Attorney General Andrew Cuomo’s office is investigating stock grants from student loan companies to financial aid officers at three major universities as part of a widening investigation into the $85 billion student loan industry.
Cuomo’s office on Wednesday sent a subpoena to Columbia University and sent letters to the University of Southern California and the University of Texas seeking information about financial aid officers ownership of stock in a loan company that appears on each school’s list of preferred lenders.
Securities and Exchange Commission records for Education Lending Group Inc. show officials at the three schools in September 2003 owned at least 1,500 shares each of the company. Education Lending Group’s subsidiary, Student Loan Xpress, is listed as a preferred lender at each school.
The records show David Charlow, the associate dean of student affairs at Columbia University, owned 7,500 shares of Education Lending Group’s stock and owned 2,500 stock warrants at the time of the stock prospectus. Cuomo’s office said Charlow sold the 7,500 shares for about $9.50 each and in 2005 sold more of the securities for a total profit of more than $100,000.
Robert Hornsby, a spokesman for Columbia, said the school placed Charlow on leave, started an investigation and notified the attorney general’s office when they learned of his stock ownership following widespread attention generated by Cuomo’s probe.
Columbia is reviewing Cuomo’s recommendations for student loan disclosure and supports a code of conduct for colleges proposed by the attorney general, he said.
The SEC records show Catherine Thomas of USC and Lawrence Burt of Texas each owned 1,500 shares in the company.
Burt denied any financial arrangement between either himself or UT and the company and said his previous ownership of the shares had no connection to Student Loan Xpress’s position on UT’s preferred lender list. Burt sold the stock in 2003, he said. Based on the stock’s price of $9.50 per share at the time of the sale, Burt made a little more than $14,000.
“They are on our lender list for the same reason the other 19 are on the list, they provide the best package of benefits to students,” he said.
Burt said the school does not steer students to any particular lender and that Student Loan Xpress accounts for only 4 percent of UT’s student loan volume.
A spokesman for USC did not immediately return a call seeking comment.
Student Loan Xpress is now owned by New Jersey-based CIT Group Inc., one of the lenders under investigation by New York Attorney General Andrew Cuomo.
Cuomo’s office said it sent a subpoena Tuesday to Student Loan Xpress and CIT.
CIT issued the following statement: “CIT acquired Education Lending Group Inc., the parent company of SLX, in 2005. The reported transactions in securities of that company occured several years prior to CIT’s acquisition of the company. We are currently seeking to determine the facts surrounding those transactions.”
The 2003 SEC filing states that Student Loan Xpress was created “to market to the financial aid offices of schools in order to be included on that school’s preferred lender list
“Being on a preferred lender list at an educational institution provides Student Loan Xpress, Inc. with the opportunity to generate more student loans at that institution than other lenders who are not on the preferred lender list,” the company said.
Cuomo’s investigators say they have found numerous arrangements made to benefit schools and lenders over students. Cuomo has the authority to conduct a nationwide investigation because schools from across the country recruit students from New York.
Investigators found that many colleges have established questionable “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.
In some cases, investigators said, lenders provided all-expense-paid trips for college financial aid officers to exotic locations in return for directing students to the lenders.
Columbia’s Charlow also endorses Student Loan Xpress on its Web site.
“We have worked with the Student Loan Xpress team for many years because they consistently meet the very high standards for service that our students and parents expect not only from our University, but also from our partners,” Charlow is quoted on the site.