As his investigation of college student lending practices expands, State Attorney General Andrew Cuomo and legislative leaders agreed Monday to make it illegal for colleges in New York to enter into revenue-sharing and other conflict-of-interest arrangements with lending companies.
The new bill would turn into state law the current voluntary code of conduct Cuomo has gotten three dozen colleges to sign since his investigation into questionable lending practices began earlier this year.
The agreement comes as Cuomo on Friday sent subpoenas or official letters seeking documents to an additional 13 student loan companies, including Bank of America, Wells Fargo, JPMorgan Chase, Wachovia and a group of smaller banks and college loan companies around the nation.
Cuomo announced that Education Finance Partners, a California company that did loan business with more than 60 colleges, agreed to pay the state $2.5 million to settle a probe by the state. The various investigations involve an array of benefits to colleges, and possibly to administrators, in return for steering students to certain loan companies.
While Cuomo said his investigation involves the lending practices at more than 100 colleges and universities across the nation, so far his office has only identified a fraction of colleges that engaged in some sort of questionable arrangements with private lenders. No private college in Western New York has yet to be identified in the widening probe.
The tentative agreement Monday between Cuomo and leaders of the Assembly and Senate includes legal prohibitions against revenue-sharing arrangements, in which colleges get a percentage of money based upon loans taken out by students from a preferred lending list. Cuomo said 95 percent of student loan borrowers select lenders from lists compiled by their college.
The legislation also bans public and private colleges -- and college administrators -- from taking any gifts from lenders, whether free trips or paid positions on a company's board of directors. It also ends the practice by some lenders who answer calls from students thinking they were being directed to college finance offices. Cuomo said he did not seek to ban the preferred lender lists because, if done properly, they can be a service to students if colleges fairly research lenders before putting them on the lists.
"There'll be no more perks, no more stock options, no more conflicts of interest. The integrity of the lending process for students will be restored," Cuomo said in announcing the deal with Senate Majority Leader Joseph Bruno and Assembly Speaker Sheldon Silver. Cuomo is scheduled to testify before a congressional panel next week on the lending scandal.
In a statement Monday, the California lender said it will halt revenue-sharing arrangements with colleges and donate $2.5 million to a new state fund to educate parents and students about their student loan options. It defended the revenue-sharing deals as providing money to colleges, which in turn could use the money for scholarships or other student programs; it said the program did not raise the costs of student loans.
"This agreement removes the appearance of any impropriety and supports our company's goals of raising the level of education and transparency around private loan programs," Tamera Briones, the company's chief executive officer, said in a written statement.