March 23, 2007
N.Y. Attorney General to sue C.A. student loan company
Well, the ball has finally dropped in New York, and I’m not talking about the one in Times Square. New York Stat’es attorney general plans to sue Education Finance Partners, a San Francisco student loan company. Here’s an article from the Boston Globe detailing some of the issues between EFP and Massachusetts schools.
N.Y. official plans to sue student loan company
Firm gave funds to 6 Mass. schools
New York State’s attorney general yesterday said he plans to sue a student loan company for allegedly seeking to pay kickbacks to more than 60 schools, including Boston University and five other colleges in Massachusetts, in exchange for the schools recommending the lender to their students.
San Francisco-based Education Finance Partners also has payment arrangements with Emerson College, Berklee College of Music, Mount Holyoke College, Bridgewater State College, and Becker College, according to a spokesman for Attorney General Andrew M. Cuomo .
Cuomo, who has said it is a conflict of interest for schools to take payments from loan companies, gave the company five days to show why he should not file suit.
BU said in a statement that it received about $1,500 from the company over two years, and “we did not give preferential treatment as a result.”
The statement continued: “In fact, EFP asked us to sign an agreement to actively promote them, and we refused.”
BU, however, said it returned the $1,500 after inquires from Cuomo, and will not accept any additional funds from the company.
The student loan company issued a statement saying it would defend its business practices. The company said it s “revenue share” arrangements are often used to fund student financial aid, and do not impact the interest rates borrowers pay.
Several months ago, Cuomo launched a broad investigation into deceptive practices into the $85 billion loan industry, and he is investigating other loan companies.
Allegations that some colleges are more concerned about reaping financial benefits than getting the best loan terms for their students have been gaining political ground. Senator Edward M. Kennedy of Massachusetts and Senator Richard Durbin of Illinois, both Democrats, introduced a bill last month to require schools to disclose to students any special arrangements they have with lenders, and would ban lenders from offering gifts worth more than $10 to college employees.
According to Cuomo’s office, the company’s agreement with BU was to pay the university 0.25 percent of the value of loans BU students take out from the company between $1 million and $5 million.
For loans between $5 million and $10 million, BU would receive 0.5 percent, and for loans exceeding $10 million, BU would receive 0.75 percent.
Under that formula, BU would have received $3,750 for the $1.5 million in loans its students took out from the company . It is not clear why the payment, according to BU, was less than half of that. University officials declined to comment beyond the statement, saying they had not reviewed Cuomo’s letter.
When asked by the Globe about BU’s relationship with the company last month, officials said the payments were covering some of their administrative costs. They also stressed they do not have a “preferred lender” list and just provide a list of options to students.
Cuomo is focusing on schools taking the payments in exchange for putting that company on their preferred lender lists, which often include a few companies. But preferred lender lists are generally used by schools that participate in a particular government loan program in which BU does not participate.
BU students only borrow from private companies if they decide to borrow more than the amount included in their financial aid packages.
They borrow about $50 million from private lenders in a typical year, the school said.
An Emerson spokesman said the college stands by its financial aid practices, but he did not know whether Emerson had accepted payments from that company . Officials at several other Massachusetts colleges could not be reached last night.
Education Finance did not comment yesterday beyond its statement, but last month, chief executive and founder Tamera Briones said in an interview with the Globe that the payments were an effort to be a good corporate citizen.
“We are quite proud of the fact that we are giving back to the community so some families will have greater access to education,” she said.