You asked about the New York Attorney General Office's investigation into the student loan industry and college financial aid officers. You want to know (1) if any of Connecticut's public or private higher education institutions have a relationship with Student Loan Xpress and (2) whether they have preferred lender lists.

SUMMARY

In the past several months, New York's attorney general, Andrew W. Cuomo, has led a nationwide investigation into the financial relationships between college financial aid offices and student lenders. The investigation has centered on financial arrangements between lenders and schools that are potential conflicts of interests and are unfavorable for student borrowers. Several schools and lenders have settled with Attorney General Cuomo and it is likely that more settlements will be announced in the coming months.

Almost all of Connecticut's higher education institutions, public and private, have preferred lender lists, but only a few list Student Loan Xpress as a preferred lender. According to representatives from each of the public constituent units and one private institution, there is no financial arrangement between the institutions and any of their preferred lenders, including Student Loan Xpress. All of the public higher education institutions with preferred lenders choose their lenders based characteristics such as borrower benefits, customer service, loan servicing efficiency, default rates, and student loan volume.

STUDENT LENDER INVESTIGATION

In the past several months, New York's attorney general, Andrew W. Cuomo, has led a nationwide investigation into the financial relationships between college financial aid offices and student lenders, some of which colleges recommend to students as “preferred lenders. ” Three lenders (Citibank, Sallie Mae, and Education Finance Partners) and 12 schools have settled with the New York Attorney General's Office and agreed to pay $ 10 million in reimbursements and restitution to students adversely affected by their financial arrangements. Nebraska, Illinois, and Missouri's attorney generals have also announced settlements with lenders and schools in the past week. The investigations are ongoing and it is likely that more lenders and schools will be named in the coming months.

Financial Arrangements Between Lenders and Schools

The investigations have revealed numerous arrangements between lenders, schools, and financial aid officers that are potential conflicts of interest.

Revenue Sharing Arrangements. Some lenders have revenue sharing agreements that reward colleges for student loan volume. For example, Drexel University was paid 0. 75% of the net value of the student loans it referred to its sole preferred lender, Education Finance Partners. Attorney General Cuomo recently announced his intent to sue Drexel University in Pennsylvania over this revenue sharing agreement.

Consulting or Business Arrangements. Student Loan Xpress allegedly paid college financial aid officers at schools that list the company as a preferred lender for consulting and other business arrangements.

Advisory Councils. Some financial aid officers serve on advisory board councils for student lenders that may have preferred lender status at their institutions. Lenders often pay travel, hotel, meal, and entertainment expenses for the board members.

Call-center Staffing and Exit Loan Counseling. Financial aid offices sometimes contract with student lenders to manage their telephone call centers or conduct counseling sessions for graduating students.

Shareholdings. Attorney General Cuomo is also investigating senior financial aid officers at several schools, including Columbia University, the University of Texas- Austin, and the University of Southern California and a senior official at the U. S. Office of Federal Student Aid for allegedly holding shares in the student lender Student Loan Xpress. Student Loan Xpress is a preferred lender at all three of these universities.

Student Loan Code of Conduct

The lenders and schools that have settled with New York, Nebraska, Illinois, and Missouri's attorneys general have agreed to adopt a student loan code of conduct. The code used in New York's settlements requires colleges to choose preferred lenders “based solely on the best interests of the students or parents who use the list without regard to financial interests of the College. ” It requires schools to fully disclose the criteria and process used to select preferred lenders and requires lenders to disclose to any requesting school the range of rates they charge students and their historic default rate at the school.

The code of conduct also bans:

1. financial arrangements between lenders and schools, including payments for preferred lender status;

2. gifts and trips for financial aid officers;

3. paying college employees for serving on student lender advisory boards; and

4. financial aid call-center staffing by student lender employees.

CONNECTICUT'S COLLEGES AND UNIVERSITIES

Preferred Lender Lists and Student Loan Xpress

Almost all of the state's higher education institutions, public and private, have preferred lender lists. We performed an internet search of the state's private higher education institutions and found that St. Joseph College and Post University list Student Loan Xpress as a preferred lender. According to Patricia Delgado, the Director of Student Financial Services at St. Joseph College, the college does not have a financial arrangement with Student Loan Xpress. We are awaiting a response from Post University regarding its relationship with the lender.

Among the state's public higher education institutions, the UConn Law School, School of Social Work, and School of Medicine, Manchester Community College, Three Rivers Community College, Central Connecticut State University, Southern Connecticut State University (SCSU) and Charter Oak State College list Student Loan Xpress as a preferred lender. SCSU removed Student Loan Xpress from its preferred lender list as of April 13, 2007.

According to representatives from each of the public constituent units, there are no financial agreements between the institutions and any of their preferred lenders, including Student Loan Xpress. All of the public higher education institutions choose their preferred lenders based characteristics such as borrower benefits (e. g. interest rate discounts for consistent on-time payments), customer service, loan servicing efficiency, default rates, and student loan volume.

Connecticut's Attorney General Investigation

According to Richard Kehoe, Special Council and Legislative Liaison, Connecticut's Office of the Attorney General has launched its own investigation into the relationship between student lenders and Connecticut's higher education institutions. The investigation's results should be available before the end of this legislative session.

RP: ts