STATE OF CONNECTICUT|
ATTORNEY GENERAL'S OFFICE
Office of the Attorney General
55 Elm Street
Hartford, Connecticut, 06106
Phone: (860) 808-5318
Fax: (860) 808-5387)
State Announces Landmark Agreements With Colleges And Universities To Fight Conflicts In Student Loan Industry
Attorney General Richard Blumenthal today announced landmark agreements and settlements with colleges and universities across the state to fight conflicts of interest in the student loan industry.
The Connecticut Conference of Independent Colleges (CCIC), a group of 17 schools across the state, has negotiated and agreed with Blumenthal's office to a "Financial Aid Code of Conduct" prohibiting their schools and financial aid staff from accepting compensation from lending institutions. The Connecticut State University System has also agreed to a proposed code of conduct for its universities. The code will be presented to the Executive Committee of the Board of Trustees for consideration at its next meeting.
Prohibited compensation includes money, as well as lodging, meals or travel to conferences or training seminars — anything worth more than $50.
The code of conduct and other actions are the result of an intensive six-month investigation into improper practices, illegal inducements and conflicts of interest in the $85 billion-dollar student loan industry.
Blumenthal also announced that Fairfield University, Trinity College and Sacred Heart University have agreed to settlements resolving concerns about their relationships with a lender, The College Board, Inc. The agreements were also signed by Department of Consumer Protection Commissioner Jerry Farrell, Jr.
"This code of conduct assures that students have access to the best available deal, unclouded and uncompromised by other interests," Blumenthal said. "This historic partnership helps protect the public trust and integrity of Connecticut's higher learning institutions. Connecticut's code will be the gold standard for the nation — full disclosure and free choice of financial aid lenders for students, and no inducements or compensation for schools or their officials by lenders. No free trips or fees, no discounted equipment or services, no revolving door for employees or other concealed benefits. The best interest of each student must be the sole goal. The financial burden of a college education can be profound — and should not be compounded by consumer deception when students and families shop for loans.
"My investigation into the student loan industry in Connecticut revealed questionable agreements, giving The College Board preferred lender status by schools that received financial discounts in return. Such undisclosed arrangements have the potential to undermine the confidence college borrowers must have when shopping in the competitive lending market. I commend these three schools — and others — for committing to prohibit questionable compensation from lenders to universities, and demand disclosure to students and parents about criteria used to select 'preferred lenders'. I thank these schools for their cooperation during our investigation."
Thousands of banks and other private lenders compete aggressively to provide federally subsidized loans under the Family Education Loan Program (FFELP) and Parent Loan Program (PLUS), as well as other alternative loans.
In assisting students in the selection process, some university financial aid offices publish a "preferred lender" list, which students and parents may use to guide their lender choice. Nationally, lenders on such lists typically receive up to 90 percent of student loans. Lenders realize the key competitive advantage to making these lists.
Farrell said, "As students return to school, they do so with the knowledge that Connecticut's colleges and universities have committed to sound student loan practices. Abuses uncovered in the student loan industry will be barred here in Connecticut. I commend Fairfield and Sacred Heart Universities and Trinity College for acknowledging some areas which need improvement and committing to that path."
An investigation by Blumenthal's office found that Fairfield University, Sacred Heart University and Trinity College all represented to their students and their parents that the lenders on their preferred lender lists were selected solely because they offered the best borrower benefits.
The investigation, however, revealed that the schools entered into agreements with lenders that potentially violated consumer protection laws. All three schools deny the violations, but reached voluntary agreements with Blumenthal and Farrell.
All three schools entered into agreements with The College Board in which The College Board provided discounts on financial aid software over several years. The discounts were contingent on the schools including the College Board as a preferred lender on their preferred lender lists.
The schools failed to disclose these arrangements to students and parents.
Under today's agreement, all three schools have agreed to adopt the Financial Aid Code of Conduct and contribute tens of thousands of dollars to various scholarship funds.
Blumenthal's investigation into college lending continues jointly with the Office of the Chief State's Attorney and the U.S. Department of Education's (DOE) Office of Inspector General. Blumenthal said the College Board is cooperating in the investigation.
DOE Inspector General John P. Higgins, Jr., stated that he is very pleased that OIG special agents contributed to this effort to protect the integrity of the federal student financial assistance system. IG Higgins added, "We stand ready to work with all law enforcement officials to help ensure that these funds are managed with the utmost integrity."
The code of conduct requires schools that develop brochures or other documents listing preferred lenders to disclose clearly how the lenders were selected. These documents must also disclose that students and parents have the right to select the lender of their choice — a university-preferred lender or not — without penalty.
Under the code, preferred lenders must be chosen solely on the interests of student and parent borrowers, such as competitive interest rates and repayment terms, quality of loan servicing, and whether loans will be sold — not based on benefits provided to the school or any of its officials or employees.
The code also requires schools with preferred lender lists to review their lists at least annually, and prohibits any university from staffing its financial aid offices with a representative from a lending institution.
Additionally, the code provides a "revolving door prohibition." In the event that a school hires someone who worked for a lender within one year prior to the hire date by the school, that individual is prohibited from dealing with its former lender employer on behalf of the school for a one-year period.
Blumenthal thanked those in his office who worked on the investigation — Assistant Attorneys General Christopher Haddad and Karla Turekian, Paralegal Lorraine Measer, and legal intern Cara Gitlin, under the direction of Assistant Attorney General Michael Cole, Chief of the Attorney General's Antitrust Department.