Attorney General Andrew Cuomo has targeted Drexel University for his first legal action in the unfolding student loan scandal.
Cuomo said he has given notice to the Philadelphia school that he will sue over payments Drexel received from a lender in return for placement on an exclusive referral list used by students to obtain loans.
The action comes as four more colleges Thursday signed on to Cuomo's code of conduct -- promising not to engage in revenue-sharing deals with lenders or receive other gifts in return for placing them on preferred lending lists heavily relied upon by students.
"This investigation is a two-front battle: lenders and schools," Cuomo said in a written statement. "We have proceeded against lenders, and now we are proceeding against schools. There is no reason for a school not to adopt the code of conduct."
"This office has been clear to schools: Settle or we will commence litigation. Either way, we will get justice for students."
Those schools signing up are Pace University, which has campuses in Westchester County and Manhattan, Salve Regina University in Rhode Island, Molloy College on Long Island, and the New York Institute of Technology, a Long Island college with three campuses.
The latest development comes days after Education Finance Partners, a California lender, agreed to the code, thereby ending revenue-sharing deals in which the lender paid about 60 colleges a percentage for loans to their students. Two of the schools signing onto the code Thursday -- Salve Regina and Molloy College -- had revenue-sharing deals with Education Finance Partners, Cuomo said. Molloy College denied the allegation.
So far, the widening probe -- subpoenas were issued last week to additional lenders -- has not caught any Western New York colleges. But officials cautioned that new details are being discovered every day as a dozen lawyers sift through documents from colleges and lenders.
Drexel, Cuomo alleges, received more than $124,000 in revenue-sharing deals with Education Finance Partners and is owed an additional $126,000. Cuomo said Drexel made the lender its "sole preferred private loan provider," receiving in return 0.75 percent of the value of loans up to $25 million issued to its students. Since 2006, Drexel students have taken out more than $16 million in loans through Education Finance Partners, Cuomo said.
Drexel officials did not return calls to comment. Cuomo said his office has jurisdiction over the Drexel loans because New York students attend the college.
Fordham University, St. John's University and Long Island University also have agreed to halt revenue-sharing deals with lenders. The State University of New York recently signed onto the code of conduct. Cuomo has not said if any SUNY campuses were engaged in questionable lending arrangements.
Legislative leaders in Albany earlier this week announced a deal to turn Cuomo's code into state law. Some colleges have said the revenue-sharing arrangements created pots of money used for student scholarships.