May 7, 2007

NJ student loan agency got kickbacks from Sallie Mae

Posted in Student Loan News at 3:33 PM by Joe From Boston


New Jersey’s Higher Education Student Assistance Authority is being investigated by the New Jersey attorney general because it had a revenue sharing program with student loan giant Sallie Mae. Read the whole article online at NJ.com.

 

College loan panel drops lender deal -N.J. agency got millions in fees

Tuesday, May 01, 2007BY ANA M. ALAYA

Star-Ledger Staff

The state agency that oversees New Jersey’s college financial aid and scholarship programs has ended a lucrative deal with the country’s biggest student loan firm amid a widening national probe into the college lending industry.

The state Higher Education Student Assistance Authority recently terminated a contract with Sallie Mae Inc., giving up millions in fees that it was paid in exchange for promoting the lender in New Jersey’s colleges.

HESAA executive director E. Michael Angulo said the authority is re-evaluating its practices in light of scrutiny of the loan industry by Congress and attorneys general in several states.

“Clearly, the student aid landscape is undergoing change,” Angulo said. “The one thing I can say about the industry itself is that there is a lot of gray area involved and we are making sure that going forward, any practices we have in place are in conformance with new guidelines being developed.”

As one of the largest of the 23 state student loan guarantors across the country that also administers state scholarships and grants, HESAA provides about $1.6 billion annually in financial aid to New Jersey students.

It remains unclear to what extent HESAA’s decision will affect students’ ability to get a loan in the future. It is also unclear whether students were hurt by the arrangement.

New Jersey Attorney General Stuart Rabner told state lawmakers at a Senate budget committee hearing in Trenton yesterday he is working with New York Attorney General Andrew Cuomo, who has uncovered “unholy alliances” in the lending industry. Twenty-one schools and five lenders, including Sallie Mae, have settled with Cuomo’s office and agreed to a code of conduct.

Rabner did not offer details about a New Jersey investigation, and his spokesman said the office had no comment on HESAA’s decision.

In March, Gov. Jon Corzine’s office directed HESAA to review its procedures “to ensure strict compliance with U.S. Department of Education guidelines and industry best practices,” according to a spokesman for the governor, Brendan Gilfillan.

For the past seven years, Sallie Mae has paid HESAA $2.2 million annually as part of a marketing and services agreement. The fee was based on the volume of loan applicants to Sallie Mae, according to the contract obtained by The Star-Ledger through an open public records request.

In return for the fee, the authority helped Sallie Mae become a lender for colleges in New Jersey participating in the Federal Family Education Loan Program (FFELP) by informing students of the lenders’ benefits, coordinating and processing guarantees, integrating loan delivery systems and offering technical assistance to institutions.

Today, Sallie Mae is by far the largest lender at at least half a dozen colleges and universities in New Jersey, according to Student Marketmeasure, a consulting firm that tracks the industry.

“It’s an extremely competitive environment, and for new lenders, it is difficult to get to the level of competing in the state,” Angulo said. “By partnering with HESAA, they were able to get a foothold in the market.”

While Cuomo and lawmakers have criticized revenue-sharing agreements or “kickbacks” between colleges and lenders based on loan volume, Angulo claims that HESAA’s arrangement, as a guarantor, is different because the agency does not steer students or universities to Sallie Mae.

“In this case, we are not involved in either the student’s or the institution’s decision to select its lender,” Angulo said.

Officials at two participating universities, however, say HESAA influenced their decision to exclusively market Sallie Mae to students.

“We did that at the encouragement of HESAA and we did that because there’s a streamlined processing of loans and promise of service,” said Dave Muha, a spokesman for Drew University.

Muha said the university’s “incentive” to enter into the exclusive arrangement was HESAA’s offer to provide a HESAA employee on campus dedicated to assist in loan processing. He said officials at Drew were unaware that HESAA received a fee based on loan volume.

“From our perspective, there really is no reason to question a state agency set up to serve the interest of the students going to school in the state,” Muha said.

In addition to the Sallie Mae contract, HESAA also severed a similar, less lucrative deal with the student loan lender Nelnet, and St. Peter’s College, according to Angulo. Both contracts were terminated April 20.

…Read the rest of the article at NJ.com.

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