The nation’s largest student loan provider will stop offering perks to college employees as part of a settlement announced Wednesday in a widening probe of the student loan industry.
SLM Corp., commonly known as Sallie Mae, also agreed to pay $2 million into a fund to educate students and parents about the financial aid industry, and it will adopt a code of conduct created by New York Attorney General Andrew Cuomo, who is heading the probe.
Cuomo says the expanding investigation of the $85 billion student loan industry has found numerous arrangements that benefited schools and lenders at the expense of students. Investigators say lenders have provided all-expense-paid trips to exotic locations for college financial aid officers who then directed students to the lenders.
“Our position is very simple,” Cuomo says. “Loan decisions should be made in the best interest of the students, and not the best interest of the school.”
Sallie Mae CEO Tim Fitzpatrick said in a statement Wednesday, “We are pleased that Attorney General Cuomo has recognized Sallie Mae’s leadership in the student loan industry and our ethical market practices with students and schools.”
Investigators found that many colleges have established “preferred lender” lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have “exclusive” preferred lender agreements with the companies.
“There is a spectrum of what we consider to be deceptive and illegal practices, from financial incentives that go back to the schools to financial incentives to financial aid officers, to perks to financial aid officers, to employees of lenders being stationed at schools,” Cuomo says.
The newly established code of conduct prohibits revenue sharing between lenders and schools, mandates disclosure of relationships between colleges and lenders, sets restrictions on how lenders are chosen for school “preferred lender” lists and bans gifts or trips to university employees from lenders.
Sallie Mae is the second lender to agree to the code, which is aimed at making the loan process more transparent. The organization, which serves almost 10 million borrowers and has relationships with more than 5,600 schools, also agreed to stop running call centers or providing other staffing for college financial aid offices and to stop paying financial aid officers for serving on advisory boards.
Citigroup Inc.’s Citibank, which does business at about 3,000 schools, last week agreed to donate $2 million to the same fund as part of a settlement with the attorney general’s office.
So far, six schools — Fordham University, Long Island University, New York University, St. John’s University, Syracuse University and the University of Pennsylvania — have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue-sharing agreements, Cuomo says.
Those schools, along with all 29 four-year State University of New York campuses and St. Lawrence University, also agreed to abide by the code of conduct.
Within the past week, six financial aid officers at various schools and a U.S. Department of Education official were placed on leave after Cuomo’s office said they received stock, consulting fees or other compensation from Student Loan Xpress. The company was acquired by CIT Group Inc. in 2005 when it bought Education Lending Group Inc.
On Monday, CIT suspended the top three executives at Student Loan Xpress amid its own investigation into the unit’s business practices.
U.S. Sen. Edward Kennedy, D-Mass., said Wednesday that he has asked the Securities and Exchange Commission to open an investigation into the student loan scandal.
Specifically, Kennedy, who chairs the Senate education committee, asked the SEC to look into the transfer of stock from the current president of Student Loan Express, Fabrizio Balestri, to loan officers at three schools and one senior official at the Education Department.
In a letter sent to the SEC on Tuesday night, Kennedy said his own investigation revealed that Balestri apparently acquired the stock through a private placement of stock at a discount and then sold it to the others at a discount. The sale of private placement stock could be considered a securities violation, depending on when the sale took place.
An SEC spokesman declined to comment and referred all questions to Kennedy’s office.
A spokesman for CIT Group did not return requests for comment on Kennedy’s letter.
— Associated Press
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