Inconvenient News,
       by smintheus

Thursday, April 05, 2007

  Is your college run by mobsters?

Did your college loan officer promise to "make you an offer you couldn't refuse"? Does the head of the Office of Student Aid appear in public surrounded by heavy set men packing a surprising amount of heat? Did your student loan package include an entry, under the penalties for late-payment, labeled "knee-capping"?

Image Hosted by ImageShack.usThese might be clues that your college or university belongs to a national criminal conspiracy to bilk financially vulnerable students for all they're worth. Investigations by the New York Attorney General are revealing that dozens and perhaps hundreds of institutions are implicated in these schemes. Typically they involve exorbitant interest rates from "preferred lenders" selected by the college, which receive kickbacks in exchange for helping to deceive students about the nature of the loans and the lenders. Some individual loan officers seem to be getting a cut of the money.

Speaking as one who depended on student loans back in the day, and who's devoted his career to higher education, this is ugly folks. I thought I'd seen every kind of sleazy academic wheeze by now, but...chiz.

The institutions involved include some fairly distinguished universities: NYU, Syracuse, SUNY, UPenn, Fordham, Clemson, Boston, Baylor, Drexel, UMiss, Washington Univ. in St. Louis. The NY Attorney General, Andrew Cuomo, began investigating this racket in January. Earlier this week, he announced the first agreement with some of these institutions to reimburse students with the kickbacks they've received from the crooked lenders.


The first time I heard of predatory college loans, in April 2005, the scheme was being run by a fourth-rate local business school then called Lehigh Valley College. Sam Kennedy of my local paper, the Allentown Morning Call, did some excellent investigative reports on the racket LVC was running:

School steers students to backbreaking loans

In its quest for tuition money, LVC is steering some students to high-interest loans...

Most of the loans in question are private loans carrying 15.375 percent interest -- a rate normally associated with credit cards, not historically cheap student loans. Financial aid advisers at several other schools in the Lehigh Valley said they had never heard of student loans with rates so high...

Image Hosted by ImageShack.usThe Morning Call reported last month that LVC engages in hard- sell sales tactics to boost enrollment. High tuition and fees -- $30,400 to $37,500 for an associate degree, compared with $5,400 to $5,640 at the area's community colleges -- then leave students with heavy debt.

High-interest student loans are another piece of the equation.

The sales tactics extend to financial aid, according to LVC's former dean of admissions, a former financial aid director of another college owned by LVC's parent company and 10 students who independently contacted The Morning Call about their high-interest loans.

Image Hosted by ImageShack.usThe students said LVC advisers took control of financial aid matters, guiding them toward a variety of loans. But, the students said, the advisers rushed them through the process, giving them little opportunity to consider the fine print and no warning of the consequences of high interest rates...

The arrangement between LVC and Sallie Mae, the nation's No. 1 student loan lender, is simple enough: Sallie Mae, which buys the loans after they are originated by a bank, collects the interest. LVC's corporate parent, Career Education, gets tuition money, its primary source of revenue.

Image Hosted by ImageShack.usIt's part of an efficient money-making machine that grinds away without regard for students, according to the former financial aid director [of LVC]. He said Career Education's objective has been to "package" enrollees with loans as quickly as possible -- before they have a chance to change their minds.

"You don't want them thinking about it twice. You want them signed, sealed and delivered," he said.

Clearly, Sallie Mae was colluding with LVC to give students the hard sell. It ought to have known that LVC, a for-profit "college", had almost no credibility either in academia or in business. It was a diploma mill, yet Sallie Mae was happy to play along by creating a class of student loans carrying predatory interest rates.


That might have seemed an isolated case, and at the time I made nothing more of it. But now we hear that mainstream colleges and universities nationwide are being exposed in the New York corruption inquiry. As Richard Esposito reported last month:

In a letter sent to several hundred schools Thursday, Cuomo advised school officials to review financial aid business practices and examine potential conflicts of that include fee splitting arrangements with banks that have earned some colleges several hundred thousand dollars a year, sweeteners to institution including multi-million dollar lines of credit and junkets worth thousands of dollars to financial aide officers and their spouses.

Especially troubling, Cuomo said, was the fact that the limiting of preferred lenders to a short list not only left the impression on aide applicants that these lenders MAY provide the best rate, but cut off dozens of other potential lenders from competing for a part of the multi-billion dollar pie.

Requests for information were sent to more than 10 schools in California, to nine in Pennsylvania, eight in Massachusetts, and six in Michigan, according to a February announcement by the Attorney General. The probe has touched schools in New Jersey, South Carolina, Wisconsin, Texas and Colorado as well as schools in Missouri, Delaware, Oregon, Tennessee, Mississippi, Rhode Island, North Carolina and Arizona.

The loan rates that the "preferred lenders" offer students in this racket, as with the racket uncovered by the Morning Call two years ago, are far from the best that students could obtain. The colleges and universities are helping to steer students toward higher rates because the institutions and sometimes their employees are benefiting by "kickbacks" (Cuomo's term).

One lender in particular, California-based Education Finance Partners, has more than 60 such agreements. Cuomo plans to sue EFP for deceptive practices.

Image Hosted by ImageShack.usEducation Finance Partners has repeatedly paid schools in exchange for steering loans to EFP and for putting EFP on “preferred lender” lists. Approximately 90% of students choose their lenders from their school’s preferred lender lists. Cuomo’s investigation has uncovered that neither the schools nor EFP adequately disclose to students that EFP is paying the schools to be promoted as a “preferred lender.” Cuomo’s legal action alleges that the relationship and financial arrangements between EFP and the schools constitute a deceptive business practice. Cuomo also revealed today that EFP made its financial kickback arrangements with schools through what are called revenue sharing agreements, which often were based on a tiered system that would give a higher percentage to the schools based on the amount of loans referred...

This arrangement resulted in potentially large amounts of money paid by EFP to universities participating in the preferred lender program. For example, EFP’s agreement with Duquesne University gives the school 60 basis points (.6%) of the net value of all referred loans. The agreements are structured to encourage the schools to refer as much business as possible to EFP. For example, EFP’s agreement with Boston University provides that Boston University will receive 25 basis points (.25 percent) of the net value of referred loans of at least $1,000,000 up to $5,000,000; 50 basis points (.5 percent) of value of referred loans between $5,000,000 and $10,000,000; and 75 basis points (.75 percent) of the net value of referred loans over $10,000,000.


Unsurprisingly, the lenders and colleges initially claimed that nothing untoward was going on.

Both Duquesne and Clemson officials said they also used the money from arrangements with EFP for other student financial aid and that they made no attempts to steer students to the company.

And in March the National Assoc. of Student Financial Aid Officers also fired back at Cuomo accusing him of grandstanding.

Image Hosted by"He uses the word ‘kickback.’ The word ‘kickback’ to me means that somebody took something under the table, put it in their own pocket. If in fact these institutions had negotiated a deal and they’re getting some money back and that money is going back into the institution to support their student aid program or to serve other interests, like keeping tuition down,” such a move would be akin to deals made by universities all the time, such as finding a sponsor for a scoreboard, [NASFAO President Dallas] Martin said. Such deals, he added, enable them to better support their constituency — students.

Yup, sure they do. Sounds very magnanimous of the colleges. I just have a few nagging questions, though.

Why is outright deception of students necessary?

The telephone number looks like any other university extension. And when students call with questions about financial aid, the recorded voice at the other end says, “Thank you for calling Texas Tech University’s Student Financial Center.”

Image Hosted by ImageShack.usBut what is remarkable about the center is not so much that it is actually located hundreds of miles away from Texas Tech’s Lubbock campus. It’s that the people giving advice are not university employees at all — instead they work for Nelnet, a company that made more than $68 million last year off of student loans...

Becky Wilson, director of financial aid at Texas Tech, defended the practice of routing student financial aid questions to Nelnet and said that the university was “trying to make the aid process as seamless as possible for students” so they do not have to deal with multiple people. She said that if call center workers identified themselves as Nelnet employees it would cause confusion...

In other words, don't ever confuse students with the truth.

And why are colleges cooperating in suppressing information about cheaper loan options?

Image Hosted by ImageShack.usSome institutions of higher education have neglected to make clear that borrowers have a right to select the Stafford Loan and PLUS Loan lender of their choice, irrespective of whether the lender appears on any preferred lender lists. In the most egregious cases, institutions have gone so far as to abrogate this right, by stating or strongly implying that the student and parents were limited to the lenders on the list, or even to a single lender.

And why are students' loans being manipulated at the back end to their detriment, without their knowledge?

Image Hosted by ImageShack.usWithout students' knowledge, lenders on preferred lender lists had agreed in advance to bundle all the loan applications they sold and then resell them to a single lender -- in effect removing any real choice for the student, the attorney general's office said.

And why are these lenders offering to open up credit lines for the colleges and reward those that drop out of the Stafford Loan program?

Loan companies set up funds and credit lines for schools to use in exchange for putting them on their preferred lender lists and offer large payments to schools to drop out of the direct federal loan program so that the lenders get more business.

And why are colleges getting involved in pushing former students to consolidate their loans with "preferred" lenders?

Former students may wish to combine their various education loans into a single package, called a “consolidation loan.” Some institutions of higher education have entered into agreements with the providers of such consolidation loans pursuant to which the institution agrees to encourage its former students to consolidate the former students’ loans with a particular lender and no other. In exchange, the institution secures revenue sharing or other benefits that inure directly or indirectly to the institution rather than the borrower.

And why are financial aid officers at these schools going on junkets paid for by the "preferred" lenders?

Image Hosted by ImageShack.usOne lender, Educap, in 2005 invited financial aid officials to an "education summit" at Pebble Beach Lodge, a summit that the brochure promised would not focus on the minutia of financial aid, but on "big ideas."...

The attorney general for New York and his investigators have told ABC News that lenders have paid for all-expense-paid trips for financial aid officers (and their spouses) to high-end resorts like Pebble Beach and the Four Seasons in Nevis. Investigators have found that lenders also have provided schools with other benefits like computer systems and put representatives from schools on their advisory boards in order to further curry favor with the schools.

And if nothing at all was wrong with the scheme, why have colleges reached an agreement with the NY Attorney General to stop the practices and reimburse students?

Attorney General Andrew M. Cuomo today announced that his office has signed settlements with major universities concerning student-loan arrangements between the schools and lenders. The settlements require schools to reimburse students money that the colleges were paid by lenders for loan business and to adopt a new landmark College Code of Conduct.

The schools include the State University of New York’s 29 four-year campuses (SUNY), Fordham University, Long Island University (LIU), New York University (NYU), St. Lawrence University, Syracuse University and the University of Pennsylvania...

Under the settlements, schools will make the following aggregate reimbursements to students:

  • NYU – $1,394,563.75 covering students who received loans issued over a five-year period.

  • St. John’s University – $80,553.00 for loans issued over a one-year period.

  • Syracuse University – $164,084.74 for loans issued over a two-year period.

  • Fordham University – $13,840.00 for loans issued over a one-year period.

  • University of Pennsylvania – $1,617,580.00 for loans issued over a two-year period.

  • Long Island University – $2,435.41 for loans issued over a one-year period.

And if the "preferred lenders" were doing such wonderful things for the college, why has one of them already cut a deal with the NY Attorney General—and tried to distance itself from the practices at issue?

Citibank, one of the largest providers of student loans, as well as five universities have agreed to pay $5.2 million to students and the New York State attorney general to resolve an investigation into student loan practices...

Citibank, which at year’s end had $33.7 billion in student loans outstanding, agreed to pay $2 million into a fund to educate students and parents about student loans...

Image Hosted by ImageShack.usThough neither Citibank nor the universities admitted to any wrongdoing, they all agreed to adopt a code of conduct governing relations between student lenders and academic institutions...

Under the code of conduct agreed to by the eight institutions and Citibank, universities and their employees are prohibited from receiving “anything of value from any lending institution in exchange for any advantage,” the attorney general’s office said, and would have to disclose the criteria used to select preferred lenders.

Citibank, in a statement, said it had participated “only modestly or not at all” in most of the practices singled out by Mr. Cuomo’s office.

And why would the NY Attorney General be permitted to impose a new code of conduct on these institutions?

Image Hosted by ImageShack.usThe Attorney General’s College Code of Conduct, included in all of the settlements announced today, prohibits revenue sharing from lenders to schools, includes disclosure standards and restrictions on how lenders are chosen for school “preferred lender” lists, and bans gifts or trips to the university employees from lenders. The Code of Conduct also prohibits lenders from staffing or paying for the staffing of any component of the university financial aid offices and outlines guidelines for other aspects of the lender-university relationship.

Perhaps, just perhaps, there was a conspiracy to defraud students after all?


Image Hosted by ImageShack.usA few months ago I finally managed to pay off the last of my student loans from graduate school, upon which I was heavily dependent for my education. The payments seemed to stretch on for an eternity and promised to bleed me dry. Meanwhile, I've been teaching students who were getting hit even harder than I. A few have dropped out of college because they couldn't afford any further loans. Millions of students are desperately vulnerable to manipulation as they seek a means to attend college. These are the victims of this criminal conspiracy.


On a further note, I have to ask once again: Where are the self-styled "fundamentalist" Christians on the issue of predatory lenders? Often American fundamentalists seem utterly obsessed with wiping out "sins" that the Bible has relatively little to say about, yet remain all but silent on the usurers in their midst. This abuse of the apparatus of student lending probably could not have come about except in a national climate that accepts the "right" of lenders to exact the most crippling terms from our fellow citizens when they are at their most vulnerable. And yet I've never heard a peep about any of this from, say, the North Carolina Baptist Convention.

crossposted from Unbossed

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  • I have documented emails of Regis University forcing me to sign the consolidation paperwork or I would not be eligible to graduate.

    And, yeah, I got an attorney on it right now.

    By Anonymous Anonymous, at 6:26 AM  

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