University Business - July 2007 - (Page 50)

"You never told me you were getting a commission on the business transaction," Andrew Cuomo testified. "I consider that deceptive." to police that marketplace by ensuring these lenders are operating legally and not at the cost of unsuspecting borrowers.” Students must almost always ﬁnd extra cash to pay for college, and loans are the easiest way to achieve that. Private lenders know this, of course, and some will go out of their way to be placed on a school’s preferred lender list. Why? Because students, who are already dazed and confused by the myriad forms and requirements just to get accepted into school, usually defer to the names on the preferred lender list. In fact, according to one study, 90 percent of students take loans from those on their institutions’ preferred lender lists. To be sure, preferred lenders most often earn that distinction with good reason. They oﬀer competitive rates and a level of service with which schools and students are generally satisﬁed. Financial aid directors contacted for this story say they haven’t had negative reactions to the news of the New York attorney general’s investigation. Bryan Terry, associate vice president for Enrollment Services 50 | July 2007 at Seton Hall University (N.J.), says, “The school has yet to ﬁnd a family that has called our oﬃce concerned about whether or not we are acting in their best interest.” “We use a very popular lending institution that oﬀers extremely competitive rates, so that may be why I’m not hearing any complaints,” Terry explains. “However, I’ve heard that many of my colleagues are monitoring the same kind of activities. For now, until we get a ﬁnal ruling, we will continue to work with families with the student’s best interest at heart.” But what if a lending company wants to get more of those students to choose it over another lender? That company might try to oﬀer some sort of incentive to the school’s ﬁnancial aid director to get placed at the top of the list. Unethical, surely, but illegal? Perhaps. The Department of Education does not regulate private loans per se. However, it does administer the Federal Family Education Loan Program, a publicprivate partnership that administers guaranteed education loans for students and families. Testifying before the U.S. House of Representatives Committee on Education and Labor, Cuomo said his investigation found numerous violations within the regulations of FFELP, but much of what was uncovered falls under the realm of consumer fraud. “Under the business and consumer protection laws of the state of New York, it is illegal to have deceptive business practices. In our opinion, some of these business practices are deceptive. When you are getting a kickback—which is the term we are using—for a loan that was undisclosed, you have deceptive business practices.” Cuomo said his rationale for jurisdiction in schools in other states is that his department protects New York consumers wherever they are. But was there an active attempt to deceive students? Yes, Cuomo charged. Some schools had an economic incentive in recommending a lender and never disclosed that self-interest. In fact, he said, they represented the opposite. “You never told me you were getting a commission on the business transaction,” Cuomo said. “I consider that deceptive.” In addition, ﬁnancial aid administrators who own stock in private lending companies may be violating their institution’s code of ethics, and possibly criminal laws as well, he said. But wait, there’s more. Cuomo’s investigation also uncovered evidence of revenue-sharing agreements between schools and lenders, university ﬁnancial aid call centers staﬀed by lender employees, and perks such as trips and gifts from lenders to a school’s ﬁnancial aid directors. Warning Signs The whispers of impropriety have been around for years. Student advocacy groups and Democratic lawmakers have long been asking for more oversight into the student loan industry and how lenders conduct business with institutions. For example, a proposal for stricter regulation of the private lenders drawn up by Department of Education oﬃcials in the last days of President Clinton’s term was apparently ignored by the incoming Bush administration in 2001. That proposal read, in universitybusiness.com http://universitybusiness.com

Table of Contents for the Digital Edition of University Business - July 2007

Contents
College Index
Company Index
Advisory Board
Editor's Note
People Watch
Sense of Place
Marketing
Viewpoint
Human Resources
Money Matters
Financial Aid
Community Colleges
Seeds of Scandal
Controlling the Flow
Special Delivery
Presidential Progress
Best Foot Forward: SOX and Financial Standards
Business Technology
What's New
Calendar of Events
Direct Connect
End Note

University Business - July 2007