Student-loan abuses ended in two states

The attorneys general of New York, Illinois and Missouri yesterday reached agreements with three colleges over questionable student lending practices, as a ballooning nationwide investigation into the student loan industry prompts Congress to take action.

“Frankly the issue is deeper and broader than we originally anticipated,” said New York Attorney General Andrew M. Cuomo, who is leading the nationwide probe of conflicts of interest between the $85 billion per year student loan industry and college officials. “I’m very proud that attorneys general from across the country are stepping up to the plate.”

In yesterday’s settlements, Mr. Cuomo helped broker agreements between Illinois Attorney General Lisa Madigan and two colleges, and between Missouri Attorney General Jay Nixon and one college. All three colleges agreed to change their lending practices and two will also make restitutions to students and consumers.

These developments come as Capitol Hill lawmakers from both parties are backing bills to rein in questionable relationships between colleges and lenders. The Democrat-led House and Senate education panels are continuing with their own investigations.

Mr. Cuomo will discuss his investigation before the House education panel tomorrow. He said his team has uncovered several questionable practices in the industry, including lenders paying kickbacks to schools based on how many loans are steered their way, and lenders providing exotic vacations and other perks to school officials to curry favor and secure spots on “preferred lender” lists, used by schools to direct students to particular lenders.

Under yesterday’s multistate agreement, Illinois-based DeVry University and Career Education Corp., with Washington University in St. Louis, signed a code of conduct that prohibits revenue-sharing arrangements with lenders, bans lender-financed trips or perks for college officials, and creates guidelines and disclosures for preferred-lender lists.

DeVry and CEC also will repay money they received from lenders. DeVry will pay $88,000 to students and CEC will pay $21,000 to a national consumer education fund.

So far, Mr. Cuomo’s probe has resulted in similar agreements with Citibank, Sallie Mae, Education Finance Partners (EFP) and 15 colleges and universities. He said others are in the works.

Last week, his office filed the first lawsuit against a school as part of the probe. Drexel University in Pennsylvania faces legal action because it agreed to name EFP as its sole preferred private lender in return for a cut of the loans that students purchased. Mr. Cuomo’s office settled with EFP earlier this month.

Mr. Cuomo is pushing a bill in the New York legislature that would make his code of conduct legally enforceable and federal lawmakers are interested in similar efforts. Yesterday, the House education panel’s top Republican, Howard P. “Buck” McKeon of California, introduced a bill to establish financial aid codes of conduct, reform “preferred lender” lists and prevent conflicts of interest between school officials and lenders.

“Unfortunately, some in the student loan industry and in college financial aid offices have lost sight of the fact that the system exists for a single purpose: to serve students,” Mr. McKeon said.

Last week, House Education Committee Chairman George Miller, California Democrat, called on the Department of Education to take several steps including temporarily banning colleges from using preferred-lender lists, and Senate Education Committee Chairman Edward M. Kennedy, Massachusetts Democrat, wrote to officials at Pennsylvania’s Widner University and Minneapolis-based Capella University questioning their relationships with lenders.