Columbia University to Pay $1.125 million to Settle Student Loan Probe

Attorney General Andrew M. Cuomo today announced two new and path-breaking agreements in his ongoing national investigation into the student loan industry.

In the first agreement, Columbia University has agreed to adopt Cuomo’s Code of Conduct, and pay $1.125-million into a national education fund. Also as a part of the agreement, Columbia University has agreed to financial aid monitoring procedures that will be overseen by the New York Attorney General – a first for any school in the nation.

Separately, the National Association of Student Financial Aid Administrators (NASFAA) has agreed to abide by Cuomo’s Code of Conduct and prevent lenders from using their annual conference as a promotional vehicle to recruit financial aid officers – a practice that had become routine in recent years. NASFAA, which has a membership of 12,000 financial aid officers from 3,000 schools nationally, will also submit to five years of oversight measures designed to ensure their conferences remain in compliance with the agreement.

“Hyper competition for preferred lender status led lenders – and some school financial aid officers — into ever lower ethical and moral depths,” said Cuomo. “But today shows that this industry is no longer engaged in a race to the bottom. By adopting the Code, agreeing to end bad practices, and beginning to operate in the best interest of students, these institutions have begun a race to the top. Lenders and schools now realize that to compete, they must do business cleaner and better than others in the industry.”

Cuomo continued, “I applaud Columbia’s aggressiveness in remedying this situation. They took quick action, were cooperative and the result will be better for all involved. Columbia is a great school and a vital institution to New York and nothing about this case changes that.”

These agreements, taken together with the announcement on Tuesday that Wells Fargo has adopted the Code, and the signing on Wednesday of the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act into law, cap a week of tremendous progress in achieving solutions to the student lending crisis. Twenty-five schools and the nation’s top-five lenders (seven lenders in all) have now reached agreements with Cuomo.

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Under the agreement with the Attorney General, Columbia University will:

• Pay $1.125 million into a national education fund dedicated to educate college students and their parents about the financial aid process.
• Submit to new oversight measures that have never been in any agreement before, which include the following:
• Centralization of their various financial aid operations;
• More robust conflict of interest screening of their financial aid employees;
• Requirement that all preferred lender lists be approved by committees of at least 3 people and then by a person outside of the financial aid office who reports to the President of the University;
• For the next 5 years the University must issue a report to the New York Attorney General laying out all policies and procedures relating to student lending and laying out any conflicts or violations of the Code of Conduct.

NASFAA, which has a membership of 12,000 financial aid officers from 3,000 schools nationally, was initially opposed to Cuomo’s Code. NASFAA is now committing itself to a new set of practices aimed at deterring corruption in the student loan industry.

The agreement with NASFAA stipulates that the organization will:

• Abide by Cuomo’s Code of Conduct.
• Institute guidelines for cleaning up unethical behaviors at their conferences, which include the following:
• End the practice of gifts or give-aways over $10 by lenders and other exhibitors;
• Prohibit all prize drawings by lenders and other exhibitors;
• Ban any social activities directed toward conference attendees that are sponsored by lenders or other exhibitors;
• Eliminate named sponsorship of specific Annual Conference activities and events;
• Terminate the NASFAA Scholarship Program;
• Terminate tiered recognition of different levels of sponsorship for the Annual Conference (i.e., platinum and gold sponsors).
• To ensure compliance with these policies and procedures, for a period of five years beginning in 2007, a representative of the New York State Attorney General’s Office will be invited to attend and monitor NASFAA’s Annual Conference and any other NASFAA meetings the Office wishes to attend.

In total, 25 schools have committed to Cuomo’s Code of Conduct, 9 of which have agreed to reimburse students over $3 million for the cost of revenue sharing agreements. Cuomo’s investigation has resulted in agreements with the nation’s five largest student loan providers – Citibank, Sallie Mae, JP Morgan Chase, Bank of America, and Wells Fargo – as well as with Education Finance Partners (EFP) and CIT. Sallie Mae, Citibank, EFP, and CIT have also agreed to contribute $9.5 million to a national fund established by Cuomo that will educate high school students and their families about the financial aid process. On May 7, 2007, the New York State Legislature passed the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007, which was sponsored at the request of Cuomo and is the first piece of legislation in the country aimed at ending the widespread conflicts of interest the student loan industry. Governor Spitzer signed the SLATE Act into law on May 29, 2007.