, a practice she defends as beneficial to students because the university can give input about how to meet the needs of borrowers.
Apart from travel and lodging expenses for occasional meetings, the advisory board members are not paid for their service, Bauder said. Two top aid officials at the University of Baltimore also are unpaid members of advisory boards at preferred lenders, according to Hart.
Loyola, UM and UB receive no financial payment, revenue-sharing or incentives of any kind from their preferred undergraduate lenders, officials said. Representatives of the other public universities in Maryland and most private colleges in the Baltimore area also said that neither their schools nor officials are paid by lenders.
Some schools, however, acknowledged that preferred lenders cover the printing costs of some financial aid literature or provide some staff support.
At the University of Baltimore, the roughly $3,000 annual cost of producing the financial aid folder is paid by lenders. On the back is written, "This folder provided courtesy of EdFund, Access Group, Bank of America, Ed America, National Education, and Wachovia," Hart said.
At the College of Notre Dame, three preferred lenders pitch in for the printing costs of financial aid brochures produced by the college and mailed to student aid applicants, said Zhanna Goltser, financial aid director.
Preferred lenders have also paid for some printing and mailing expenses at Morgan State University and the University of Maryland Eastern Shore, officials said. Typically, such printed material is "co-branded" with the name of the lender and the school.
At UMES, lenders assist with entrance and exit counseling of financial aid recipients, and help out at aid-related orientation and registration events, said Suzanne Street, a spokeswoman.
Such services may be within guidelines issued by the Department of Education, which oversees the student-loan industry, according to Kantrowitz. But he said having lenders pay for materials they wouldn't otherwise produce is "very close to crossing the line."
"In essence, the lender is paying the school to advertise its logo on the school's materials," he said.