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Cuomo to sue Drexel in student loan scandal

New York Attorney General Andrew Cuomo intends to sue Drexel University in his investigation of student loan arrangements that resulted in more settlements Thursday from colleges in Rhode Island and New York.
/ Source: The Associated Press

New York Attorney General Andrew Cuomo intends to sue Drexel University in his investigation of student loan arrangements that resulted in more settlements Thursday with colleges in Rhode Island and New York.

The Drexel action would be his first lawsuit against a college or university in the investigation, although he has settled with Fordham University, St. John’s University and Long Island University in negotiations that avoided court action.

Cuomo said Thursday that Drexel received more than $124,000 from the lender Education Finance Partners and was in line to receive $126,000 more after the Philadelphia college made EFP its “sole preferred private loan provider.” Since 2005, EFP has gotten more than $16 million in loan volume from Drexel, Cuomo said.

Cuomo announced settlements with Salve Regina University in Newport, R.I., Pace University, the New York Institute of Technology and Molloy College on Long Island. The attorney general said Salve Regina and Molloy College both had revenue sharing agreements with EFP, a lender that settled with Cuomo recently.

Molloy College, however, denied that it settled any case against it and said it didn’t take money from EFP or place the lender on its preferred list. A letter from Molloy states it returned checks in April, after Cuomo’s investigation was making national headlines. Cuomo spokesman John Milgrim said the college signed a “letter of discontinuance” and contends Molloy had a revenue sharing agreement with EFP worth more than $1,600 to the college.

“We are displeased we have been listed in a lump and categorized as a school that engaged in unfair business practices we have never done, never did, never will do,” said Edward Thompson, Molloy’s vice president for advancement.

“We applaud (Cuomo) for pushing the code of conduct. We think it’s the right thing to do,” Thompson said, referring to a code Cuomo’s office devised for dealings between lenders and schools. “We signed an agreement to a code of conduct. We don’t want to admit something we didn’t do.”

He said the college sent back two checks of $800 each to EFP, telling the company to apply it to lower student costs.

Salve Regina said EFP was designated a “preferred alternative” lender in 2005 because it was competitive, but the agreement was ended in February 2007 after complaints from students and families over the quality of service, spokeswoman Kristine Hendrickson said.

Cuomo said the school received $7,839 from EFP under a revenue sharing agreement.

That money was used for needy students and didn’t affect loan terms, Hendrickson said. The university will deposit that amount in a fund to reimburse borrowers.

The other colleges didn’t immediately respond to requests for comment. Each college signed the code of conduct, but Pace and the New York Institute of Technology paid no penalty.

It’s the latest action by Cuomo and other states’ attorneys general in the growing investigation of colleges that have accepted payments and gifts from lenders in exchange for placing the lenders on preferred lists presented to students and their families.

Although the federal government sets maximum student loan interest rates, preferred lender lists based on benefits to the college could eliminate competitors who might offer better terms.

“This investigation is a two front battle: lenders and schools,” Cuomo said. “We have proceeded against lenders and now we are proceeding against schools. There is no reason for a school not to adopt the Code of Conduct,” Cuomo said. “This office has been clear to schools: settle or we will commence litigation. Either way we will get justice for students.”

Pace University contracted with the major lender Sallie Mae to provide employees to staff financial aid call centers who identified themselves as Pace University employees, Cuomo said.

Pace stated that it didn’t participate in any revenue sharing agreement and several weeks ago changed its protocol to make it clear Sallie Mae personnel answered calls on behalf of the university, according to a statement. Pace said there is no evidence Sallie Mae workers — who worked from a script — steered students or parents to their loan offerings during this outsourcing of the call center work.

New York Institute of Technology accepted payment from lenders, some of which was for meals and trips and conferences, in exchange for getting on a preferred lender list.

California and Texas officials took steps in their investigations this week as part of review of the $85 billion student loan industry, which was pressed by Cuomo after it began with inquiries under former Attorney General Eliot Spitzer. Several lenders and colleges and universities have already settled lawsuits and adopted Cuomo’s reforms, which are now part of a bill that could become the first state law on the issue in the nation.