Student loan probe costs lender $2.5M

Education Finance Partners, in addition to the largest loan-related settlement yet, also agreed to adopt Cuomo’s code of conduct as part of a student loan investigation.

Cuomo said the probe now includes more than 100 schools, but he would identify only the few that have settled individual cases. So far, St. John’s University, Fordham University and Long Island University have been identified.

Education Finance Partners and the 60 unnamed colleges and universities entered into revenue sharing agreements, Cuomo said. Such arrangements can reduce or eliminate competition, which could result in students paying higher interest rates.

Cuomo said students have been reimbursed as much as much as $500 each under the settlements.

"The kickbacks were not only unethical, they were fueled by greed,” said New York Senate Higher Education Committee Chairman Kenneth LaValle.

Education Finance Partners said their deals with schools did not add to the cost or alter the terms of the loans and the company disclosed to students that their school might have received money from the company, according to the company’s statement.

"This agreement removes the appearance of any impropriety and supports our company’s goal of raising the level of education and transparency around private loan programs,” said company CEO Tamera Briones.

The investigation has broadened to include companies that issue 80 percent of all student loans in the United States, according to Cuomo spokesman John Milgrim. Five subpoenas and eight letters seeking lending data were sent Friday.

The lenders sent subpoenas were College Loan Corp., Access Group, Sun Trust, Edfinancial, and Regions Bank. The companies sent letters seeking documents were National City of West Palm Beach, Fla.; Citizens Bank, PNC of Pittsburgh, US Bank, Bank of America, Wells Fargo of California, JP Morgan Chase of New York, and Wachovia Corp. of Charlotte, N.C.

Before Friday, seven lenders had been contacted by investigators in the Attorney General’s office about the practice in which colleges are paid to steer students to specific lenders for higher education loans.

Two major lenders, Sallie Mae and Citibank, have already agreed to pay $2 million each into the fund set up by Cuomo’s office and change business practices now under review in Congress.

"Clearly, banks and investors see student loans as a very profitable business,” said Sen. Edward Kennedy, D-Mass., who is pursuing a federal measure to protect students borrowing money for school. "It’s more urgent than ever to enact reforms to our student loan system to ensure that students, not profits, are our top priority.”

Cuomo’s code of conduct will soon become New York state law, which will govern lenders and colleges statewide, legislative leaders said. If approved, New York would be the first state in the nation with such a law, said Senate Majority Leader Joseph Bruno, a Republican.

New York has two of the biggest public university systems in the nation and far more private colleges and universities than any other state.

The Student Lending Accountability, Transparency and Enforcement Act has been agreed to by legislative leaders in Albany.

Under the New York law, lenders and colleges could be fined up to $50,000 for a single violation and individuals at colleges or lending institutions could face fines up to $7,500. The law ends revenue sharing agreements between lenders and colleges, gifts and trips as inducements, and the use of call centers to drum up business. Also, if "preferred lender lists” are created, they must be in the best interest of students.

Cuomo will testify next week before Congress about the federal higher education law and his investigation into student loan practices nationwide.

Earlier, Cuomo’s office had found that loan officers at Columbia University, the University of Texas and the University of Southern California had stock in 2003 in a company that owned Student Loan Express, a lender on the schools’ preferred lists.

Investigators also are examining consulting fees and travel expenses that lenders paid to administrators at a number of schools, including Johns Hopkins University, which had Student Loan Express on its list, too. A Johns Hopkins financial aid director received more than $60,000 in consulting fees and support for her doctoral work from CIT, which is now the parent company of Student Loan Express.