The University launched a review of in-house lending practices after nationwide inquiries have called into question student loan procedures at colleges and universities, according to University Vice President for Strategic Initiatives David Greene.
Early this month, New Jersey Attorney General Stuart Rabner’s office sent court subpoenas to 17 student lenders nationwide and 61 New Jersey universities for questionable lending procedures in issuing student loans. Wachovia Corporation, one of the University of Chicago’s three preferred lenders for students in the College, received a subpoena.
The subpoenas reflect a rising concern over potential conflicts of interest between the lending industry and institutions of higher education. In early March, New York Attorney General Andrew Cuomo spearheaded investigations into student lending practices and possible abuses within the $85-billion industry.
In response to the flurry of investigations, colleges and universities across the nation have begun reevaluating their lending procedures.
Greene said that the University’s review process is still underway and that the administration is currently working out the details for future lending policies. Since there is no standard set of recommended policies for all universities to follow, it difficult to gauge how the University’s policies will take shape in the coming months, Greene said.
“It’s a little bit hard to know exactly how the landscape is shifting around financial aid policies, lending policies. Different associations are recommending different lending procedures for universities, and they don’t all match up,” he said. “In three or six months, there will probably be a standard set of standards [for student lending procedures].”
So far, the review has not indicated the need for any significant changes to the University’s lending procedures, Greene said.
“The short answer is, I haven’t seen anything in need of a major overhaul. Given what we know now, I don’t see any need for major changes [to current lending procedures]. But we’re always making changes and reevaluating our practices, so it’s hard to say what will happen six months from now,” he said.
Greene said that the University does not have official plans to alter its relationship with Wachovia, despite that institution’s recent subpoena. The University routinely reevaluates potential lenders during its regular lending process, he added.
“As part of normal procedures, we seek out lenders with the most competitive loans for students. These are services we want to continue,” he said. “In any case in which we have preferred lenders, we go out on a regular basis to ask for new proposals from lenders.”
Greene said that overall, the evaluation process has proved reassuring.
“We haven’t found anything at this point which looks like the most egregious practices [cited at other universities], which is comforting,” Greene said.
, Cuomo’s investigations revealed that financial aid directors at Columbia University and Johns Hopkins University had profited through possibly unethical relationships with Student Loan Xpress (SLX), a company formerly listed as a preferred lender by both universities.
David Charlow, executive director of financial aid at Columbia University, was placed on administrative leave after investigations revealed that Charlow held shares in SLX and profited financially from ties with the lender.
In a campus-wide memorandum released in early April, Columbia announced that it had removed SLX from its list of preferred lenders and had requested that Charlow’s public endorsement of SLX be removed from the lender’s website.
Ellen Frishberg, director of financial aid at Johns Hopkins, was also placed on paid leave after Cuomo’s investigations revealed that she had received $65,000 in tuition and consulting fees from SLX, that university announced in an April press release.
The disclosure prompted Johns Hopkins to adopt Cuomo’s code of conduct for student lending procedures, which includes the recommendation that universities remove lists of preferred lenders, said Dennis O’Shea, executive director of public affairs at Johns Hopkins.
He added that Johns Hopkins’s lending policies will continue to reflect Cuomo’s code of conduct until lending procedures are standardized.
“[T]his decision will stand until we are persuaded that there is a national consensus forming as to standards for such lists and that we can construct a list in conformance with those standards,” O’Shea said.
O’Shea acknowledged that Johns Hopkins’s decision to remove its list of preferred lenders may further complicate the lending process for its students.
“We recognize that, in the meantime, that the lack of guidance will make things more difficult for students and parents, and we very much hope that a new national consensus on lender lists forms very quickly,” he said.
Spurred by Cuomo’s investigations, the Illinois attorney general’s office announced last week that it had sent letters to 270 Illinois institutions of higher learning requesting information on their student lending practices. The state’s investigations revealed that several Illinois universities had received financial incentives from student lenders.
Northern Illinois University (NIU) admitted to accepting a total of $17,000 in payments from its preferred lenders, National City Bank and TCF Bank, within the past year. NIU said that its aid office would no longer accept payment from student lenders in the future.
The investigations have prompted several other Illinois universities to reexamine their ties to the lending industry. The University of Illinois, Illinois State University, and NIU announced that they are reviewing their contracts with student lenders.
However, it appears that the set of national standards governing student lending practices for which O’Shea hopes is quickly coming together.
On May 9, the House of Representatives passed Miller’s Student Loan Sunshine Act by a 414–3 margin. If enacted, the law would introduce a standardized code of conduct for student lending procedures and require transparency in the relationships between universities and their preferred lenders.
In the meantime, Greene recommended that University of Chicago students who feel confused about the lending process seek the counsel of the College’s financial aid office.
“Anyone who has had financial aid, and I’ve had a lot of it in my life, knows it’s confusing and can be a challenge,” he said.