New York State Attorney General Andrew Cuomo expanded a nationwide investigation last week examining the relationships between colleges and the private lenders recommended to students applying for loans.
St. John’s University was one of 60 colleges in the nation that received a letter from the Attorney General’s office asking them to disclose the criterion they use in determining which lenders appear on the school’s “preferred lenders” list.
St. John’s Director of Media Relations Dominic Scianna confirmed that the University had received a request from Cuomo’s office last week.
“Our legal department is reviewing the letter at this time,” Scianna said in a statement.
After many reports of private lending companies providing gifts to financial aid officers in order to be placed on their “preferred lenders” list, politicians across the nation fear students are not getting the best possible offers for their loans, but instead are being recommended to lenders that are giving university officials the best incentives.
An October New York Times article caused private lender Educap to cancel an all-expense paid conference they had scheduled for university officials and their spouses in the Caribbean. Student-loan company Nelnet recently settled a deal with the U.S. Department of Education for their previous use of a loophole that allowed them to charge students high interest rates.
Cuomo’s office released a statement last week regarding the investigation.
“My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to financial aid administrators,” Cuomo said.
As well as the 60 colleges being questioned, Cuomo’s office has contacted eight private lenders, including Nelnet, Sallie Mae, and Educap, asking for information.
The Attorney General’s office did not release the contents of the letter or the method used to determine what schools and student-loan companies would receive formal requests for information.
St. John’s offers two private lenders on their preferred lenders list, Education Finance Partners and CitiGroup. There are no optional private lenders to choose from, but financial aid officers stress that students should try to get a government loan before they think about borrowing money from a private lender.
The University states that the two lenders on the preferred lenders list appear on the list because they offer competitive rates to St. John’s students. Education Finance Partners is also one of the student-loan companies under investigation by the Attorney General’s office.
With inflating college tuition prices, the service of student lending has quickly become a multi-billion dollar business.
Recent political actions taken against lending companies, however, has lead to some loss of revenue in the industry.
The previous Attorney General, Eliot Spitzer, began the investigation last year by sending formal requests to six different student-loan companies across the nation.
The House of Representatives passed the College Student Relief Act on Jan. 17, a bill that slashes students’ interest rates in half. The Bush administration’s 2008 budget plan includes cuts to federal subsidies paid to student-loan companies.
According to Forbes, student loan shares have fallen 5.9 percent in the past year, and student-loan companies continue to see constant scrutiny from national politicians.