The Alarming Scholarship Scandal: Private Student Loan Lenders' Takeover of the Scholarship Industry

Author: Zaniya L.

Photo Credits: Canva Stock Photo

This past summer, Sallie Mae, a private student loan lender, made national news when the student lender acquired Scholly, a scholarship app that matches students to scholarships. The acquisition now allows for Scholly to be a free tool. While many people praised the acquisition, this acquisition is not something to be praised about. With this acquisition, Sallie Mae is positioning itself to expand its revenue within the student lending space. This acquisition now allows for Sallie Mae to continue to capitalize off scholarship award displacement, luring more students into their predatory loans.

The practice of scholarship award displacement is a predatory and brutal practice used by postsecondary institutions. The practice aims to penalize students who have earned outside scholarships, grants, and aid, subsequently forcing these students into additional student loan debt. 

While many falsely advertise that scholarships will close the gap for students after financial aid, 100% of schools practice scholarship displacement in some form, whether decreasing institutional scholarships and grants, increasing/reducing federal loans, and/or decreasing work-study after students earn outside aid. In numerous instances, this situation leaves students with a gap. If they cannot cover the expenses, then the only options are to get a private loan or withdraw from their postsecondary institutions. 

Sallie Mae also owns another scholarship business called Nitro, a website that tracks scholarship applications and provides guidance. Sallie Mae is very strategic in their approach; on the first page of the Nitro website, Sallie Mae states the following: 1) Maximize financial aid, 2) Win scholarships, and 3) Borrow thoughtfully, if steps 1 and 2 leave you with a gap in funding, consider a private student loan from our carefully-vetted partners. When you click the button to view top lenders, then information about Sallie Mae Loans comes up. 

https://www.nitrocollege.com/

Not only does Sallie Mae now own scholarship websites and tools, but they also give out their own scholarships. They have partnered with the Thurgood Marshall College Fund to provide scholarships to students who attend HBCUs. 

Sallie Mae is not the only private student loan lender involved in the scholarship industry's takeover. Other lenders, including Wells Fargo, Citizen Financial Group, College Ave, and others, also provide scholarships and acquired companies and tools in the scholarship sector. This trend and scandal indicate that private loan companies are seeking diverse avenues to exacerbate the student loan debt crisis and they must be stopped.