NY Attorney General to sue student loan company

3/30/07New York Attorney General Andrew M. Cuomo plans to file a lawsuit against Education Finance Partners (EFP), the San Francisco-based private lender, over deceptive practices involving student loans, according to a March 22 press release.

After launching a broad investigation last month into potential conflicts of interest in the $85 billion student loan industry, the attorney general's office said EFP has paid schools in exchange for placement on their "preferred lender" lists through financial arrangements called "revenue sharing agreements."

These agreements offer schools payment based on the amount of loans referred and often give back a higher percentage if more students borrow from EFP, according to the attorney general. Cuomo alleges that such a relationship is a deceptive business practice because this arrangement is not adequately disclosed to students.

"A preferred lender ought to mean that the lender is preferred by students for its low rates, not by schools for its kickbacks," Cuomo said.

Cuomo's investigation found that EFP had payment agreements with more than 60 schools throughout the country, including Boston University. Although BU received $1,500 from EFP over two years, the school said in a statement that it did not give the company "preferential treatment" and returned the funds.

The Boston Globe reported that other Massachusetts schools, including Emerson College, Berklee College of Music, Mount Holyoke College, Bridgewater State College, and Becker College, also have payment agreements with EFP.

The company is listed on Emerson's Financial Services website as a student- preferred lender with a disclaimer revealing that a financial arrangement exists.

Of the 1,424 alternative/PLUS loans Emerson processed this year, 52 were processed through EFP totaling $861,000, David Rosen, Emerson's director of Public Affairs, said in an e-mail statement. The school received $1,350 from EFP, which was "put into a scholarship fund for a needy student," he said.

Rosen declined to comment on Cuomo's actions against EFP.

As part of the investigation, Cuomo's office last month sent formal requests for information to the presidents of more than 60 schools regarding the standards used in appointing lenders as "preferred."

"In selecting 'preferred' lenders we evaluate rates and terms, customer service, and technological efficiency," said Christine Hughes, Emerson's vice-president and general counsel, in a March 7 letter responding to Cuomo's request. "The College and its employees do not ask for or accept any other incentives or inducements in exchange for designation as a 'preferred' lender."

Cuomo's investigation found that some schools, such as Drexel University in Philadelphia, were receiving large amounts in "kickbacks" from EFP. According to the March 22 press release, Drexel has received more than $100,000 from the lender in one year, and, as of April 1 of last year, the school "has agreed to make EFP its 'sole preferred private loan provider.'"

In a March 22 response to Cuomo's announcement, EFP said the company "is fully prepared to defend its business practices."

"[W]e question whether the Attorney General's office is seriously interested in learning all of the facts and whether there has been an actual violation of law," Tamera Briones, EFP founder and chief executive, said. "Significantly, the Attorney General fails to mention in his press release that many colleges and universities use revenue sharing to fund student aid programs.