State joins inquiry of colleges' loan deals
By TOM MARSHALL
Published May 10, 2007
Florida has joined a fast-growing list of state and federal investigations into the links between universities and the companies that lend money to students.
Attorney General Bill McCollum this week sent out subpoenas or letters to all 39 public universities and community colleges, as well as to an undisclosed number of private institutions, seeking information on their relationships with lenders.
"I'm quite confident there are some Florida institutions, both state and private, that have engaged in some practices that provide concern, " McCollum said Wednesday.
The Florida investigation is being run by the office of economic crimes in the attorney general's office. McCollum said his office was particularly interested in the potential for unfair trade practices between Florida colleges and lenders.
"The bottom line is most unfair trade practices involve a failure to make proper disclosures to consumers, or misleading consumers, " he told the St. Petersburg Times. "Either one would be a violation of the law, in our view."
McCollum said he has been working with New York Attorney General Andrew Cuomo for "some weeks, " probing Florida institutions that have reached revenue-sharing or other agreements with lenders but have not informed students of those arrangements.
"Such things as setting aside preferred lists for students to be given, and the university gets some kind off compensation from lenders for that list, " he said. "I don't think that's an appropriate thing for a university to do."
McCollum declined to discuss specific Florida schools being investigated, nor did he say which schools received subpoenas instead of "voluntary disclosure" letters.
In the letters, university presidents were explicitly warned to "preserve and retain all documents" and records connected to financial aid practices.
Mark Rosenberg, chancellor of Florida's state university system, has also sent letters to college presidents seeking information on their policies.
Among the questions posed by McCollum's office is whether colleges that list themselves as preferred lenders, and issue loans under their own name, have told students on their Web site of agreements to resell those loans to other companies.
In a story Monday, the Times revealed one such arrangement, in which Florida State University marketed more than $20-million in loans to its graduate students last year using a $50-million credit line from Sallie Mae, without disclosing an agreement to resell the loans to the company at a profit.
Over two years, the university earned around $2.4-million in income from those loans under a federally sanctioned program. While it said income from the loans would be used for need-based grants to undergraduates, FSU figures showed that most revenue was spent on program or administrative expenses, with $640, 000 going toward grants.
Congress has since placed a moratorium on the school-as-lender program out of concern that schools were profiting from student debt.
Sallie Mae issued 6.8 percent of other federal Stafford loans under its own name last year at FSU, worth about $8-million, according to federal Department of Education figures.
But according to a contract obtained by the Times, Sallie Mae told FSU it had also reached advance agreements with lenders Student Loan Xpress and J.P. Morgan Chase to repurchase those loans. With loans from those two companies, Sallie Mae's eventual share of FSU loan volume would rise to about 40 percent, or $56.3-million, of FSU's $139, 342, 000 in loan volume last year.
In 2004, the company told the university of a similar agreement with Bank of America, which last year lent $19.3-million to FSU students.
McCollum said his probe would also examine gifts, free travel or other incentives offered to colleges by preferred lenders, as well as agreements between lenders and alumni associations.
Several Florida financial aid directors - including those at FSU and Stetson University School of Law - have said they accepted free travel as members of lender advisory boards. Stetson says it will now pay those expenses if its director attends future meetings.
"That certainly raises an appearance of impropriety, " McCollum said, referring to such travel. "I don't know if it's illegal."
Since March, at least eight schools investigated by Cuomo have reimbursed students more than $3-million for failing to disclose revenue-sharing agreements.
Lenders including Sallie Mae and Citibank have agreed to a New York code of conduct barring such practices, and six financial aid directors have been suspended by their institutions for allegedly holding stock or accepting consulting fees from preferred lender Student Loan Xpress.
Last week, Cuomo issued around 90 subpoenas to university alumni associations, including some in Florida, that may have crafted revenue-sharing agreements in exchange for directing students toward loan consolidation with Nebraska-based Nelnet.
University of Tampa, which said last week it hadn't received a subpoena, has nonetheless suspended its agreement with Nelnet.
"There was a fee they provided to us, " said Dan Gura, vice president for development and university relations, describing it as a variable amount depending on loan volume.
"Because of our contract with them, we couldn't disclose the amount, " he said.
Tom Marshall can be reached at email@example.com or (352) 848-1431.
On the web
Text of the letter sent to Florida university presidents is available at links.tampabay.com