Alumni groups asked to reveal student loan deals
San Francisco Chronicle 5/4/07
At the heart of his inquiry is whether the associations are receiving improper payments for directing members to consolidate their loans with Nelnet, a private lender, and whether the associations disclosed those payments to alums.
"Unfortunately, it appears that student loan scams don't end at graduation," Cuomo said Thursday. "Today, we have taken the next step in bringing justice to students and former students who have been victimized by the college loan industry. ... Our investigation seeks to put an end to kickback schemes and payoffs that benefit lenders and their partners -- be they schools or alumni associations -- at the expense of students trying to control their debt."
Cuomo opened a sweeping investigation into the student loan industry this spring. He is examining, among other things, the relationship between private lenders and college financial aid officials who were creating "preferred lender lists." So far, his probe has resulted in lenders Sallie Mae, Citibank and Education Finance Partners of San Francisco agreeing to contribute a combined $6.5 million to educate high school students about the student loan process.
The New York attorney general is billing his latest investigation as a separate but related inquiry.
The UC Riverside Alumni Association says there is nothing wrong in its relationship with Nelnet, a major player in the profitable and competitive field of student loan consolidations.
Nelnet pays the Riverside alumni association to direct alumni exclusively to its company to consolidate their student loans, but that's not unusual, said Kyle Hoffman, executive director of the alumni association. Hoffman also works for UC Riverside as an assistant vice chancellor for alumni and constituent relations.
He noted that the Riverside alumni association also has similar arrangements with travel and insurance companies.
"Similar to many university alumni associations around the country, we have various 'affinity partnerships' with a variety of programs, from travel vendors to alumni insurance programs," said Hoffman. "Nelnet is the outfit we selected to provide loan consolidation to our alumni audience."
He believes Riverside alums understand Nelnet's financial relationship with the association because they're educated adults who know how associations and nonprofits work. He added that the university chose Nelnet as the best deal for alumni after hearing proposals from other lenders four years ago.
Nelnet pays the association a flat fee, although Hoffman declined to say how much Thursday, citing confidentiality concerns.
Nelnet officials said the lending company doesn't see anything wrong with such relationships either.
"We have been and remain proud of our affinity relationships with alumni associations," Nelnet executives said in a written statement. "These relationships provide valuable information and opportunities to alumni regarding student loan consolidation, as well as generating income that helps alumni associations carry out their mission."
Robert Shireman, executive director of the Project on Student Debt in Berkeley, said Nelnet's relationship with alumni associations isn't as worrisome as the issue Cuomo is probing in his preferred-lender list investigation. That is focused on college financial aid officials who have allegedly accepted large sums of money for scholarships or personally accepted stock in lenders they recommended to students.
"It would be less of a surprise for a graduate to learn that a product promoted by the alumni association is something (the associations) profit from," he said.
Still, he called it a worthy investigation because the relationship between schools and their alumni associations is often murky.
"It makes sense to look at what's going on in those relationships because there could be ties back to the university."
Students with multiple federal student loans will often consolidate to streamline their debt under a single interest rate and payment, but unlike refinancing a home, once people consolidate their student loans, they can never do it again.
In its online "Commencement Guide," the San Jose State University Alumni Association provides helpful hints for recent graduates, including how to tap into the alumni network, where to get short-term medical insurance and information on student loan consolidation. That part reads: "Nelnet helps alumni combine their student loan debt into one simple loan with a fixed rate for the entire life of the loan, reduced monthly payments, and borrower benefit savings. Visit Nelnet online."
University spokeswoman Pat Harris said San Jose State's alumni association gets a royalty from Nelnet, but she didn't know how much. She is reviewing a five-page request for documents from Cuomo's office and said she couldn't comment further. Like UC Riverside, the San Jose alumni association is headed by a university official.
"It's a little premature for us to provide details," she said. "We're still trying to review the letter."
Cuomo is asking for a range of documents, from those that establish how the relationships with Nelnet began to anything that reveals gifts or perks received by alumni association employees.
After Cuomo's earlier investigation into "preferred lender" lists, eight schools agreed to reimburse students $3 million for their revenue-sharing agreements with lenders -- including New York University and Fordham University -- and 22 committed to following a code of conduct that protects students in the loan process.
"It was a business practice that was widespread and was widely accepted," said Cuomo's deputy press secretary, Rashmi Vasisht. "We clearly found that these practices didn't protect the interests of the students."