Tuesday, April 03, 2007

Shakedown Cuomo 

The New York attorney general, Andrew Cuomo, has obtained settlements from 36 colleges and universities that received letters threatening lawsuits over student loan practices. Cuomo's office gets $2 million for a fund "to educate students and parents about the student loan industry." What were these schools doing?

In some instances, loan companies made payments to the institutions linked to the number of students who borrowed. One lender invited university officials to an all-expenses-paid Caribbean retreat. At several institutions, students� questions about financial aid were fielded by call centers that, unknown to the students, were set up and operated by loan companies. Each arrangement, critics say, embodies a conflict of interest.

Lawyers in Mr. Cuomo�s office are in various stages of negotiations with scores more colleges and universities, and with other lenders, seeking compensation to students and signatures on the code of conduct, according to officials in Mr. Cuomo�s office.

Under today�s agreement, N.Y.U. will distribute to students nearly $1.4 million that it received from Citibank over five years. The University of Pennsylvania will distribute $1.6 million that it received over two years. The amounts for the other three universities are much smaller: $164,084 over two years at Syracuse, $80,553 over one year at St. John�s University, and $13,840 at Fordham.

Three more universities have agreed to adopt the code of conduct, but are not making any payments under the agreement: the State University of New York system, St. Lawrence University and Long Island University.

NYU claims that the money it received back from Citibank was used for financial aid and saw nothing wrong with their behavior. From the Chronicle of Higher Education (subscriber link):

But officials at several universities that agreed to settle with the attorney general said they had little choice. Although they defended their student-loan practices and criticized the tone of Mr. Cuomo's investigation, they said going to court over the practices would be costly and would bring more bad publicity.

John Beckman, a spokesman for New York University, said, "We don't think the investigation has been fair with regards to NYU." He said the university saw nothing wrong with how it recommends lenders to students, or with a nonbinding revenue-sharing contract with Citibank that guaranteed the university 0.25 percent of the value of some of the university's loans. Citibank offered the best rates for students in any case, he said.

But he said NYU chose to sign the settlement anyway.

"In the end, we had no interest in further legal proceedings," said Mr. Beckman. "I think every university has to be mindful, from a cost perspective, of engaging in such a thing."

The financial aid professionals are furious with Cuomo's grandstanding. But Cuomo is just following the footsteps of Eliot Spitzer in moving to the governor's mansion from the AG's office. That is one reason why I believe we're better off having AGs appointed by an executive branch.