Cuomo Announces First Legal Action Against A School In Student Loan Investigation
NEW YORK, NY (April 19, 2007) - Today Attorney General Andrew M. Cuomo announced the first legal action against a school in his nationwide student loan investigation. Cuomo announced a notice of intent to sue Drexel University in Pennsylvania over its revenue sharing agreements with Education Finance Partners. This week, Education Finance Partners (EFP) agreed to Cuomo's College Loan Code of Conduct and would end revenue sharing agreements. Cuomo also announced settlement agreements with three more schools: Salve Regina in Rhode Island, Pace University and the New York Institute of Technology. Salve Regina and Molloy College both had revenue sharing agreements with Education Finance Partners.
Previously, Fordham University, St. John's University, and Long Island University all agreed to cease their revenue sharing agreements with EFP and reimburse students on a pro rata basis for the money received through those agreements.
Drexel received over $124,000 from its revenue sharing agreements with EFP and accrued $126,000 more through March 2007 that has not been paid. Under Drexel's agreement with EFP, dated April 1, 2006, Drexel agreed to make EFP its "sole preferred private loan provider." In return, Drexel was to receive 75 basis points (.75 percent) of the net value of referred loans between $1 and $24,999,999; and 100 basis point (1 percent) of all loan amounts of $25,000,000 or greater. Drexel had an earlier revenue sharing agreement with EFP that began in May of 2005 under which Drexel received 75 basis points (75%) of all referred loans. EFP was a non-exclusive preferred lender under the earlier contract. Since 2005, Drexel University has sent over $16 million in loan volume to EFP.
Drexel solicits and corresponds with students from New York, and New York students and their families rely on Drexel's representations about preferred lenders; the New York Attorney General therefore has jurisdiction over Drexel in this matter.
"This investigation is a two front battle: lenders and schools. We have proceeded against lenders and now we are proceeding against schools. There is no reason for a school not to adopt the Code of Conduct," Cuomo said. "This office has been clear to schools: settle or we will commence litigation. Either way we will get justice for students."
Salve Regina, Pace University, and NYIT agreed to the Attorney General's Code of Conduct, after the Attorney General's investigation that revealed various practices at each university could have potentially created conflicts of interest.
Salve Regina University: Salve Regina University is located in Newport, Rhode Island. The Attorney General's investigation found that during the period of 2005-2006, Salve Regina received over $7,800 pursuant to a form of revenue sharing with EFP, which was one of the Salve Regina's preferred lenders. Between January 2004 and March 2007, certain lenders, some of whom appeared on Salve Regina's preferred lender lists, provided printing costs or services to the university and/or paid for meals and lodging for university employees at loan workshops, conferences, and/or advisory board meetings. Salve Regina agrees to accept the OAG Code of Conduct and will reimburse the affected students $7,839.74.
Pace University: Pace University is in Westchester, New York. The Attorney General's investigation found that Pace hired Sallie Mae to staff financial aid call centers, and the Sallie Mae employees wrongfully identified themselves as Pace University employees. Additionally, a Pace administrator who oversaw student loans and advised Pace to drop the federal direct lending program and enter into contracts with Sallie Mae subsequently went to work for Sallie Mae after leaving Pace. This administrator may have had an inappropriate relationship with Sallie Mae while employed by Pace.
New York Institute of Technology: The New York Institute of Technology has three campuses, two on Long Island in Old Westbury, Central Islip, and one in New York City. The Attorney General's investigation found that NYIT accepted payment from certain lenders, some of whom were on NYIT's preferred lender lists, including payments for sponsorships of University events and scholarships. When composing its preferred lender list, NYIT considered whether or not lenders had made such contributions or offered Opportunity Loan funds as a criterion. Additionally, some preferred lenders including Sallie Mae, Citibank, College Loan Corporation and AFC paid for meals and trips to student loan conferences for financial aid officers.
Molloy College: Molloy College is in Rockville Centre, Long Island. The Attorney General's investigation found that Molloy had a revenue sharing agreement with EFP. Molloy received over $1600 from EFP as a result of this arrangement. Molloy has returned this money to EFP and requested that any future revenue due to it under the EFP agreement go towards reducing student loan payments.
The Code of Conduct includes:
- Colleges are prohibited from receiving anything of value from any lending institution in exchange for any advantage sought by the lending institution. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits "revenue sharing" arrangements. Lenders can no longer pay to get on a school's preferred lender list.
- College employees are prohibited from taking anything of more than nominal value from any lending institution. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
- College employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution.
- College preferred lender lists must be based solely on the best interests of the students or parents who may use the list without regard to financial interests of the College. This ensures that preferred lenders will be those the school has determined should be preferred by students as opposed to preferred by the school.
- On all preferred lender lists the College must clearly and fully disclose the criteria and process used to select preferred lenders. Students must also be told that they have the right and ability to select the lender of their choice regardless of the preferred lender list.
- No lender may appear on a preferred lender list if the lender has an agreement to sell its loans to another lender without disclosing this fact. In addition, no lender may bargain to be a preferred lender with respect to a certain type of loan by providing benefits to a College as to another type of loan.
- Colleges 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 provide staffing assistance a college financial aid office.
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