Attorney General Cuomo Announces Settlement With Sallie Mae Over Its Student Loan Practices
NEW YORK, NY (April 11, 2007) Attorney General Andrew M. Cuomo today announced a settlement with Sallie Mae, the nation's largest student lender. Reston, VA based Sallie Mae voluntarily agreed to adopt the Attorney General's code of conduct governing student lending and contribute $2 million to a fund devoted to educating college bound students about their loan options. Under the agreement, Sallie Mae agreed to discontinue call centers or other staffing for college financial aid offices, discontinue paying financial aid officers for appearing on advisory boards, and discontinue paying for any trips or travel for any financial aid officer. Sallie Mae serves almost 10 million borrowers, manages a portfolio of over $142 billion in loans nationwide, and has relationships with over 5600 schools.
"Sallie Mae is the largest student lender in the United Sates. Their adoption of this code of conduct will affect millions of students and thousands of schools around the country, and will help set a new industry standard that all lenders should adopt," Cuomo said. "With Sallie Mae's $2 million contribution to an education fund, thousands of college bound students will now have more information on how to wisely choose the best student loan for them."
U.S. Rep. George Miller, the chairman of the House Education and Labor Committee said, "With today's skyrocketing college costs, it is inexcusable for any financial institution to be collecting excess profits at the expense of students and parents. Attorney General Cuomo's settlement with Sallie Mae demonstrates the value of vigorous oversight, and is an important step towards ensuring that all student lenders abide by the highest ethical standards." Miller continued, "The sole purpose of the federal student loan program is to help students pay for college, not to pad corporate profits."
Tim Fitzpatrick, Chief Executive Officer of Sallie Mae, said, "We are pleased that Attorney General Cuomo has recognized Sallie Mae's leadership in the student loan industry and our ethical market practices with students and schools. "We are delighted to join the Attorney General as part of our ongoing efforts to educate consumers on financing college. We thank the Attorney General for his leadership in this area."
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. Last week, Cuomo announced landmark multi-million dollar settlements with eight universities and Citibank. In 2006, Sallie Mae and Citibank accounted for 22% of the private loans nationwide.
The Student Loan Code of Conduct adopted by Sallie Mae 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 to 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.
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