Loan Scandal Escalates

Loan Scandal Escalates

When Andrew M. Cuomo began asking questions concerning the relationships between lenders and schools, many in greater schooling scoffed (off the file) that this was a case of an bold politician in search of headlines and that there wasn’t a lot for his inquiry to search out. There’s little doubt that Cuomo, New York State’s new lawyer normal, is an bold politician in search of headlines, however he is discovering increasingly to analyze. And some specialists on help are more and more frightened that the scandal goes to scare some students and households away from borrowing or from getting recommendation from monetary help workplaces.

On Monday morning, CIT — which in 2005 purchased Student Loan Xpress, the lender on the middle of a lot of the scrutiny — introduced that the CEO, president and vice chairman of that division had all been positioned on depart. Johns Hopkins, Widener and Capella Universities additionally discovered themselves dealing with new scrutiny Monday.

On Monday afternoon, Johns Hopkins University introduced that CIT had knowledgeable it that the monetary help director at Hopkins, Ellen Frishberg, had been paid $65,000 in consulting charges (a few of which helped finance her doctoral program) and $1,200 in journey bills since 2002. Hopkins mentioned that it was putting Frishberg on administrative depart, pending an investigation. Student Loan Xpress is among the many lenders Hopkins has really useful to students for sure personal (non-federal) loans.

Like a number of others who’ve been caught up within the scandal, Frishberg is a nationwide chief within the monetary help world, seen as an advocate for students. She is an alternate on the particular panel negotiating new guidelines for loan applications with the U.S. Education Department, and has been collaborating in these delicate discussions.

Last week, Education Secretary Margaret Spellings requested for the resignation of Lawrence Burt — now on depart from the highest monetary help submit on the University of Texas at Austin — from the Advisory Committee on Student Financial Assistance due to his involvement with Student Loan Xpress. A division spokeswoman mentioned  officers had been trying into the state of affairs with Frishberg.

Also Monday, officers at Widener University, in Pennsylvania, confirmed that they’ve been requested by Cuomo concerning the relationship between that establishment’s monetary help director, Walter C. Cathie, and Student Loan Xpress. The lender has reportedly paid tens of 1000’s of {dollars} to a consulting firm Cathie runs. Cathie couldn’t be reached for remark Monday night.

At a time that Cuomo and members of Congress are questioning whether or not school officers have turn out to be too cozy with lenders, Cathie’s consulting firm might not replicate the picture greater schooling needs to place ahead. Cathie’s biography identifies him because the founder and senior accomplice of Key West Higher Education Associates, which “sponsors invitational conferences on institutional loan origination processes and procedures.”

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Key West is at the moment selling a convention for help officers that includes speeches by Mike Shaut, the CEO positioned on depart Monday at Student Loan Xpress, and Dick Willey, the CEO of the Pennsylvania Higher Education Assistance Authority, a state loan company dealing with reforms and far criticism after studies of spending on resort inns, cigars and pedicures, amongst different bills. (Despite the supplies itemizing Willey, a spokesman for his company mentioned that he had not been requested to talk on the convention and wouldn’t accomplish that if requested.)

Among the subjects deliberate for the seminar: “lingering concerns over improper inducements” for participation in loan applications and “how to protect your institution.”

A spokeswoman for Capella University, Irene Silber, confirmed Monday that her establishment — an internet for-profit — had acquired an data request from Cuomo.

Silber mentioned that Tim Lehmann, director of monetary help at Capella, had acquired $12,400 from Student Loan Xpress in 2006 for consulting work, serving to the corporate discover higher methods of working with on-line students. Capella contains Student Loan Xpress on its listing of really useful lenders to students, however Silber mentioned it has executed so since earlier than Lehmann arrived on the college in 2001, and that Lehmann “was not responsible for putting it on our list.”

Capella is cooperating with Cuomo’s investigation, Silber mentioned. Asked about Lehmann working its monetary help workplace whereas being paid by a lender, Silber mentioned, “I don’t know if it raises concerns” for the college.

As the loan scandal has grown within the final two weeks, increasingly establishments have turn out to be concerned.

Cuomo began off with a collection of data requests after which agreements with schools to cease taking funds from lenders primarily based on the enterprise the businesses gained from being on really useful lender lists maintained by the universities. Many of the universities additionally agreed to repay these funds, which Cuomo referred to as “kickbacks,” however many schools defended as a way of acquiring funds for student help. Many of these agreements had been with Education Finance Partners, whose CEO can be scheduled to seem on the Key West convention on defending establishments from questions on inducements.

Last week, helped by reporting on the New America Foundation’s Web website, Cuomo was pointing to inventory held and offered by three monetary help officers — at Columbia University, the University of Texas at Austin, and the University of Southern California — all of whom have now been positioned on depart.

Times are so tense within the lending business that even its lobbying arm — usually fast to defend members — would not focus on any of the developments intimately on Monday.

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“We don’t have the facts regarding current investigations of student loan marketing practices and don’t feel it is appropriate for us to comment,” mentioned Fritz Elmendorf, vp for communications of the Consumer Bankers Association, in a press release. “CBA member banks have spent substantial time and resources to ensure compliance with the Department of Education’s regulations on inducements. We welcome the promulgation of a clear, universally applied set of standards to ensure integrity in the marketplace, and such standards should not create obstacles for lenders communicating with their student or school customers.”

Fallout for Students and Families

Many specialists on student help are frightened concerning the fallout from the scandal on students and households — even whereas anticipating that few students will perceive the main points.

Laura W. Perna, an affiliate professor of upper schooling on the University of Pennsylvania who research enrollment patterns of low-income students, mentioned that she did not assume the complexities of federal loan laws could be grasped by many students and their households. But she mentioned that did not imply there’s not an actual downside now.

“Especially with all the high profile institutions involved, people are going to hear the sound bites,” she mentioned. (Penn is among the many establishments that agreed to pay again funds, though its involvement within the loan furor hasn’t concerned allegations of non-public acquire by help officers; Perna’s position at Penn is as a scholar, not an help administrator.)

The downside for schools, Perna mentioned, is that this scandal is not taking place in a vacuum. “We already have public skepticism over rising costs and accountability,” she mentioned. “Scandals like this certainly don’t help the credibility of higher education.”

Of explicit concern, she mentioned, is the influence on low-income students. Many research have proven that there’s “already a hesitancy to borrow” amongst low earnings, minority students — students schools very a lot need to appeal to — and headlines about loan scandals are “going to contribute to the difficulties there,” she mentioned. And that is the case though many low-income students have good loan choices accessible and might acquire from making the most of them to get a school schooling, she mentioned, as a result of “many students really do need to borrow.”

What ought to schools do? “I think colleges and universities have to be especially careful right now that their hands are clean,” Perna mentioned

Robert Weinerman, director for faculty financing at College Coach, mentioned that there’s already proof that the scandal is having an influence. College Coach gives recommendation on admissions and monetary help to firm staff (the place companies present the providers as an worker profit), and Weinerman mentioned that there are already questions coming in from employers about what the scandal means, and that these questions are possible prompted by staff who’re paying for faculty for his or her youngsters.

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Weinerman, who previously labored in monetary help on the Massachusetts Institute of Technology and Babson College, additionally mentioned context was essential in trying on the influence. The a part of the monetary help course of beneath probably the most scrutiny includes personal loans that students obtain on high of the rather more distinguished federal loan applications. More and extra households are discovering it essential to take out personal loans, however they sometimes get little assist from schools in understanding their choices moreover the “preferred lender” lists that at the moment are being questioned.

“This is a huge black box for families,” Weinerman mentioned. “They get very little support.”

And that is why Weinerman is frightened proper now for students. “This is a part of the process that is very difficult for families and they rely significantly on the preferred lender lists because the assumption is that the college has vetted the lenders,” he mentioned. “It’s difficult for families to comparison shop, so they assume the colleges have.”

While Weinerman mentioned that he suspected the issues aren’t widespread, he is undecided that may matter. “This could take away the financial aid office as a reliable source for people,” he mentioned. “People may end up in the hands of less scrupulous lenders because all those ethical aid officers are going to be less trusted” with their most popular lender lists, he mentioned. “There is so much publicity — everyone is going to be suspect.”

Robert Shireman, founding father of the Project on Student Debt, mentioned he hoped that the scandal would result in some good. “All of these revelations put financial aid administrators on notice that they have to be very cautious about the financial relationships that they develop with lenders and for the long term good of financial aid, I think that is a positive because it means that there will be cleaner and clearer lines between the advice students are getting and the funding that colleges are getting.”

While schools have defended a few of the relationships — particularly these by which cash was used for monetary help — Shireman mentioned schools ought to bar all funds from lenders going to assist workplaces or the individuals who work there. “I think kickbacks to individuals or to universities create conflicts of interest that raise questions about the advice that colleges and financial aid administrators are giving to students,” he mentioned. “I understand how tempting it has been, especially when you see others doing it, and maybe you already have some business relationships and it feels like ‘why not,’ but that creates the slippery slope.”