Attorney General Cuomo Announces Settlement With College Board To Help Students Secure Low-cost Loans
New York, NY (December 8, 2008)-Attorney General Andrew M. Cuomo today joined with Connecticut Attorney General Richard Blumenthal to announce a major settlement with the College Board, a national not-for-profit association famous for developing and administering college admission tests like the SAT and AP.
Today’s agreement resolves an investigation by the Attorneys General that found that the College Board, which developed and marketed numerous products and services related to student financial assistance, gave significant discounts on those products and services to certain colleges which agreed to place the College Board’s loans on their ‘preferred lender’ list. This effectively directed students towards loans that might not be the best or least expensive option for them.
Under today’s agreement, the College Board will invest $675,000 to develop and provide a set of tools to help financial aid administrators, students, and parents across the country compare student loan offers and identify the lowest-cost student loan options. The College Board has agreed to provide these tools free of charge for two upcoming financial aid cycles.
“Loans are hard enough to come by these days; the last thing we need are deceitful arrangements like this one that stand squarely in the way of students and parents getting the facts,” said Attorney General Cuomo. “We should be doing absolutely everything we can to guide students to the least expensive, least complicated option for affording higher education. With their national reach and extensive expertise in higher education, College Board is the perfect entity for helping students and parents borrow smartly.”
The Attorney General’s investigation found that the College Board, known best to students as the entity which develops and administers college admission tests such as the SAT and advanced placement (AP) tests, also acted as a lender and marketer of higher education loans. At the same time, the College Board developed and marketed numerous products and services related to student financial assistance and gave significant discounts on those products and services to certain colleges in exchange for placement of the College Board’s loans on the colleges’ preferred lender list of student lenders.
During the Office’s negotiations, College Board decided, for reasons unrelated to the investigation, to exit the student loan business as a lender and marketer of higher education loans. Under the settlement, the College Board will develop a set of tools and resources, including a model Request for Proposals (“RFP”) that financial aid administrators will be able to use to solicit proposals from student loan providers seeking placement on schools’ “preferred lender” lists. This will enable colleges and universities to make meaningful comparisons of lenders and to offer student-specific information to students and their parents, who will then have an easier time finding the lenders that are providing the lowest cost loans for them.
The student-specific information solicited in the model RFP will also help students and parents avoid potential harm to their credit score that might otherwise occur when students and parents comparison-shop for private loans. Most student loan lenders advertise a range of interest rates and terms, forcing students to apply for loans in order to find out what interest rate and terms are available to them based on their credit score. Each loan application leads to a separate credit inquiry, and these multiple credit inquiries may, in some cases, negatively affect students’ credit scores. But the model RFP requests information from lenders concerning what interest rates are available to students in particular categories of credit worthiness. With this information, financial aid administrators can help students predict what interest rate is available from various lenders, without incurring multiple credit checks.
The College Board has also agreed to create two student loan calculator tools. The first calculator tool, designed for use by students and parents, will enable students and parents to easily compare complicated offers from different lenders. The second calculator tool, designed for financial aid administrators, will enable financial aid administrators to use the information gathered from the model RFP to provide individually-tailored advice about the terms available to particular students from particular lenders. In addition, the College Board has also agreed to provide in-person and web-based training for financial aid administrators on the use of the model RFP and the student loan calculators.
Finally, the College Board has agreed that if it re-enters the student loan market, it will adhere to the Attorney General’s Direct-to-Consumer Marketing Code of Conduct. The Direct-to-Consumer Code of Conduct prohibits a number of deceptive marketing tactics that are widespread among direct-to-consumer lenders and marketers of student loans. The Code of Conduct also requires lenders and marketers to provide Uniform Disclosure Statements before borrowers take out certain types of student loans. This Uniform Disclosure Statement will enable students and their parents to easily compare various loans, at a point early in the loan process, before they are locked in to taking a particular loan.
Ryan Williams, Vice President for Enrollment Programs & Services at the College Board, said: “We are pleased that we have reached a settlement of the inquiry by the Attorneys General of New York and Connecticut that is forward-looking and focused on how the College Board can best serve students and families as they prepare to finance their college education.”
The case was handled by Assistant Attorney Generals Mary Alestra and Melvin Goldberg and Special Counsel Carolyn Fast under the supervision of Joy Feigenbaum, Bureau Chief of the Consumer Frauds & Protection Bureau.