Lender Jeered as It Departs Federal Student-Loan Program

Washington — In this era of economic anxiety, college financial-aid administrators can often be heard worrying each time a student-loan company withdraws from the system of federally subsidized lending.

But there’s an exception.

MyRichUncle, which specializes in direct-to-consumer loans, stopped offering government-backed loans last Friday, and the response from college aid administrators appears to be barely restrained glee.

“Best news I’ve seen in weeks!” one aid administrator wrote to his colleagues on an electronic bulletin board.

Many aid administrators are angry with MyRichUncle over its business-building tactics, which include an ad on its Web site that promotes private student loans by depicting a lobotomized college student saying: “I didn’t use my brain. I went straight to the financial-aid office.”

MyRichUncle also gained a reputation for encouraging the investigation last year by New York’s attorney general, Andrew M. Cuomo, into the close ties between some loan companies and some college financial-aid officials.

A spokeswoman for MyRichUncle said the company was “pausing” its participation in the federal loan system until the Education Department begins buying up packages of loans from lenders, as promised by the industry-rescue legislation approved by Congress in May. In the meantime, MyRichUncle will continue offering its private student loans, which are issued without any government subsidy and are therefore often more costly to students than federal loans are.

“As always,” said the spokeswoman, Karin Pellmann, “we urge parents and students to thoroughly research their options when making education-finance decisions.”

Brandon Pierce, director of financial aid at Friends University, in Kansas, had one of the more measured responses to MyRichUncle’s announcement, saying he would “wish them the best in the private-student-loan arena.” Mr. Pierce also expressed his hope that MyRichUncle, if it returns to the federal program, “will decide to work with financial-aid administrators in providing students the best products, services, and benefits instead of against them by undermining their knowledge of the industry.” —Paul Basken