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1 New Ties Found to Link Lenders and Colleges - New of 2 9/5/2007 8:43 AM September 5, 2007 New Ties Found to Link Lenders and Colleges By JONATHAN D. GLATER A Congressional report released yesterday found new evidence of questionable conduct, involving gifts and donations to build business, in the ties between colleges and student loan companies. The report describes messages and other internal documents from lenders. In them, lenders discuss requests from college officials for donations to help pay for fund-raising golf matches, student activity fairs and intramural sports. The documents also suggest that lenders viewed such gifts and payments as part of an effort for financial aid offices to steer students their way. The report, released by Senator Edward M. Kennedy, the Massachusetts Democrat who is chairman of the education committee, was issued as lawmakers consider bills to reduce government subsidies to lenders in the federal student loan program. According to the report, Citizens Bank received a request in 2004 from Sacred Heart University in Fairfield, Conn., for $2,500 to sponsor a dinner for at least the second time, according to a bank message. Sacred Heart is a $6 million dollar school, and this will allow us to maintain our preferred status as well as grow our volume, the message said in referring to how much money Sacred Heart students borrowed. Freed-Hardeman University in Henderson, Tenn., requested funds from SunTrust Bank to provide $5,000 to support its intramural sports program, according to a SunTrust message. Another Citizens Bank message describes a request by Marywood University in Scranton, Pa., to sponsor its 2004 student services fair. Morehouse College in Atlanta requested $3,000 to sponsor tables at a fund-raiser, a Citizens Bank message said. And Baptist Bible College and Seminary in Clarks Summit, Pa., asked Citizens to donate to a golf-a-thon. I m looking at this as an opportunity to do more business with this school, a Citizens employee wrote, wanting to give $100. The findings of the report underscore the urgent need for reform of the student loan system, Mr. Kennedy said in a statement. Legislation in Congress would ban gifts to colleges and employees in an effort to gain student loan volume. The report is the latest result of government investigations into student lending. The report also finds cases in which lenders paid colleges based on loan volume and provided services including staffing to financial aid offices. Officials at several colleges in the report emphasized that financial aid offices did not typically raise money and that any sponsorships did not lead to preferential treatment of lenders. The Office of Student Financial Assistance is not involved in soliciting donations on behalf of the University, Funda Alp, director of communications at Sacred Heart, wrote in an message responding to questions. In fact, the office is not necessarily aware of donations to the university by lenders and would not consider such donations to be inducements. Ken Knelly, executive director of communications at Baptist Bible College and Seminary, said financial aid officials were barred from soliciting money for events under policies adopted this year. Mr. Knelly said the person who might have requested the golf-a-thon support was no longer at the college.

2 New Ties Found to Link Lenders and Colleges - New... Jud Davis, director of marketing and university relations at Freed-Hardeman, said the development office handled fund-raising, separate from financial aid. The request for intramural sponsorship was from the financial aid office, he said, because a lender had supported it in the past. Mr. Davis confirmed that the institution had requested that lenders sponsor certain programs and events, but added that many other companies were solicited, too. When asked about the report, Hugh Suhr, a spokesman for SunTrust, wrote in an message, We have been cooperating fully throughout this process and we are committed to help make the student lending process as transparent and fair as possible. A statement by Citizens Bank said it had discontinued the practice criticized in the report and adopted a new code of conduct. At J. P. Morgan Chase, which the report said had given away T-shirts and lanyards to colleges, a spokesman said the bank no longer gave such gifts. We have discontinued all tchotchkes to universities when we signed on to New York s code of conduct, a spokesman for the bank, Tom Kelly, said. Many colleges have signed the code of conduct developed this year by the New York attorney general, Andrew M. Cuomo, on ties between lenders and colleges. The New Jersey attorney general, Anne Milgram, distributed a code of conduct yesterday that her office developed. Ms. Milgram is asking state colleges and universities to adopt the code voluntarily. Copyright 2007 The New York Times Company Privacy Policy Search Corrections RSS First Look Help Contact Us Work for Us Site Map

3 Print: Kennedy Outlines More Apparent Conflicts in N of 2 9/5/2007 8:44 AM Wednesday, September 5, 2007 Kennedy Outlines More Apparent Conflicts in New Report on Student-Loan Industry By KELLY FIELD Nelnet provided a $50,000 sponsorship to the University of Maryland in an unsuccessful bid to secure placement on its preferred-lender list, according to a report released on Tuesday by Sen. Edward M. Kennedy. Washington The donation is one of several questionable marketing practices cited in the report, the second to be released by Mr. Kennedy, a Massachusetts Democrat and chairman of the Senate's education committee. The first report was released in June. The senator's office, in an inquiry that parallels an investigation by New York Attorney General Andrew M. Cuomo, is looking into conflicts of interest into the student-loan industry. Most of the types of arrangements described in the report have been detailed before, in the dozens of settlement agreements that Mr. Cuomo has reached with colleges and student-loan companies and in previous documents released by Senator Kennedy's office. The report describes, for example, how Nelnet operated call centers for colleges in exchange for placement on their preferred-lender lists -- and then advised students to choose Nelnet loans. It also describes how several lenders have leveraged private loans to gain a larger share of an institution's federal student-loan business. Noting those similarities, Sen. Michael B. Enzi of Wyoming, the top Republican on the education committee, criticized the report on Tuesday for offering "no new solutions -- only allegations." "It simply plows the same old ground, and won't stop bad lenders from taking advantage of students and working families," Mr. Enzi said in a written statement. But the document, "Second Report on Marketing Practices in the Federal Family Education Loan Program," contains some specifics that have not been previously made public. It describes, for example, how the New Jersey Higher Education Student Assistance Authority provided colleges that agreed to direct all, or most, of their students to Nelnet or Sallie Mae with software and technical support, free staffing, and professional development -- paid for with a premium provided by the lenders. The guarantor used such an agreement to lure Seton Hall University out of the direct-loan program and into an "exclusive" with Sallie Mae. Sheldon E. Steinbach, a lawyer with Dow Lohnes who is representing the state guarantor, says the arrangements were based on old understandings of the law and were ended in the spring, as the student-loan investigations heated up (The Chronicle, May 4). "What was done in the past was done in conformity with what the law was at the time," he said. "Interpretations of the law have changed dramatically since then."

4 Print: Kennedy Outlines More Apparent Conflicts in N of 2 9/5/2007 8:44 AM The report also shows how convoluted the arrangements between colleges and lenders can be, and how creative both sides can be in crafting them. In one example contained in the report, a lending company, Student Loan Xpress, provided for-profit colleges with pools of private-loan money to provide to students at a high risk of defaulting on their loans. The colleges then returned a portion of the loan funds received back to the company as "protection against the risk of default." According to the report, the proprietary institutions requested this "round tripping" structure because it allowed them to count the entire loan amount toward the 10 percent of revenue that institutions must receive from nonfederal sources to qualify for federal aid. In another example, Duquesne University agreed to sell loans it made to its graduate students to PNC Bank in exchange for a pool of private-loan money, dubbed "recourse loans." The college then entered into a second agreement with PNC in which the bank agreed to provide Duquesne with a 0.2-percent referral fee for recourse loans taken out by its students. The report also illustrates the lengths to which some lenders will go to secure a college's business. In one example highlighted in the report, Nelnet agreed to provide the Wayne State University financial aid office with a full-time "technical support" staff member (whom it paid $90,000), a pool of private-loan money, an answering service, free printing, and a $10,000 annual scholarship contribution, in exchange for a graduate "school as lender" deal and at least half of the college's undergraduate volume. Under "school as lender" arrangements, colleges make loans to their graduate students and then sell them to a lender at a profit. According to the report, Nelnet now originates or holds 70 percent of the university's loans. Copyright 2007 by The Chronicle of Higher Education Subscribe About The Chronicle Contact us Terms of use Privacy policy Help

5 Jobs, News and Views for All of Higher Education - Inside Higher Ed :: Ask and Ye Shal... Page 1 of 3 9/5/2007 Advertisement Sept. 5 Ask and Ye Shall Receive If lenders and college officials weary of the months-long student loan scandal hoped that the August recess might dampen Congress s ardor to turn over rocks, their hopes were dashed and on lawmakers first day back in Washington, to boot. The office of Sen. Edward M. Kennedy (D-Mass.) released a report Tuesday that scrutinizes a batch of practices and policies that in many cases, the senator alleges, violate federal laws and regulations governing dealings between colleges and lenders. Many of the findings build on accusations and revelations that have emerged in previous months: Kennedy s Republican counterpart on the Senate education committee, Wyoming s Michael B. Enzi, said the report simply plows the same old ground, and several targets of the report derided it as old news, since many of the lenders have now forsworn such practices in adopting the Code of Conduct that New York Attorney General Andrew M. Cuomo has promulgated. But the Kennedy study does provide, through hundreds of pages of documents collected as part of the senator s investigation, a glimpse at the two-way relationship in which lenders have sometimes used questionable practices to gain a share of institutions loan volume and colleges have sometimes openly sought such benefits, known in federal student aid law as inducements. As this evidence makes clear, many FFEL lenders engage in marketing practices that violate both the spirit and the letter of the inducement prohibition of the Higher Education Act, the report asserts. Vigorous enforcement of existing law is needed to end these flagrant abuses and protect the interest of millions of parents and students struggling to afford a college education. (In another development as the student loan inquiry quickly ramped back up into gear, New Jersey s attorney general, Anne Milgrim, issued a code of conduct of her own on Tuesday. The code, which prohibits financial relationships of virtually all types between colleges and lenders, adds to an increasingly complicated mix of federal and state student loan laws and rules that colleges will have to abide by going forward.) The Kennedy report identifies multiple instances in which lenders offered or colleges demanded corporate contributions in exchange to win or keep a share of the institutions loan portfolio. In several cases, s from student loan company officials discuss the need to donate funds to college functions or campaigns to build or sustain their share of the colleges federal student loan volume. An official from SunTrust bank acknowledged to Kennedy s staff that the company has from time to time, offered, donated or paid funds to an institution of higher education in exchange for an agreement that the institution of higher education exert efforts to increase [Family Federal Education Loan Program] volume with SunTrust. The Kennedy report reveals numerous instances in which college officials appeared to ask lenders directly for such contributions, to sponsor sporting events or provide materials. And in one case, after the National Education Loan Network paid $50,000 to help pay for the University of Maryland s Maryland Day event last year, a Nelnet official told a university administrator that the sponsorship should earn the

6 Jobs, News and Views for All of Higher Education - Inside Higher Ed :: Ask and Ye Shal... Page 2 of 3 9/5/2007 company a place on Maryland s list of preferred lenders. Maryland balked at the suggestion, and the loan official was rebuked (but not fired, the Kennedy report said). Kennedy s report also documents the extent to which lenders offered opportunity loans pools of private loan funds for students who would otherwise probably not qualify for traditional student loans as a way to ingratiate themselves with colleges and earn a cut or a bigger share of their federal loan volume. The report deems Sallie Mae to be the king of this practice, showing instances, for example, in which the company offered Nova Southeastern University an opportunity loan pool with the hope and expectation that it would give Sallie Mae potential leverage in a 2005 competition for the university s graduate student loan business. (Sallie Mae did eventually win that business.) But the documents collected by Kennedy also reveal a situation in which officials at Case Western Reserve University required Opportunity Loan funding in order for Sallie Mae to maintain its status as an FFEL preferred lender, the report says. That theme that college officials were frequently complicit in some of the practices for which lenders have been most heavily criticized emerged in other sections of the report, too. In a portion of the report on the role that college officials play in steering their students to lenders that might not offer borrowers the best deal, one document suggests that the University of Oklahoma limits [its students ] exposure to lenders who eliminate the upfront origination fee for borrowers because they do not want to deter students from selecting lenders that rewarded the university financially for using them. It appears that the university s appetite for revenue outweighed its concern for its students financial best interests, the Kennedy report said. Officials at Oklahoma did not respond to a request for a response. Another section of the report examines the now-ended practices in which guarantee agencies like the New Jersey Higher Education Student Assistance Authority engaged to market loans to colleges in their states. The fact that the report notes that the New Jersey agency has totally abandoned all the questioned practices, said Sheldon E. Steinbach, a Washington lawyer who represents the New Jersey entity, renders the Kennedy report a very well written, not totally accurate, historical analysis of what went on. We re arguing about history, and most of it is now off the table, Steinbach said. That theme was commonly heard from lenders responding to the Kennedy report. Over the past several months, Nelnet has helped lead the student loan industry to increase transparency in our relationships with colleges and universities, Ben Kiser, a Nelnet spokesman, said in a prepared statement. We publicly released a review of our own business practices on our Web site, which included references to virtually all of the matters in the Report, and have adopted a Student Loan Code of Conduct through a voluntary agreement with the Nebraska Attorney General and an agreement with the New York Attorney General. These are new rules for the industry and Nelnet is compliant with them. Other lenders noted that many of the criticized practices had been deemed legal at the time by the U.S. Education Department, either in advice they had received directly from department officials or in the federal government s prevailing regulatory guidance at the time. We followed the rules in place at the time, and we did so in a way that benefited students, Martha Holler, a Sallie Mae spokeswoman, said in response to the charges leveled against the lender in Kennedy s report. Some lenders argued that the fact that Congress and the Education Department are now poised to change those rules and laws, in new regulatory guidance and pending amendments to the Higher Education, renders the Kennedy report unimportant. But others said the senator s report should provide an impetus to officials at the Education Department, who have asserted on multiple occasions that they have been unable to uncover or prosecute much in the way of meaningful inducements in the federal student loan programs. I don t think there are any excuses left for the department to not look into this, said Stephen Burd, a senior research fellow at the New America Foundation, which itself has investigated wrongdoing in the loan programs. This report seems to lay out the case and provide really strong evidence that there were quid pro quo arrangements and that laws were violated. It should provide the department with what it has needed to prove that laws were violated. Doug Lederman The original story and user comments can be viewed online at