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Post date: September 9 2008

Attorney General Cuomo Announces Groundbreaking Settlements With 8 Companies That Market Student Loans Directly To Students And Their Families

NEW YORK, NY (September 9, 2008) – Attorney General Andrew M. Cuomo today announced that eight major student lending companies have agreed to adopt broad new reforms of their direct marketing of student loans in order to protect students and their families nationwide.  In settling with the Attorney General, these companies have agreed to abide by strict new standards which will put an end to many problematic practices the Attorney General uncovered in an extensive investigation of the industry. 

The new standards, developed by the Attorney General’s student loan task force, ban a wide range of deceptive marketing practices such as: mailing phony solicitations designed to look like they come from the federal government; advertising interest rates that are not available to the majority of borrowers who take out loans with the lender; offering prizes and running contests and sweepstakes to induce students to take out loans with a particular lender; and paying off students to get their friends to take out loans with particular lenders.

The eight student lenders who have agreed to abide by these new heightened standards include Nelnet, Inc., Campus Door, Inc., GMAC Bank, NextStudent, Inc., Xanthus Financial Services, Inc., EduCap, Inc., Graduate Loan Associates, L.L.C., and MRU Holdings, Inc., doing business as My Rich Uncle.  Seven of these companies have entered into settlement agreements with the Attorney General’s Office in which they agree to abide by a code of conduct and to donate a total of more than $1.4 million to the Attorney General’s national fund to educate and assist students and their families with respect to the financial aid process.  One company, My Rich Uncle, has agreed to voluntarily adopt the code.

“These settlements are a major step forward in cleaning up an industry where false and misleading advertising practices have been all too rampant. Unsolicited and deceptive mailings that are sent to the homes of students are more than a nuisance, they can result in students being buried in mountains of debt for years to come,” said Attorney General Cuomo. AOur investigation of direct marketing in the student loan business found a wide variety of problematic practices that put business profits ahead of the borrowing needs of students and their families. I commend the eight lenders who have today signed the code thereby committing to help my office clean up this industry.  It is unconscionable for lenders to entice students into loans that are not best for them.”

The Attorney General also called on the rest of the direct marketing industry to adopt the code of conduct. “These eight companies are setting the industry standard.  If other companies won’t adopt the new code, it should raise a red flag and students should be asking those companies, ‘why not?’ Students and their families should certainly think twice before taking a loan from any company who has not signed on to the code.  This industry has a spotty track record when it comes to protecting consumers and it’s time for the companies to be held accountable,” said Attorney General Cuomo.

The Attorney General’s investigation of the student loan industry began last year with the exposure of conflicts of interest in the relationships between lenders and universities that included kickback arrangements where lenders were paying universities to have the universities recommend the lenders to students.  The Attorney General developed a code of conduct for lenders and universities that became the model for a New York law known as SLATE, as well as for a recently enacted federal law which now protects students nationwide. 

After addressing these conflicts between lenders and universities, the Attorney General turned to combating deceptive and illegal tactics in the direct marketing of student loans through the mail, the Internet and on television without going through the colleges’ financial aid offices at all.  Today’s announcement of a new set of agreements with some of the nation’s leading lenders of student loans marketed directly to consumers will bring much needed reforms to this other major channel through which students and their families obtain loans for college.
Barmak Nassarian, Associate Executive Director, American Association of Collegiate Registrars and Admissions Officers (“AACRAO”), said, “Attorney General Cuomo’s Office has once again broken new ground by obtaining significant protections for students and families.  These settlements improve the amount and quality of information available to educational loan borrowers.”

Chris Lindstrom, Director of U.S. P.I.R.G. Higher Education Project, said, “Deceptive marketing practices can lead students to make ill-informed decisions at a serious financial cost to borrowers.  We applaud the continued action and leadership shown by Attorney General Cuomo in protecting the interests of students and families.”

The student loan direct marketing investigation uncovered numerous deceptive practices, all of which are now banned under the Attorney General's new code of conduct, including:

  • using logos and return addresses that made it look like the lender's solicitation to consumers was from the federal government or the student's current lender;
  • mailing fake checks or false rebates offers on current loans to entice students to take out loans;
  • giving inducements to students, such as gift cards, iPods, and GPS devices, to distract students from focusing on the (sometimes onerous) terms of the higher education loans being promoted;
  • offering inducements to students to convince their friends to take out loans with particular lenders;
  • making false and misleading representations as to the advantages of private student loans over lower-cost federal loans;
  • providing illustrations of loan costs or terms that are available only to a tiny fraction of borrowers without disclosing that fact;
  • failing to guarantee that advertised borrower benefits, such as discounts on the interest rate of the loan during the repayment phase of the loan, follow with the loan, regardless of who purchases the loan in the future.


The Attorney General’s new code of conduct bans all of these practices and many others.  In addition, under the new agreements, in connection with the marketing of private loans, lenders and marketers will provide a warning that students and their parents should exhaust lower-cost federal borrowing options before turning to private loans.  Moreover, the code requires lenders to provide timely disclosures of the terms of federal and private loans, ensuring that students have the information they need to comparison shop for those loans.

The Attorney General urges students and their families to seek more information on the New York Attorney General’s website, at  On the website, students can also order a free informational DVD to learn more about the student loan process and how to protect themselves.

The investigation and settlements were handled by Assistant Attorneys General Carolyn Fast, Mary Alestra, Melvin Goldberg, Brian Montgomery, Stephanie Sheehan, and Jason Garelick, under the supervision of Consumer Frauds Bureau Chief Joy Feigenbaum.