(Updates throughout, including with additional details of settlement and
comment from Citibank and Cuomo.)
By Chad Bray
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- New York Attorney General
Andrew Cuomo said Monday that his office had reached a
settlement with several major universities and colleges to reimburse students
$3.27 million as part of a probe into what he claims are
questionable financial arrangements between schools and lenders.
At a press conference Monday, Cuomo said the schools will reimburse students
money paid by lenders as part of revenue-sharing agreements and will adopt a
code of conduct.
The schools include State University of New York's 29 four-year campuses,
Fordham University, Long Island University, New York University, St. Lawrence
University, Syracuse University and the University of Pennsylvania.
Also, Citigroup Inc.'s (C) Citibank
Student Loan Corp. has agreed to voluntarily adopt the code of conduct and to
commit $2 million to a new fund administered by the attorney
general's office to educate college-bound students and their parents about the
student-loan industry.
"This is an important step forward today," Cuomo said.
The code of conduct prohibits revenue sharing between lenders and schools,
and includes disclosure standards and restrictions on how preferred lenders are
chosen.
Cuomo has alleged that student-loan providers are improperly paying schools
to steer loans their way and put them on preferred lender lists through revenue-
sharing agreements that Cuomo claims are essentially kickbacks.
"We are pleased to work with the NY Attorney General, and we thank him for
his acknowledgment that the Citibank Student Loan Corporation has been and
continues to be a leader in raising the standards of good practices and
integrity in the higher education financing field," the company said in a
statement. "By taking the voluntary steps announced today, we are continuing
this tradition."
In a letter to Cuomo's office on Monday, Citibank Student Loan Corp. Chairman
and Chief Executive Michael J. Reardon said the company has
terminated its existing "referral fee arrangements" with NYU and the University
of Pennsylvania and will refrain from entering such agreements in the future.
The company previously terminated a similar agreement with
Syracuse.
"We firmly believe that students who borrowed from Citibank at the few institutions with which we have had referral
fee arrangements have received the best terms, benefits and servicing available
in the market," Reardon said in his letter.
The settlements with NYU, Syracuse and the University of
Pennsylvania cover a financial arrangement with Citibank in which the schools received payments based on loan
volume, the attorney general said. The agreements with SUNY, Fordham, LIU, St.
Lawrence and St. John's cover relationships with Education
Finance Partners Inc.
Last month, Cuomo announced that he had sent formal notice to EFP that he
planned to sue the company over its agreements with at least 60 colleges and
universities nationwide, claiming its practices are deceptive and violate New
York's consumer fraud law.
EFP said last week that it will improve its disclosures to borrowers about
the agreements and require schools to disclose that they may consider the
company's funding of student-aid programs in deciding whether to place EFP on a
preferred lender list. The lender said it hopes the changes will address Cuomo's
concerns, but "we are fully prepared to defend our program and our school
customers in court, if necessary."
"We intend to proceed with the litigation," Cuomo said Monday.
Schools that have entered revenue-sharing agreements with EFP include Baylor
University, Boston University, Clemson University, Drexel University, Dusquesne
University, Fordham University, Long Island University, Pepperdine University,
St. John's University, Texas Christian University, Washington University in
St. Louis and the University of Mississippi, according to
the attorney general's office.
EFP is one of six student-loan providers from which the attorney general's
office requested information in November as part of a preliminary inquiry into
financial arrangements they may have with schools.
The others are SLM Corp. (SLM), better
known as Sallie Mae; Nelnet Inc. (NNI); EduCap Inc.; the College Board and CIT
Group Inc. (CIT). Sallie Mae is the nation's largest student loan provider.
Cuomo's office is "actively investigating" student loan practices at 100
private and public colleges and universities and has sent letters to more than
400 schools, urging them to end questionable relationships with lenders.
-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
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