Most of you are concerned about direct-to-consumer lending that bypasses certification by the financial aid office. Besides adding to the growing student loan debt, there is a potential tax implication for students that should be addressed.

According to the IRS, interest expenses for student loans are deductible when used for educational expenses, which are defined as expenses that are certified under the cost-of-attendance formulas used by financial aid offices.

Let’s say a student applies for loans through the school channel and covers the cost of attendance but then also arranges for an additional, non-certified, private loan for more than the certified amount. If that student tax-deducts the interest paid on that loan, that student has just unknowingly committed tax fraud.

Of course, the direct-to-consumer lender is protected in these instances. They will send the student a 1098E IRS form, reporting the amount of student loan interest paid with the famous fine print at the bottom: “This amount may or may not be deductible, consult your tax advisor.”

While today’s students certainly see the value loans have when it comes to getting their degree, many students don’t realize just how valuable their loans are to other lenders in the market. But lenders can reap a huge profit on a student loan if they can get the student to consolidate their loans with them. It’s why shady marketing tactics exist; it’s why many lenders are so eager to shower students with a myriad of letters and sometimes even offer free lunches.

For example, if a student has $100,000 in T.H.E. Stafford loan debt that they will repay over a 25-year term, the $100,000 loan will generate about $44,000 of profit. At T.H.E., this amount is going to be given back to the student in the form of our T.H.E. Bonus. But if a telemarketer can convince a student to fill out a consolidation application for a loan with on-time benefits (despite the fact that consolidation loans are less valuable because of the additional fees levied on consolidation loans by the Department of Education), the telemarketing firm can sell that loan for $7,000 or more in the student loan secondary market. The student, unfortunately, probably won’t see any of that cash: as you may know, only 5% to 15% of other lenders’ borrowers ever receive any bonus (more than 95% of T.H.E. borrowers receive our T.H.E. Bonus).

Students need to be smart about their loans and schools need to help students realize the value their loans have. They also need to know that consolidation isn’t always the right solution. Don’t let your students make a $44,000 mistake, even if they get a free pizza lunch one day.

T.H.E.’s offices will be closed in observance of the following holidays:

• July 4 – Independence Day
• Sept. 3 – Labor Day
• Nov. 22 and Nov. 23 – Thanksgiving
• Dec. 24 and Dec. 25 – Christmas
• Dec. 31 – New Year’s Eve

Disbursements are not affected —- our holiday tables prevent disbursements from being scheduled on designated holidays. Our web site and online origination system remain accessible during holiday hours.

From July 1 to September 30, 2007 T.H.E.’s three-month LIBOR index is 5.35%. Our private loan rates are based on a spread of LIBOR rates plus an additional amount (defined in the borrower’s Truth-in-Lending Disclosure), according to the discipline of study. The interest rates for private loans are posted on our web site within the Rates/Savings section and are updated each quarter to reflect the current interest rate. Below is a history of LIBOR rates we have used in the last 12 months.

Remember to stop by booth 406 at NASFAA between July 8 and July 11 and register to win one of two $500 scholarships! We’ll see you there!

We are proud to add Lacey Carter as a School Relations Director for the West region, covering the states of Alaska, Arizona, California, Hawaii, Nevada, Oregon, Utah and Washington. She will be based out of Arizona. With more than 15 years of experience in the financial aid business, Lacey most recently served as vice president of sales for another lender in Arizona. Prior to that, she worked for another leading education lender. Lacey has extensive experience in sales, marketing, product development, loan origination and customer service. She can be reached at 1-866-902-6038, extension 9262. Her e-mail address is lcarter@theloanprogram.org.