Student Loan Blog : Andrew Cuomo

House Panel Moves to Regulate Private Student Loans

Student Loan Girl — Mon, 26 Oct 2009 20:23:00 GMT

Voting in support of the creation of a new federal Consumer Financial Protection Agency, a Congressional panel has laid the groundwork for expanded federal oversight of private student loans.

In a vote last Thursday of 39 to 29 that fell largely along party lines, the House Financial Services Committee approved the Consumer Financial Protection Agency Act of 2009 (H.R. 3126), a core component of the Obama administration’s pursuit to overhaul the nation’s financial regulatory system.

Agency Would Protect Consumers From ‘Abusive’ Lending Practices

The approved legislation would create a new federal agency, the CFPA, to replace the current patchwork of regulatory bodies and which would have centralized oversight of various forms of consumer credit, such as mortgages and credit cards, as well as nonfederal private student loans.

The agency would have the authority to write new consumer protection rules in the arenas of lending and credit, to monitor banks and other financial institutions for compliance with these rules, and to penalize institutions for any infractions. The CFPA would also have the ability to ban products, marketing tactics, and other business practices that it deems “unfair, deceptive, or abusive.”

“The Consumer Financial Protection Agency will prevent predatory lending practices and other abuses and will ensure that consumers get clear information they can understand about financial products like credit cards and mortgages,” said President Obama, commending the House committee on its vote in support of the bill (“House Panel Backs Creation of Consumer Financial Protection Agency,” Los Angeles Times, Oct. 23, 2009).

The measure passed despite strong Republican opposition and forceful lobbying from banks and business groups.

“It’s not about protecting consumers; it’s about a new government bureaucracy making decisions for us,” said Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee.

Oversight of Private Student Loans Urged

A broad coalition of student and consumer advocacy groups had been urging the House committee to pass this bill that would bring the CFPA’s oversight to the realm of private student loans — non-federally guaranteed education loans issued by banks and private lenders rather than by the Department of Education — that, until this year, had been steadily attracting more and more borrowers as families struggled to meet rising college costs.

“Private student loans are one of the riskiest ways to pay for college, yet a growing number of students have private student loans as well as, or instead of, federal student loans,” the groups wrote in a recent letter to Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee (letter to Rep. Barney Frank regarding H.R. 3126, Oct. 7, 2009).

“Private student loans are expensive, mostly variable-rate loans that cost more for those who can least afford them,” the letter reads. “They lack the fixed rates, consumer protections and flexible repayment options of federal student loans, and are not financial aid any more than a credit card is when used to pay for textbooks or tuition.”

In addition to creating the CFPA, the approved legislation would grant new powers to the states’ attorneys general to assist in enforcing the agency’s rules and to allow them to write more stringent rules for companies within their own states.

The New York attorney general, Andrew Cuomo, who led a nationwide investigation last year into collusion and deceptive practices in the student loan industry, referred to private student loans as “the Wild West of lending” — and not without reason, says Lauren Asher, president of The Institute for College Access & Success, one of the signatories of the letter to Frank (“Bill to Expand Oversight of Private Loans Advances in Congress,” Chronicle of Higher Education, Oct. 19, 2009). “We hope CFPA will bring more law and order,” Asher said.

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MyRichUncle Stops Making Student Loans, Files for Bankruptcy

Student Loan Girl — Thu, 19 Feb 2009 00:06:00 GMT

MyRichUncle, the student loan company that “caustically ridiculed the financial ties between colleges and student loan companies” has filed for Chapter 7 bankruptcy, The Chronicle of Higher Education reports (“Student-Loan Industry’s Caustic Rebel Now Cries Uncle,” Feb. 9, 2009).

Unable to secure funding to issue new student loans and unable pay its creditors, the student loan lender, with assets of $11 million and liabilities of $45 million, said it “has suspended all business operations.” But the bankruptcy filing could threaten the financial health of MyRichUncle’s subsidiary Embark, an online college planning company that MyRichUncle purchased from The Princeton Review in 2007.

Despite receiving increased financing from MyRichUncle to launch a new website this year, Embark, which sells online admissions software to hundred of colleges, has laid off 22 employees and has struggled to sell its wares to admissions offices “given MyRichUncle’s widespread alienation of financial aid officers,” Inside Higher Ed reports (“Collateral Damage in Lender’s Demise,” Feb. 18, 2009). Some of Embark’s competitors have even been murmuring to the company’s customers that Embark’s financial future is in danger.

MyRichUncle helped spark the widely-publicized probes of the student loan industry by New York Attorney General Andrew Cuomo that investigated the business relationships between private third-party lenders and colleges and universities.

The investigations revealed that colleges and financial aid officers received both payments and perks from lenders in exchange for placement on schools’ preferred lender lists, and that student loan lenders engaged in deceptive marketing practices, and resulted in the creation of a lender code of conduct that prohibits such practices.

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College Board Settles Inquiry into Its Student Loan Practices

Student Loan Girl — Thu, 11 Dec 2008 23:40:00 GMT

The College Board, which administers the SAT, ACT, and AP college admissions tests, has agreed to resolve an investigation by New York Attorney General Andrew Cuomo and Connecticut Attorney General Richard Blumenthal into its student loan practices.

As part of the settlement agreement, the College Board — which exited the student loan business last year — will allocate $675,000 to developing a set of tools, including calculators, that would help families and financial aid administrators across the country to compare student loan offers (“College Board Rapped for Student Loan Marketing,” North County Gazette, Dec. 8, 2008).

The tools will “help parents, students and educators with the college loan process” by identifying the lowest cost student loan options, said Jennifer Topiel, a spokeswoman for the College Board, in an emailed statement.

“Our investigation of the student lending industry revealed arrangements — concealed from students and families — between the College Board and financial-aid offices at several schools,” Blumenthal said in a statement December 8. “The College Board provided discounted equipment and services to the schools in exchange for a coveted spot on the schools’ preferred-lender lists.”

Cuomo characterized the College Board’s loan arrangement with colleges as deceitful, although he did say that the testing company, with “its national reach and extensive expertise in higher education,” was well-suited to help parents and students “borrow smartly” (“College Board Resolves Two State Student-Loan Probes,” Bloomberg.com, Dec. 8, 2008).

“Loans are hard enough to come by these days; the last thing we need are deceitful arrangements like this one that stand squarely in the way of students and parents getting the facts,” Cuomo said. “We should be doing absolutely everything we can to guide students to the least expensive, least complicated option for affording higher education.”

Code of Conduct Seeks to Protect Students

Should the College Board ever resume its college lending programs, it has said it will abide by the Attorney General’s Direct-to-Consumer Marketing Code of Conduct, which prohibits lenders and marketers of student loans from using deceptive marketing practices.

The code of conduct is the result of Cuomo’s investigations into the student loan industry that have uncovered widespread conflict of interest practices among colleges and student loan lenders. Colleges and financial aid officers received both payments and perks from lenders in exchange for placement on schools’ preferred lender lists.

Cuomo spokeswoman Emily Browne said that 22 lenders and 26 institutions have pledged to sever financial ties and abide by a code of conduct that prohibits accepting gifts or payments from lenders.

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New York AG Examines Colleges’ Relationships With Health Insurers

Student Loan Girl — Tue, 18 Nov 2008 23:30:00 GMT

New York Attorney General Andrew Cuomo is investigating the relationships between colleges and the health insurance companies they do business with just two years after he launched a similar investigation that uncovered conflicts of interest between some colleges and student loan companies, The New York Times reports (“Cuomo Investigating Colleges’ Deals With Health Insurers,” Nov. 17, 2008).

Investigators will focus on determining if schools adequately disclose the policy terms and costs of their school-sponsored health insurance plans to their students, as well as whether or not insurers offer schools a monetary incentive to require that their students buy health insurance through a particular provider.

In an e-mail message, Benjamin Lawsky, special assistant to the attorney general, wrote “We are primarily focused on whether insurance companies are paying schools to push students into health coverage they don’t really need and shouldn’t really want.”

“With students and their families being financially squeezed at every turn,” he added, “colleges must ensure that they are looking out for students’ best interest first and foremost as opposed to their own financial bottom line.”

Cuomo has requested health insurance–related documents from six State University of New York schools — Binghamton, Buffalo State, Oswego, Purchase, Stony Brook, and the University at Buffalo. Investigators have asked to see copies of the schools’ requests for proposals from insurers, insurance contracts, and the information given to students about the health plans available to them, as well as statistics on the health insurance premiums paid by students.

Four institutions, Georgetown University, Columbia University, Cornell University, and Sarah Lawrence College, said they had received subpoenas.

Parents have complained that some schools require students to purchase school-sponsored health insurance, even though the student is already insured under a family health insurance policy, said James Boyle, president of College Parents of America, an association of parents of college students.

Although “the vast majority of college students” are covered under their parent’s health insurance, most campus health centers don’t accept insurance plans that aren’t affiliated with the school, Boyle added.

“Instead,” he said, “some schools force the student, as a condition of enrollment, to purchase health insurance policies offered by the school.”

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Goal Financial Reaches Agreement With New York Attorney General

Student Loan Girl — Thu, 06 Nov 2008 22:53:00 GMT

Alexandria, Virginia-based Goal Financial is the most recent student loan company to reach a settlement with the New York Attorney General’s office, whose investigation into the student loan industry revealed that several lenders used deceptive marketing practices to lure borrowers, The New York Times reports (“Another Student Loan Company Settles With New York,” Oct. 30, 2008).

The attorney general’s office found that some lenders, including Goal, led consumers to believe that their direct mail pieces were marketing low-interest federal student loans and not private student loans (“Student Loan Companies in Settlement Talks,” The Associated Press, Sept. 5, 2008). “Some of the seals [used by private lenders] looked very similar to those of the federal government,” said Alex Detrick, a spokesman for the attorney general's office.

Goal was also accused of offering incentives like gift cards, iPods, and other items to entice borrowers into taking out private student loans. In a letter sent to Goal last July, New York Attorney General Andrew Cuomo stated that the student loan company’s marketing collateral also gave “misleading examples of monthly payment amounts and annual savings,” the Associated Press reported.

Goal has agreed to adopt a marketing code of conduct created by Cuomo’s office that prohibits the use of deceptive marketing tactics and forbids student loan lenders from offering gifts as incentives to attract borrowers. The student loan company will also pay $350,000 to a fund that will be used to educate students about their financial aid options.

“In these times of increasingly tight credit, it is crucial,” Cuomo said, “that students and their parents get solid, truthful information on which to base their loan decisions.”

Eight other student loan providers have agreed to abide by the marketing code of conduct, and seven of those companies have already contributed more than $1.4 million to the financial aid–related education fund.

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NY Attorney General To Sue Student Loan Lender For Deceptive Marketing

Student Loan Girl — Mon, 08 Sep 2008 21:18:00 GMT

New York Attorney General Andrew Cuomo plans to sue student loan provider Goal Financial, LLC for using deceptive marketing practices to attract new business, according to a CNNMoney.com article (“Student Lenders Under Scrutiny,” Sept. 5, 2008).

Eight other lenders being investigated for misleading borrowers are currently negotiating settlements with the New York Attorney General’s office. Unlike these lenders, Goal Financial did not indicate a willingness to make needed reforms to its marketing practices after Cuomo’s office sent a letter in July informing the lender of the attorney general’s intent to sue.

In the letter, Cuomo indicated that, in addition to using deceptive marketing materials, Goal Financial gave borrowers misleading information about what their monthly student loan payments and annual savings could be, and illegally offered incentives, like iPods or gift cards, to students who convinced other students to apply for Goal Financial’s student loans.

Cuomo’s office also accused the Virginia-based student loan company, which was the sixth-largest lender of consolidated student loans in 2006, of referring borrowers to a student loan comparison Website that Goal Financial owned, without disclosing that the comparison site only listed lenders who paid Goal Financial to include them on the site.

The eight other lenders in Cuomo’s investigation are accused of deceptively marketing private student loans so that they appeared to be federal student loans. The lenders allegedly e-mailed or mailed potential borrowers marketing material about private student loans that closely resembled the government’s marketing material for federal student loans.

“Some of the seals [used by lenders] looked very similar to those of the federal government,” said Alex Detrick, a spokesperson for the attorney general’s office.

These findings come on heels of an investigation conducted last year by the New York Attorney General’s office that found colleges and universities across the country were including certain student loan providers on their “preferred” lender lists in exchange for kickbacks. Schools issue preferred lender lists to their students to help them find a lender for their federal student loans, a practice that Cuomo argued may have sent a disproportionate amount of student loan borrowers to certain lenders.

Since the investigation, at least 22 schools have adopted new codes of conduct and have agreed to overhaul the way in which they do business with student loan lenders.

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Committee Discusses Ways to Reduce College Students’ Credit Card Misuse

Student Loan Girl — Tue, 01 Jul 2008 22:24:00 GMT

During testimony before the House Subcommittee on Financial Institutions and Consumer Credit, Benjamin Lawsky, deputy counselor to New York Attorney General Andrew Cuomo, said predatory credit-card companies are taking advantage of college students (The Chronicle of Higher Education, “Cuomo Hopes to Have Investigation of Colleges’ Credit-Card Deals Finished by Fall,” June 26, 2008).

Credit card companies, Lawsky contends, offer free gifts to students when they apply for credit cards and the companies often withhold important information about the cards’ payment requirements and interest rates.

Kenneth Clayton, managing director of the American Bankers Association Card Policy Council, countered that students need to be more responsible credit card users. “Credit-card companies don’t give students an open check,” Clayton said.

Lawsky’s and Clayton’s comments were made before the consumer-credit subcommittee, which met June 26 to talk about ways to help students avoid credit-card debt and misuse. Options discussed during the hearing included adding a cosigner option, setting uniform standards for underwriting credit, and limiting exclusivity agreements between colleges and the companies that issue credit-cards.

Cuomo’s office expects to complete its investigation this fall into possible conflicts of interest between credit-card companies and the college officials who do business with them.

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Cuomo to Make Investigation into Colleges’ Credit-Card Deals Public

Student Loan Girl — Sat, 19 Apr 2008 01:05:00 GMT

The results of New York Attorney General Andrew Cuomo’s investigation into the relationship between colleges with co-branded credit cards and the banks that issue them are expected to be released within the next two months.

Benjamin Lawsky, Cuomo’s deputy counsel, made the announcement about the soon-to-be public results during an education forum on the topic “Higher Ed Governance: Stewardship or Sham?” held Wednesday at the American Enterprise Institute, according to an article by JJ Hermes in The Chronicle of Higher Education (“Cuomo Aid Says Investigation Into Colleges’ Credit-Card Deals Will Soon Be Public,” April 16, 2008).

Lawsky acknowledged that campus administrators are like “sitting ducks” to credit card and student loan companies seeking some form of preferred status as a way of generating business.

“I think people will be shocked at some of these arrangements,” Lawsky told forum attendees.

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Study Abroad Charges Challenged in Lawsuit

Student Loan Girl — Mon, 03 Mar 2008 02:04:00 GMT

How much college students are required to pay for their study-abroad programs could hang in the balance of a recent lawsuit brought by a father against his daughter’s school. The suit, reported by Karin Fischer in The Chronicle of Higher Education, challenges Wheaton College’s policy of charging its overseas students regular tuition even if they’ve enrolled in an independent study-abroad program that costs less (“Study Abroad Practices in the Spotlight, Again,” Feb. 22, 2008).

In the lawsuit, James Brady, a lawyer and the father of a recent Wheaton graduate, accuses the private liberal arts college of “unfair and deceptive” billing practices, claiming the school overcharged his daughter by nearly $4,500.

According to the complaint filed on February 8, Wheaton charged about $21,440 in full tuition, plus room and board, for a semester Brady’s daughter spent studying in South Africa in 2006,while the study-abroad program, offered by the School for International Training, an independent provider, only cost about $17,000.

Brady “seeks a declaratory judgment that would upend the longstanding practice at Wheaton, and potentially at other colleges, of charging ‘home school’ tuition for credits earned through programs offered by outside providers,” Fischer explains.

School Officials Defend Their Position

Wheaton officials reject Brady’s claim of deceptive billing practices, saying their home-school tuition policy is clearly stated online and in program materials. And Wheaton’s president, Ronald Crutcher, points out that many other colleges have similar tuition policies in place.

A survey conducted last fall by the Forum on Education Abroad, a consortium of American and overseas colleges and independent study-abroad providers, would seem to support Crutcher’s statement: The survey found that 47 percent of institutions require their study-abroad students to pay home-school tuition.

Other Parents Call for Reform

Brady isn’t the first college parent to speak out.

Last year, a father who also happened to be assistant vice chancellor for international programs for the University System of Georgia, complained that Emory University unfairly denied his son academic credit for a semester of study abroad.

The father contends his son was denied credit after taking a leave of absence and enrolling in a study-abroad program not approved by the university, even though another student who attended the very same overseas institution but went through Emory and paid a full semester of Emory’s tuition was awarded credit.

Moves Toward Disclosure

As part of his investigation that opened in August into colleges’ relationships with independent providers of study-abroad programs, Andrew Cuomo, the New York attorney general, is looking into a variety of study-abroad financial practices, including whether home colleges charge administrative fees related to study abroad, and, if so, whether these fees should be disclosed.

“Study-abroad experts acknowledge the frustrations felt by parents like Mr. Brady,” Fischer writes, “and say colleges should disclose and clearly explain their policies to students and their families.”

The Forum on Education Abroad is expected to issue new guidelines next month that emphasize such openness.

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Does Bigger Mean Better in the Consolidation Business?

Student Loan Girl — Tue, 27 Mar 2007 19:28:00 GMT

Recently, there has been lots of negative press out there regarding college financial aid officers receiving special treatment, trips or the like from student loan providers, and New York’s Attorney General Andrew Cuomo is going after such companies and individuals.

So, it is refreshing that there is some positive press to report, chiefly, growth in the student loan industry. On March 26, 2007, the Department of Education announced the “Top 100 Consolidating Lenders for 2006 and 2005,” according to the March 26, 2007 National Council of Higher Education Loan Programs Inc.’s Daily Briefing. If you are a “bean counter” or someone interested in the nitty-gritty details, you can get the entire list here: http://www.fp.ed.gov/fp/attachments/activities_whatsnew/0506Top100Consolidatorspublic.xls.

Small Enough to Care; Big Enough to Get it Done

However, keep in mind that “bigger” does not necessarily mean “better.” While Sallie Mae and the other top three contenders may dwarf their competition, newcomer NextStudent has cracked the top five, and likely has done so due to its ability to deliver excellent customer service and benefits to its clientele.

The giant Sallie Mae Corp. (SLM), originally a government lender, continues to dominate the consolidation market in the first position for fiscal year 2006, based on amounts of new guarantees. Nelnet came in second and Citibank Student Loan Corp. achieved the third position for 2006, with total loans approximating 25 percent of Sallie Mae’s total, respectively. Both Nelnet and Citibank continue to do battle for the No. 2 and No. 3 spots.

A new top five challenger is NextStudent, Phoenix, which recently has shown incredible growth and has jumped from the 17th largest consolidating lender for 2005 to the fourth position for fiscal year 2006. As recently as 2002, NextStudent found itself in the No. 61 position, moving up a total of 44 spots to claim the 17th largest consolidator award just two years ago.

One of the reasons why NextStudent has seen such incredible growth may be found in its outstanding dedication to customer service, where borrowers are assigned their own personal Education Finance Advisor who will guide each borrower through the student loan process, from start to finish. Another factor may be that the company offers a 1 percent LOCKED discount on the borrower’s interest rate for the ENTIRE TERM of the federal consolidation loan after 36 on-time consecutive payments. This saves borrowers thousands over the course of the repayment term, and is just one of many aggressive benefits offered by NextStudent.

It is important to keep up to date on all the news regarding student loans and education.

Talk to the education financial advisors at NextStudent. They have all the information and advice you need on student loans. Check out www.nextstudent.com.

Be sure to tune in next Monday for my next blog on student loan issues in the news.

Student Loan Girl

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New York Probe on the Student Loan Industry

Student Loan Girl — Wed, 21 Mar 2007 00:14:00 GMT

On Nov. 7, 2006 Andrew Cuomo was elected the 64th attorney general of the state of New York, and shortly thereafter launched a nationwide investigation into student loan practices at more than 400 universities across the nation, including some of the Ivy Leagues.

According to a March 15, 2007 article briefing titled “NY State Attorney General Releases Results of Probe on College Loan Industry,” that appeared in the National Council of Higher Education Loan Programs Inc.’s Daily Briefing, “Cuomo issued results of his nationwide investigation into the college loan industry that revealed ‘deceptive’ practices.”

It is important to remember that not ALL lenders or university financial aid officers have been implicated in this investigation. Although Cuomo’s office has not revealed the specific colleges it has been investigating, it has said it is focusing on Sallie Mae and Nelnet.

Preferred Lender Lists Questioned

According to the Daily Briefing, “The investigation revealed the following industry practices, which Cuomo says are ‘problematic’: Establishment of so-called ‘preferred lender’ lists without disclosing the basis for selection or the specific benefits associated with these preferred lenders; revenue sharing and other financial arrangements between schools and lenders; denials or impediments to a student or parent’s choice of lender based on the borrower’s selection of a particular lender or guaranty agency; impediments to competition in the lending industry that stifle better loan terms for students and parents.”

On the New York State Web site, http://www.oag.state.ny.us/press/2007/mar/mar15a_07.html, it is reported that “Cuomo notified over 400 colleges and universities throughout the country, including all in New York state, to end relationships with lenders that have the potential to mislead students and compromise their ability to obtain the best rate for their student loans.”

The letter also included the following points as being problematic in the student loan industry:

“Lenders pay financial kickbacks to schools based on a percentage of the loans that are directed to the lenders. The kickbacks are designed to be larger if a school directs more student loans to the lender. And the kickbacks are even greater if the schools make the lender their ‘exclusive’ preferred lender.
Lenders pay for all-expense-paid trips for financial aid officers (and their spouses) to high-end resorts like Pebble Beach, as well as other exotic locations in the Caribbean and elsewhere. Lenders also provide schools with other benefits like computer systems and put representatives from schools on their advisory boards in order to further curry favor with the schools.
Lenders set up funds and credit lines for schools to use in exchange for schools putting the lenders on their preferred lender lists.
Lenders offer large payments to schools to drop out of the direct federal loan program so that the lenders get more business.
Lenders set up call centers for schools. When students call the schools’ financial aid centers, they actually get representatives of the lenders.
Lenders on preferred lender lists agree to sell loans to a single lender so there is actually no real choice for the student.
Lenders sell loans to other lenders, often wiping out the back-end benefits originally promised to the students without the students ever knowing.”

What’s Next for the Investigation?

The Daily Briefing explained, “The Attorney General’s press statement does not indicate the future direction of their investigation, except to say the investigation is continuing.”

Students can finance their federal student loans through any lender that participates in the Federal Family Education Loan Program, including NextStudent. Make sure to look for a lender with aggressive benefits. NextStudent offers some of the best benefits in the business, including a 1 percent LOCKED interest rate reduction after the first 36 on-time payments.

Talk to the education financial advisors at NextStudent. They have all the information and advice you need on student loans. Check out www.nextstudent.com.

Also, be sure to tune in next Monday for my next blog on student loan issues in the news.

Student Loan Girl

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