Attorney General Cuomo Announces Settlement With Education Finance Partners Over Its Student Loan Practices
NEW YORK, NY (April 16, 2007) Attorney General Andrew M. Cuomo today announced a settlement with Education Finance Partners. San Francisco based EFP agreed to adopt the Attorney General's code of conduct governing student lending and contribute $2.5 million to a fund devoted to educating college bound students about their loan options. Under the agreement, EFP agreed to end its revenue sharing arrangements with universities. As part of earlier settlement agreements St. John's University and Fordham University already agreed to pay back students who took out EFP loans that earned money for the schools under revenue sharing agreements. St. John's will pay back $80,553 and Fordham will pay back $13,840.
"I am pleased to report that, with this settlement, EFP is one of the industry leaders in advancing best practices and transparency in its dealing with schools and students. Today's settlement is a major step towards making revenue sharing a thing of the past. With Education Finance Partners' adoption of this code of conduct, in addition to its adoption by Sallie Mae and Citibank, millions of students around the country can now rest assured that best practices and the highest ethical standards will be followed in determining the composition of a preferred lender list," Cuomo said. "EFP's $2.5 million contribution to an education fund means that thousands more of college bound students will now have more information on how to wisely choose the best student loan for them. I thank EFP for this result and for its cooperation in this matter."
Cuomo's nationwide investigation into the student lending industry has uncovered many questionable conflicts of interest including revenue sharing agreements, university call center staffing by lender employees, gifts and trips from lenders to financial aid directors, and even apparent stock tips to financial aid officers. Over the past two weeks, Cuomo announced landmark multi-million dollar settlements with Sallie Mae, Citibank, and eight universities.
Cuomo's investigation has revealed that certain lending institutions repeatedly paid schools in exchange for placement on "preferred lender" lists. Approximately 90% of students choose their lenders from their school's preferred lender lists.
The Student Loan Code of Conduct adopted by EFP in its settlement with Cuomo includes the following provisions:
1. Ban on Financial Ties. Lenders are prohibited from giving anything of value to any college in exchange for any advantage sought by the lender. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits "revenue sharing" arrangements.
2. Ban on Payments for Preferred Lender Status. Lenders may not pay or give colleges any financial benefits whatsoever to get on a college's preferred lender list.
3. Gift and Trip Prohibition. Lenders are prohibited from giving college employees anything of more than nominal value. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
4. Advisory Board Rules. Lenders are prohibited from paying college employees anything of value for serving on the advisory boards of the lenders.
5. Call-Center and Staffing Prohibition. Lenders must ensure that employees of lenders never identify themselves to students as employees of the colleges. No employee of a lender may ever work in or providing staffing assistance a college financial aid office.
6. Disclosure of Range of Rates and Defaults. Lenders must disclose to any requesting school the range of rates they charge to students at the school, the number of borrowers at each rate at the school, and the lender's historic default rate at the school. This will ensure that schools will have the information they need to select preferred lenders who are best for students and parents.
7. Loan Resale Disclosure. Lenders shall fully and prominently disclose to students and their parents any agreements they have to sell loans to any other lender.