On May 7, 2007, the Minneapolis Star Tribune reported:
"To Frank Loncorich, there's nothing wrong with the trips that are paid partly or fully by the preferred providers of college loans to St. Cloud State University students.
"The St. Cloud State financial aid director has attended several conferences in Florida and two in California, at which lenders paid for his lodging. And there are the annual weekends in Bayfield, Wis., and excursions on the St. Croix River.
"Loncorich [also] has served on the advisory board for Academic Funding Group, a [Minnesota]-based lender on St. Cloud's preferred list.
"Asked if Loncorich's involvement with preferred lenders was legal, Melinda Voss, a spokeswoman for the parent system of St. Cloud, said it would be inappropriate for her to comment without knowing all the facts."
(Steve Brandt & Kara McGuire, Colleges looking at connections to lenders, Minneapolis Star Tribune [May 7, 2007]).
Before his interview with the Star Tribune, Loncorich probably should have called Lawrence W. Burt, the now-former associate vice president and director of student financial services at the University of Texas at Austin, who was recently dismissed by the university following an investigation into allegations of impropriety in his office. Among the allegations leveled against Burt were that he owned stock in a student-loan company that appeared on the university's list of "preferred lenders," to which Burt's office referred students for loans, and that Burt approved the university's preferred-lender list based on factors that were not necessarily in the best interests of the students.
"This office has been clear to schools: Settle, or we will commence litigation. Either way, we will get justice for students."-New York State Attorney General Andrew Cuomo
Loncorich also may have considered calling Walter Cathie, the dean of financial aid for Widener University (Pa.), who was recently placed on leave amid allegations that he received $80,000 from the lender Student Loan Express since 2005, or, perhaps, David Charlow, of Columbia, who was dismissed by the university amid allegations that he "promoted a student-loan company in which he had a stake," or, finally, Ellen Frishberg, the financial-aid director at Johns Hopkins University (Md.), who was dismissed amid allegations that she received about $65,000 in consulting fees and tuition payments from a lender in which she had an ownership interest.
And then there are the settlements. To date, the New York Attorney General, Andrew Cuomo, has reached out-of-court settlements with, among others, Education Finance Partners ($2.5 million), SLM Corp. ("Sallie Mae") ($2 million), Citigroup, Inc. ($2 million), the State University of New York, St. John's University, Salve Regina University in Rhode Island, Molloy College (N.Y.), Pace University (N.Y.), Fordham University (N.Y.), Long Island University, New York Institute of Technology, New York University, St. Lawrence University (N.Y.), Syracuse University (N.Y.), Texas Christian University, and the University of Pennsylvania, the latter of which agreed to pay over $1.6 million to its students for loans issued over a two-year period. Nearly 3,000 University of Pennsylvania students will receive a student-loan reimbursement averaging $500. Adding even more fuel to the fire, on April 19, 2007, Cuomo publicly announced his intent to sue Drexel University, in Philadelphia, over its revenue-sharing agreements with one of the attorney general's specially targeted student-loan lenders--Education Finance Partners. Drexel subsequently entered into a settlement agreement with the New York Attorney General.
If the above is not enough to grab the attention of colleges and universities across the country, then maybe the following statement by the New York Attorney General will: "This office has been clear to schools: Settle, or we will commence litigation. Either way, we will get justice for students." With Cuomo's threats of litigation, and the proposed federal legislation entitled the "Student Loan Sunshine Act," there's a lot going on in the student-loan industry. Not wanting to be left out of the act, on May 31 the U.S. Department of Education itself released proposed rules that would set new standards for universities and ban lenders' marketing practices that in some cases have resulted in loan company payoffs to university officials. The rules would require universities to include at least three loan companies on any list of lenders they recommend to students, and it would ban many of the gifts and payments to financial-aid officials that lenders have been offering to win student-loan volume. The proposed rules will likely go into effect later this year. Does your financial-aid office and student-loan program comply with the New York Attorney General's Student Loan Code of Conduct? Would it pass muster under the proposed federal Student Loan Sunshine Act? Below, we tell you how to comply with both so that your college or university is not the next one to appear in the headlines.
