Lender Pays $2.5 Million In Widening Student Loan Probe
Monday, April 16th 2007, 3:36 pm
By: News On 6
ALBANY, N.Y. (AP) _ A third lending company agreed to a multimillion dollar settlement in an expanding probe of the student loan industry, New York Attorney General Andrew Cuomo said Monday, as he announced that 13 additional lenders have been hit with subpoenas or letters from his office.
The investigation has now touched companies that issue 80% of all student loans in the United States, according to Cuomo spokesman John Milgrim. Five subpoenas and eight letters seeking lending data were sent Friday.
The lenders that received subpoenas include: College Loan Corp., Access Group, Sun Trust, Edfinancial, and Regions Bank. The companies sent letters seeking documents include: National City of West Palm Beach, Fla.; Citizens Bank, PNC of Pittsburgh, US Bank, Bank of America, Wells Fargo of California, JP Morgan Chase of New York, and Wachovia Corp. of Charlotte, N.C.
In the letters, Cuomo is asking the companies to retain records and turn over data about their practices.
On Monday, Cuomo announced a $2.5 million settlement with San Francisco-based Education Finance Partners, the third lending company to settle with the Attorney General this month.
Education Finance Partners, in addition to paying the largest loan-related settlement yet, also agreed to adopt Cuomo's code of conduct regarding the student loan business.
Cuomo said the probe now includes more than 100 schools, but he would identify only the few that have settled individual cases against them. So far, St. John's University, Fordham University and Long Island University have settled cases.
Education Finance Partners and dozens of unnamed colleges and universities entered into revenue sharing agreements, Cuomo said. Such arrangements can reduce or eliminate competition. Cuomo said students have been reimbursed as much as much as $500 each under the settlements.
``The kickbacks were not only unethical, they were fueled by greed,'' said New York Senate Higher Education Committee Chairman Kenneth LaValle.
Education Finance Partners said their deals with schools did not add to the cost or alter the terms of the loans and the company disclosed to students that their school might have received money from the company, according to the company's statement.
``This agreement removes the appearance of any impropriety and supports our company's goal of raising the level of education and transparency around private loan programs,'' said company CEO Tamera Briones.
Before Friday, seven lenders had been contacted by investigators in the Attorney General's office about the practice in which colleges are paid to steer students to specific companies for college loans.
Two major lenders, Sallie Mae and Citibank, have agreed to pay $2 million each into the fund set up by Cuomo's office and change business practices now under review in Congress.
Cuomo's code of conduct will soon become New York state law, legislative leaders said. New York has two of the biggest public university systems in the nation and far more private colleges and universities than any other state.
Under the Student Lending Accountability, Transparency and Enforcement Act , lenders and colleges could be fined up to $50,000 for a single violation and individuals at colleges or lending institutions could face fines up to $7,500. The law ends revenue-sharing agreements between lenders and colleges, gifts and trips as inducements to school financial aid officers, and the use of campus call centers staffed by lenders that have been used to drum up business.
Cuomo will testify next week before Congress about the federal higher education law and about his investigation into student loan practices nationwide.
Cuomo's office determined early in the investigation that loan officers at Columbia University, the University of Texas and the University of Southern California had stock in 2003 in a company that owned Student Loan Express, a lender on the schools' preferred lists.
Investigators also are examining consulting fees and travel expenses that lenders paid to administrators at a number of schools, including Johns Hopkins University, which had Student Loan Express on its list, too. A Johns Hopkins financial aid director received more than $60,000 in consulting fees and support for her doctoral work from CIT, which is now the parent company of Student Loan Express.