Student loan corruption shocks attorney general
ALBANY, N.Y. – It was a call from an industry whistle-blower that first drew New York Attorney General Andrew Cuomo’s attention to dubious practices in the student loan business.
While various authorities have been examining the issue for about a year, Cuomo became interested after a lender trying to break into the business told him that a few loan companies dominated the lucrative market. Cuomo, who would not name the whistle-blower, saw it as an antitrust issue and started asking questions.
“For me it became real when I talked to lenders who couldn’t get into the market,” Cuomo said Tuesday. “You can be a lender who wants to compete and have a better product, but you just can’t get to the students. … The schools are controlling the access to the students.”
Two months after launching the case, Cuomo believes cozy arrangements between colleges and the companies that lend their students billions of dollars are far more widespread than even he anticipated. Cuomo wouldn’t divulge where the burgeoning investigation is headed next, including whether more subpoenas are on the way, but said his investigation of the $85 billion industry could lead to criminal charges against high-ranking officials at both lending companies and universities.
“This is like peeling an onion,” Cuomo said. “It seems to be getting worse the more we uncover. It’s more widespread than we originally thought … More schools and more lenders at the top end.”
Cuomo is investigating alleged kickbacks to school officials who steered students to certain lenders. His investigators say they have found numerous arrangements that benefited schools, financial aid officers and lenders at the expense of students.
Investigators found that many colleges have established “preferred lender” lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have “exclusive” preferred lender agreements with the companies.
So far, six schools, including the University of Pennsylvania and New York University, have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements, Cuomo said. The schools will return money to students who took out loans during the time the revenue sharing agreement was in effect. Students will be refunded based on the amount they were loaned.
On Monday, a loan company that has been at the center of the investigation, CIT Group Inc., placed three top executives at its Student Loan Xpress division on paid leave following allegations of stock transactions with a high-level U.S. Department of Education official and college financial aid officers.
On Tuesday, two more school officials joined a growing list of those who have been placed on leave for possible ties to lending companies.
Widener University in Pennsylvania placed Walter Cathie, the dean of financial aid, on leave. Cuomo’s office said Cathie was paid $80,000 by Student Loan Xpress since 2005. Investigators said they also believed Cathie had an agreement with the company to market its services to graduate schools, receiving fees based on loan volume.
Capella University, a Minneapolis-based online school, said Tuesday that it suspended its director of financial aid after he acknowledged accepting consulting fees from Student Loan Xpress. Financial aid director Timothy Lehmann was put on paid administrative leave after he received more than $13,000 in consulting fees from the company, Capella President Michael Offernan said.
Cuomo now says he suspects “dozens” of financial aid officers around the country have similar arrangements that he has called deceptive, unethical and at times, illegal.
Last week, Cuomo sent subpoenas to SLM Corp., commonly known as Sallie Mae, requesting information on any current or former employees who had worked at the Education Department over the past six years.