Boston University could be forced to reevaluate its loan affiliations because of Massachusetts Attorney General Martha Coakley’s inquiry into student loan companies’ relationships with universities, part of a broader Congressional effort to end corruption within these companies.
Coakley’s office will work with other attorneys general, including New York Attorney General Andrew Cuomo, in its investigation, according to an office statement.
Cuomo began investigating corruption claims last March when he threatened to sue Education Finance Partners for allegedly paying more than 60 schools, including Boston University, to promote the lender to students. Coakley is continuing his efforts in Massachusetts.
“Our office is investigating the nature of the relationships between colleges and lenders and whether any practices involved are inappropriate or illegal,” Coakley said in a May statement.
BU spokesman Colin Riley said the university received $1,500 from EFP over a two-year period, but the university refused to sign an agreement to promote it as a preferred lender. BU returned the $1,500 to EFP after learning of Cuomo’s concerns and stated it will no longer accept any additional funds from the loan company.
Coakley’s review will address revenue sharing between lenders and state colleges. It will also look into disclosures of the selection and promotion of school-preferred lenders and payments to financial-aid employees in exchange for preferential treatment, according to the statement.
Riley said the university will cooperate with the commonwealth and “provide information as requested.”
While the Financial Aid Office website lists six private, non-governmental student loan lenders, Riley said BU does not have preferred lenders.
“[We list them] because people ask for the information,” he said. “[The list is] not exhaustive, not exclusive. Those [lenders] have been around, we’ve looked at them and we know what their history is. We never promote.”
BU is a direct lender through the Education Department, but students can also borrow from private companies if they need more than the amount the school awards. Private loans represent about 20 percent of all aid provided to BU students in 2006, Riley said.
Several other attorneys general, as well as U.S. Sen. Edward Kennedy (D-Mass.) and other politicians, have questioned the practices of student-loan lenders. They say colleges have accepted kickbacks for recommending lenders to students.
A 1986 Congressional decision stated it is illegal to get a loan quickly lenders to use inducements to get applicants for federally backed student loans. The law does not mention private lenders.
On June 1, the Education Department released proposed rules that would set more specific standards for proper relationships between schools and loan lenders. However, the proposal would only cover federally backed student loans.
If approved, the rules would require universities to include at least three loan companies on any list of lenders they recommend to students, excluding those that provided incentives. Schools would have to explain the reason for listing each lender.
American Associate of Collegiate Registrars spokesman Barmak Nassirian said he does not blame universities for the corruption in student-loan companies. Cuomo’s investigation of the loan industry has stopped illegal kickbacks, but lenders will find other ways to take money from students, he said.
“The outrageous arrangements that Cuomo uncovered have probably stopped,” he said. “[But] you have to be an optimist and assume they will find new ways of being corrupt.”
