September 7, 2007

More on the government’s Student Loan Report

Posted in Student Loan News at 9:05 AM by Joe From Boston

Here’s an article from the Boston Globe that goes itno more detail on this week’s student loan report.

Student loan report critical of Citizens Bank

Congressional panel cites donations, fees

Citizens Bank made donations or gave referral fees as a “marketing investment” to curry favor with colleges in attempts to protect or increase its student loan business, a US Senate committee chaired by Senator Edward M. Kennedy said in a report yesterday.

The report is from the Senate Health, Education, Labor and Pensions Committee, which has been investigating questionable practices in the student loan industry.

It supplements an initial report in June by providing more examples of lenders – such as Citizens, Citibank, Nelnet, and Sallie Mae – using financial compensation, services, donations, and other perks in an effort to gain market share for the Federal Family Education Loan program, which provides about $50 billion each year to finance higher education.

Citizens, the second-largest bank in New England, is cited several times in the report for questionable practices.

For example, Citizens gave Duquesne University in Pittsburgh $2,900 in 2006 as a “marketing fee” equal to 0.5 percent of outstanding private loans from the campus, a practice that the report says violates the law because it would give the school a financial incentive to recommend the bank.

The bank ended the deal in February.

The report also notes a 2003 e-mail between Citizens employees that discussed a $3,600 sponsorship for Saint Anselm College, of Manchester, N.H., as well as a $2,500 sponsorship of a 2004 diversity scholarship dinner for Sacred Heart University in Fairfield, Conn., to try to maintain the bank’s business on the campuses.

Saint Anselm did not comment.

Sacred Heart said Citizens had been a preferred lender – one that the college recommended to parents and students as reliable – for years prior to the dinner. The sponsorship had no bearing on its financial aid office’s decisions, the university said.

Citizens’ internal e-mails also show that staff members considered giving away ice cream or massages as well as providing temporary staffing for financial aid offices as marketing tools to get preferential treatment.

“The findings of the report underscore the urgent need for reform of the student loan system,” Kennedy said in a news release.

“How to pay for college is one of the most important decisions that families can make. We owe it to them to make sure they’re getting the best deal possible for their hard-earned education dollars.”

Citizens released a statement that said the company has revised its practices.

“Citizens expects the highest level of ethical conduct from all our colleagues,” the statement read. “To ensure we continue to meet the highest standards, we previously discontinued the industry marketing practices in the Senate Committee Report specific to Citizens.

“In addition, we have adopted a new code of conduct for our Education Finance business ensuring adherence to these best practices.”

Scrutiny of relationships between lenders and colleges has intensified this year as revelations that officials at the University of Texas-Austin, Johns Hopkins University, University of Southern California, and Columbia University received kickbacks from lenders – concert tickets, stocks, or compensation for consulting – in exchange for preferential treatment.

In response, the US Department of Education recently issued new rules, and Congress is moving to pass laws that would prohibit financial relationships.

Terry Hartle, senior vice president of the American Council on Education, a higher-education trade association representing 2,000 public and private colleges, said the report provides more proof of improper relationships between lenders and colleges. He said the federal government will take strong action to clamp down.

“Government clearly wants families to feel comfortable that they are getting advice in campus finance offices based only on the interests of students and families,” he said.

Hartle, a former Kennedy staff member, also said the House and the Senate have both passed bills that would cut roughly $18 billion in subsidies to lenders in the loan program, which were provided so that firms would lend to students with little or no credit history at reasonable terms.

“The federal government has realized that if the lenders have the resources to do these [improper] things, lender subsidies are too high,” he said.

“There is no doubt that Congress is very upset and they’ll take very strong action.”


1 Comment »

  1. […] Original post by moniqueleonard […]

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