A San Francisco-based lender will pay $2.5 million to end an investigation into claims that it paid more than 60 schools to steer students to take out its loans as an additional 13 lenders were hit with letters or subpoenas in a rapidly expanding probe, an official for state Attorney General Andrew Cuomo said Monday.
Education Finance Partners, in addition to the largest loan-related settlement yet, also agreed to adopt Cuomo’s code of conduct as part of a student loan investigation.
Education Finance Partners and the colleges and universities entered into revenue sharing agreements, said the Cuomo official, who spoke on the condition of anonymity because the deal hadn’t yet been announced. Such arrangements can reduce or eliminate competition, which could result in students paying higher interest rates.
A spokesman for Education Finance Partners didn’t immediately respond to a request for comment.
The investigation has broadened to include companies that issue 80 percent of all student loans in the United States, according to Cuomo’s office. Five subpoenas and eight letters seeking lending data were sent Friday. The names of the lenders weren’t immediately released.
Before Friday, seven lenders had been contacted by investigators in the Attorney General’s office about the practice in which colleges are paid to steer students to specific lenders for higher education loans.
Two major lenders, Sallie Mae and Citibank, have already agreed to pay $2 million each into the fund set up by Cuomo’s office and change business practices now under review in Congress.
Cuomo’s code of conduct will soon become New York state law, which will govern lenders and colleges statewide, the Cuomo official said. New York has two of the biggest public university systems in the nation and far more private colleges and universities than any other state.
The Student Lending Accountability, Transparency and Enforcement Act has been agreed to by legislative leaders in Albany, said the official who spoke on the condition of anonymity because the deals haven’t yet been announced.
Under the New York law, lenders and colleges could be fined up to $50,000 for a single violation and individuals at colleges or lending institutions could face fines up to $7,500. The law ends revenue sharing agreements between lenders and colleges. Also, if “preferred lender lists” are created, they must be in the best interest of students.
Cuomo will testify next week before Congress about the federal higher education law and his investigation into student loan practices nationwide.
Earlier, Cuomo’s office had found that loan officers at Columbia University, the University of Texas and the University of Southern California had stock in 2003 in a company that owned Student Loan Express, a lender on the schools’ preferred lists.
Investigators also are examining consulting fees and travel expenses that lenders paid to administrators at a number of schools, including Johns Hopkins University, which had Student Loan Express on its list, too. A Johns Hopkins financial aid director received more than $60,000 in consulting fees and support for her doctoral work from CIT, which is now the parent company of Student Loan Express.