Student Loan Blog : New York Attorney General

All Dried Up: Student Loan Provider Files for Bankruptcy

Student Loan Girl — Thu, 18 Dec 2008 22:11:00 GMT

Education Finance Partners, a San Francisco-based student loan company, has filed for Chapter 7 bankruptcy protection, saying it has less than $1 million in assets and between $10 million and $50 million in liabilities (“Student Loan Company Files for Bankruptcy in Austin,” The Austin American-Statesman, Dec. 18, 2008).

According to the bankruptcy filing, the student loan company owed the New York attorney general’s office $2.5 million, an amount Education Finance Partners had agreed to pay in order to resolve an investigation that accused the lender of offering more than 60 schools monetary compensation in return for placing the lender on preferred lender lists.

Education Finance Partners also owed $1.2 million to the Brazos Higher Education Service Corp., a nonprofit student loan services provider, for pending arbitration in a lawsuit filed in California as well as $750,000 to both Morgan Stanley and NBF International Holdings Inc.

The ailing student loan lender has been crippled by the credit crisis for months. Unable to secure new financing, the lender was forced to shut down its main office in San Francisco as well as a second office in Austin, Texas in September, a month after it announced that it would stop making student loans and that it would have to lay off 113 employees.

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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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