Taking on Lenders and Colleges

"New York Attorney General Andrew M. Cuomo revved up his campaign Thursday against what he just last week termed the “unholy alliance” between colleges and lenders. Not only did he announce an intent to file suit against the California-based Education Finance Partners (EFP) over the private loan company’s alleged “deceptive practices,” but he also named the names of 12 colleges allegedly accepting EFP’s “kickbacks": Baylor, Boston, Clemson, Drexel, Duquesne, Fordham, Long Island, Pepperdine, St. John’s and Texas Christian Universities, plus Washington University in St. Louis and the University of Mississippi. (Many more were unnamed: Cuomo said more than 60 such “revenue-sharing” agreements with EFP exist).

“EFP aggressively offered schools cash kickbacks in exchange for business,” Cuomo said in a statement. He cited for instance the more than $100,000 Drexel University received in a single year (Officials there, including the president and press spokesman, did not respond to requests for comment late Thursday).

In a nutshell, Cuomo charges that the private lender paid institutions in exchange for preferential treatment and a spot on their lists of “preferred lenders.” (Preferred lender lists, provided to students and compiled by a university, are a powerful tool in shaping which companies students choose for a loan: Cuomo estimates that 90 percent of students choose lenders from these lists.)

Furthermore, the “revenue-sharing agreements,” also referred to by Cuomo as “kickbacks,” were often based on a tiered system, Cuomo said – meaning the more loans referred to the company by the college, the higher the percentage return on the value of the loan for the institution. Neither the colleges nor EFP adequately disclosed the financial terms of their agreements to students, Cuomo said."

Read more at: http://www.insidehighered.com/news/2007/03/23/cuomo