Attorney General Announces Agreements To Fight Conflicts Of Interest In Student Loan Industry

Attorney General Richard Blumenthal announced Monday an agreement between Connecticut, New York, and The College Board to eliminate conflicts of interest in the student loan industry and provide students and their families with resources to assist in shopping for financial aid.

Mr Blumenthal also announced that the Connecticut Community Colleges has adopted a Financial Aid Code of Conduct on behalf of its 12 community college member schools — to prevent conflicts of interest — joining all of Connecticut’s four-year state and private colleges.

“Our investigation of the student lending industry revealed arrangements, concealed from students and families, between The College Board and financial aid offices at several schools,” Mr Blumenthal said. “The College Board provided discounted equipment and services to the schools in exchange for a coveted spot on the schools’ preferred lender lists.

“Connecticut becomes the first state in the nation to have commitments from all its institutions of higher education — public and private — to stop conflicts of interest in the student loan industry. As the cost of higher education rises, and student resources shrink, reliance on college aid and advice becomes all the more important. Students should trust schools to avoid any conflicts of interest. Financial burden cannot be compounded by deceit.

“Today’s agreements help restore and ensure public trust in the student lending process, providing transparency, disclosure, and fairness. Our colleges and universities promise to protect student interests over perks and profit, barring secret arrangements with lenders,” Mr Blumenthal said.

The College Board is a nonprofit membership association that offers students and their parents programs and services in college admissions, guidance, assessment, financial aid, enrollment, and teaching and learning. Among its best-known programs are the SAT and the Advanced Placement Program (AP).

The College Board, which left the lending business in October 2007 after participating for more than a decade, has agreed to invest at least $675,000 into educational resources, accessible on the Internet, to help students and their families better navigate the daunting college lending arena.

The College Board has also agreed that, should it decide to reenter the lending industry, it will follow a strict code of conduct to bar conflicts of interest that may improperly steer student loan choices.

“I commend The College Board for cooperating with our multistate investigation,” Mr Blumenthal said. “The College Board, which is no longer a lender, will invest hundreds of thousands of dollars to provide critical tools that will enable and empower students and families to make informed decisions about student loans.”

Last year, Mr Blumenthal’s office reached agreements with three Connecticut schools — Fairfield University, Trinity College, and Sacred Heart University — after his investigation revealed potential conflicts of interest between the schools’ financial aid offices and The College Board.

Thousands of banks and other private lenders compete aggressively each year to provide student loans. The attorney general’s investigation revealed that several schools had represented to their students and their parents that the lenders on their preferred lender lists were selected solely because they offered the best borrower benefits. Lenders on such lists have a key competitive advantage because those on the list typically receive up to 90 percent of student loans.

The College Board allegedly entered into agreements with schools in which The College Board provided discounts on financial aid software over several years, contingent on the schools including The College Board as a preferred lender on their preferred lender lists. Students and parents were unaware of these arrangements.

Specifically, Monday’s settlement requires The College Board to develop and provide the following resources, free of charge until at least September 30, 2010, to higher education institutions, borrowers, and their families across the nation:

*A model lender RFP (request for proposals): made available for use by financial aid offices in order to assist schools in selecting a lender.

*A master alternative loan application: financial aid offices could ask lenders to use these to streamline the alternative loan application process.

*Calculator tools: A tool for students, parents and financial aid offices to meaningfully and more easily compare competing loan offers.

*A training program for financial aid officers that will include on-site and web-based training programs.

The Connecticut and New York attorneys general will have input into all substantive components of these resources.

Blumenthal thanked the New York Attorney General’s Consumer Frauds Bureau who worked closely with those in his office on the investigation: Assistant Attorneys General Christopher Haddad and Karla Turekian, and Kara Gitlin, a legal intern, under the direction of Assistant Attorney General Michael Cole.