MyRichUncle: student lender leverages loan scandal

By Helen Chernikoff

NEW YORK (Reuters) - At least one company is benefiting from government investigations into the U.S. student loan industry.

MRU Holdings Inc.'s UNCL.O MyRichUncle hopes to cash in on the scandal with marketing that aims to differentiate its alternative loan products from heavyweight competitors such as Sallie Mae (SLM.N).

The company bills itself as a bargain lender untainted by the investigations, which have put a variety of lenders, including Sallie Mae, Bank of America Corp. (BAC.N), Citigroup Inc. (C.N), Education Finance Partners and JPMorgan Chase & Co. (JPM.N), under the government's microscope.

For instance, one of MyRichUncle's loan products uses a student's academic achievement as a basis to extend credit, even in the absence of credit history or a guarantor.

Congressional and state investigators are probing methods used by the $85-billion-a-year student loan industry to entice college loan officers to place them on so-called preferred lender lists.

An ad MyRichUncle ran in The New York Times last July urged students to ask aid officers if they participate in "revenue sharing" that gives schools part of each loan, or if they accept gifts from lenders -- practices that later came under scrutiny.

In January, New York State Attorney General Andrew Cuomo began the investigation into the industry when announced he was questioning Sallie Mae about its lending practices.

Journalists began writing about MyRichUncle as a conflict-free alternative, which boosted the stock, said Sanders Morris Harris analyst William Hamilton, who rates the company's shares a "buy."

MyRichUncle stock has risen over 20 percent, to about $6.70 a share, since this time last year. Its loan applications have also roughly doubled in that time period, spokeswoman Karin Pellman said.

But its ad campaign offended aid officers throughout the country, said Cathy Simoneaux, aid director for Loyola University in New Orleans.

She said she won't recommend MyRichUncle because the company's Web site impugns the integrity of all student loan officers.

BACKLASH

MyRichUncle co-founders Raza Khan and Vishal Garg, both 29, said the backlash from university officials doesn't bother them. They're wooing students in part by turning them against schools' traditional student loan departments.

"These guys seem to pursue a kind of high-risk, high-reward strategy," said Keefe Bruyette & Woods analyst Sameer Gokhale.

Khan and Garg said they can dispense with aid officers because lenders will soon compete solely on price, marketing directly to students.