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Tuesday May 15, 2007
AG Swanson and New York AG Cuomo Enter Settlement Agreement
with Capella University Regarding Student Loan Investigation
Attorney General Lori Swanson along with New York Attorney General Andrew Cuomo today announced a settlement agreement with Capella University relating to the school’s student loan referral practices. The agreement is the result of an investigation by the Attorneys General regarding the receipt of financial inducements from lenders in exchange for placing the lenders on a “preferred lender list.”
“The use of a ‘preferred lender list’ at a school gives students the impression that the school has negotiated terms and rates that are beneficial to students, not that a given lender has bought their way onto the list,” said Swanson. “Undisclosed payments made by lenders in this case highlight the concerns about the nature of such relationships.”
The investigation revealed that Capella’s Director of Financial Aid received a payment of $12,400 from one of the school’s preferred lenders, Student Loan Xpress. The director also received a $2,000 honorarium from EdFinancial Services, another loan servicing company. Capella’s Director of Financial Aid served on the advisory boards of various national lenders including Citibank, Chase, Wachovia, and Wells Fargo, at the same time he was employed by Capella.
The agreement includes the following provisions:
- Capella is prohibited from receiving anything of value from any lending institution in exchange for any advantage sought by the lending institution. This severs any inappropriate financial arrangements between lenders and the school and specifically prohibits "revenue sharing" arrangements. Lenders can no longer pay to get on the school’s preferred lender list.
- Capella employees are prohibited from taking anything of more than nominal value from any lending institution. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
- Capella employees are prohibited from receiving anything of value for serving on the advisory board of any lending institution.
- The college’s preferred lender list must be based solely on the best interests of the students or parents who may use the list, without regard to financial interests of the college. This ensures that preferred lenders will be those the school has determined should be preferred by students as opposed to preferred by the school.
- On all preferred lender lists, the college must clearly and fully disclose the criteria and process used to select preferred lenders. Students must also be told that they have the right and ability to select the lender of their choice regardless of the preferred lender list.
- No lender may appear on a preferred lender list if the lender has an agreement to sell its loans to another lender without disclosing this fact. In addition, no lender may bargain to be a preferred lender with respect to a certain type of loan by providing benefits to the college as to another type of loan.
- The college must ensure that employees of lenders never identify themselves to students as employees of the college. No employee of a lender may ever work in or provide staffing assistance to a college financial aid office.
Attorney General Swanson encouraged students to shop around independently for the best interest rates and terms they can find. The Attorney General’s Office has developed a Student Loan Guide to assist students in navigating the student loan process, available on the Office’s website at: www.ag.state.mn.us, or by calling the Attorney General’s Office at: (651) 296-3353 or 1-800-657-3787.