New York’s attorney general has threatened legal action against ASU over the university’s practice of accepting payments from a lending firm that it recommends to students.
Andrew Cuomo, New York’s top lawyer, is investigating ties between the student lending industry and universities. Cuomo’s office has threatened to file a lawsuit against Education Finance Partners, a San Francisco-based private lender that offers schools a cut of the revenue when their students borrow from the firm.
Arizona State University signed an agreement with Education Finance Partners two years ago, making the firm a “preferred” lender in exchange for “revenue reinvestment.” The firm uses ASU’s logo on its marketing materials.
Last week, the attorney general sent out settlement offers to Arizona State and dozens of other universities nationwide, calling on them to halt such deals with their preferred lenders to avoid litigation.
ASU’s legal office is still reviewing Cuomo’s letter and considering how to respond, according to a statement released by the university. “ASU welcomes the opportunity to review and improve our student loan practices in the best interest of our students.”
Already, seven universities and one lender, Citibank, have agreed to terms Cuomo has laid out as a “college code of conduct.” Those terms include:
* Universities are prohibited from receiving anything of value from lenders.
* Preferred lenders lists must be compiled considering only students’ best interests.
* Lenders cannot identify themselves as university employees or provide employees to work in financial aid offices.
Five of the universities have committed to reimbursing students the payments they received from Citibank, totaling $3.2 million. Some of the schools are not in New York, including the University of Pennsylvania, which will return $1.6 million to students.
The New York attorney general’s jurisdiction extends beyond the state’s borders because many residents study at colleges throughout the country, said Matthew Glazer, a Cuomo spokesman.
“The attorney general represents New York’s students,” Glazer said. “So if the state’s students are affected, it’s our concern.”
College lenders have been subjected to tough questioning and subpoenas this year as elected officials question the $85 billion-a-year industry. The amount borrowed in private loans — $13.8 billion, according to College Board — is 10 times larger than it was a decade ago.
Arizona State does not disclose the nature of its relationship with the lender, first reported by the Tribune in December, in the materials students receive.
ASU finance records show the university has received a total of $5,887 from Education Finance Partners for students’ $3.3 million in private loans.
Those dollars are intended to go toward student financial aid, Craig Fennell, ASU financial aid director, has said.
Tamera Briones, the lender’s chief executive officer, has defended the practice as a legitimate way to invest in the higher education community. The lender makes only private loans and revenue sharing does not add to college costs.
“The price to the borrower does not change. So this whole idea or notion that what we do impacts actual borrowers or families is wrong,” Briones told the Tribune in December.
Education Finance Partners issued a statement Monday that said it is working with Cuomo’s office to settle the inquiry.
Private loans are a booming business at Arizona State and many other public universities as the cost of a college degree has grown dramatically. The cap on how much in federal loans students can take — $23,000 — has not moved for several years.
Increasingly, students are hitting that ceiling and turning to private loans, which can be far more volatile as they do not guarantee a low interest rate.
Private borrowing at ASU has grown from $3.8 million in 2000 to $23 million last year.
Education Finance Partners and Citibank are the only lenders on ASU’s preferred list. The university’s contract with Citibank requires the lender to meet a litany of customer service requirements to keep its spot on the list. However, Arizona State’s pact with Education Finance Partners promises only revenue sharing and marketing support.