April 11, 2007
Student Loan Investigation triggered by a lender tipping off Cuomo
Here’s an interesting article about the ever-expanding student loan investigation from the Associated Press.
Cuomo: School loan corruption widespread
ALBANY, N.Y. (AP) — 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 who was trying to break into the business told him that a few loan companies dominated the market. Cuomo, who wouldn’t name the whistle-blower, saw it as an antitrust issue.
“For me, it became real when I talked to lenders who couldn’t get into the market,” Cuomo told the Associated Press on 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.”
Cuomo says he believes cozy arrangements between colleges and the companies that lend their students billions of dollars are far more widespread than he expected. He wouldn’t divulge where the burgeoning investigation is headed. But he said his investigation of the $85 billion industry could lead to criminal charges against high-ranking officials at lending companies and universities.
“This is like peeling an onion,” Cuomo said. “It’s more widespread than we originally thought.”
Cuomo is investigating alleged kickbacks to school officials who steered students to certain lenders. His investigators say they’ve found numerous deals 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 financial arrangements with those lenders. Some colleges have “exclusive” preferred-lender agreements with the companies.
So far, six schools have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue-sharing agreements, Cuomo said.
Cuomo says he suspects that dozens of financial aid officers around the country have arrangements that he’s called deceptive, unethical and at times, illegal.
“No one is even defending the situation anymore,” he said. “When we first started, it was, ‘Oh, this is just a few bad apples.’ “
In some cases, investigators said, lenders provided all-expense-paid trips for college financial aid officers to exotic locations. Financial aid officers at schools in some cases served on loan company advisory boards, the attorney general said.
Cuomo said the arrangements are particularly predatory because of the relationship between students and the colleges they choose.
“Ninety percent of the students take the ‘preferred lender,’ ” he said. “Why? Because that’s the nature of the relationship. You trust the school. The school is in a position of authority.”
He argued that lending companies that don’t offer perks to financial aid officials have been frozen out of the schools’ business.