May 16, 2007

Drexel to Cuomo: Um, Never Mind

“Fight on, Drexel!” “Stand Strong Drexel!”

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Those were representative of the comments that flowed from some financial aid officers and other college officials last month when New York Attorney General Andrew M. Cuomo threatened to sue Drexel University and the Pennsylvania private institution vowed in strong terms to go to court to defend the revenue sharing arrangement it had with a lender. Some campus officials felt that Cuomo and other critics were painting their industry with an overly broad brush and overreaching in implying that laws had been broken. Someone needed to stand up to him, they suggested, and Drexel took up the mantle.

“Drexel will vigorously defend its position in this matter and will fully respond to any lawsuit in due course. We believe the allegations are without foundation in law or in fact,” President Constantine Papadakis said in an April 19 prepared statement. He didn’t stop there, lashing out at the attorney general. “The timing and public release of the attorney general‘s notice of intent to sue raises troubling questions as to his motivations and to his tactics. Indeed, his conduct violates fundamental principles of fair play to which Drexel and its students are entitled, and therefore we will move forcefully to protect our position in this matter.”

But Tuesday, Cuomo’s office sent out the latest in its steady stream of news releases about colleges or lenders settling the attorney general’s accusations against them, and this time, Drexel (as well as Capella University) was featured.

Under the terms of the accord, Drexel agreed to redistribute to student borrowers about $250,000 that it had received from Education Finance Partners as part of revenue sharing agreements in which the lender paid the university a portion of the private loans its students took out. Drexel also agreed to abide by the code of conduct that Cuomo’s office has promulgated, and that two dozen colleges and a half-dozen lenders have endorsed.

Drexel officials did not return telephone calls seeking an explanation for their drastic about-face. In a brief written statement, which was not available online as of Tuesday evening, the university said that it had settled as a way of “avoiding the expense and distraction of protracted litigation.” The statement said that the university’s “revenue reinvestment” arrangement with the lender had not influenced Drexel’s decision to put Education Finance on its list of preferred lenders, as Cuomo had charged, and that the university had given $115,000 of the $124,000 it had received from the company so far to students “who faced sudden emergency situations.”

With Drexel declining to discuss its change of heart, college officials who have been following the cascading and overlapping student loan inquiries were left to speculate. Some noted that Cuomo’s announcement about Drexel and Capella (see below) had come a day after the University of Texas System released the results of its investigation into charges that Cuomo had made against the financial aid chief at the university’s Austin campus, which uncovered a series of troubling practices that seemed to take university officials by surprise.

The Texas situation, which resulted in the firing Monday of Lawrence J. Burt, drove home for many observers just how little some top university administrators may know about the practices taking place in their financial aid offices. After reacting belligerently to Cuomo’s planned lawsuit on the night it was announced, Drexel officials may have encountered a similar feeling when they examined their own practices more closely in the light of day, people familiar with the university’s situation said Tuesday.

“They had a sense that they wanted to fight at first, but after thinking it over, they decided” otherwise, said one source who requested anonymity.

The other settlement Cuomo announced Tuesday was with Capella, which at the same time struck a deal with Lori Swanson, the attorney general in the university’s home state of Minnesota. The New York attorney general had revealed last month that Tim Lehmann, director of financial aid at Capella, had received $12,400 from another lender, Student Loan Xpress, in 2006 for consulting work, helping the company find better ways of working with online students. Capella had included Student Loan Xpress on its list of recommended lenders to students before Lehmann arrived at the university in 2001.

In his announcement Tuesday, Cuomo fleshed out details. “Between 2003 and 2007, Lehmann served on the advisory boards of several banks and lenders for varying periods of time, including Wells Fargo, Nelnet, Chase, Student Loan Xpress, Citibank, T.H.E. Northstar, Wachovia, College Loan Corporation, EdFinancial, and TERI/First Marblehead,” the attorney general’s office said. “In addition to travel, lodging, meals, and gifts, the loan companies treated Lehmann to approximately one or two rounds of golf at most advisory board meetings. Furthermore, Lehmann received travel, lodging, meals, entertainment, and gifts – such as wine, golf accessories, and clothing – as part of the sales and marketing initiatives of those lenders. Lehmann also received thousands of dollars in honoraria from some of the lenders.”

Cuomo’s announcement Tuesday (and Capella’s own) said that university officials had not known about or approved of Lehmann’s consulting arrangement, which violated university policy. Capella said that Lehmann remains on administrative leave.

— Doug Lederman

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Comments

HA HA HA HA HA drexel funny

Of COURSE Drexel used its filthy lucre to aid orphaned waifs. Everyone take a deep breath and repeat after me: MONEY IS FUNGIBLE. We will be enjoying a lot of these stories about the good schools do with opportunity funds/kickbacks in the months ahead.

Friends, the pattern is thus: NASFAA tried to defy the AG, so did Drexel. They crumpled within hours because they had NOTHING to justify their incredibly crass actions. Schools who want to avoid the same fate better come clean sooner rather than later. Then, we can move on to what this fracas is really about: a renewed tug of war over FFELP vs Direct. A pox on both those houses, BTW, but that debate’s for another time.

finaidfollies, at 7:00 am EDT on May 16, 2007

Drexel et al

The reason Drexel caved in was probably the same reason that many other lenders and schools have done so, namely that Cuomo could care less if there are actually problems, he just wants their subservience and their money so he looks good. He threatens to sue and drag the school/company name through the mud if they don’t submit to his powerplay. Look at Nelnet—they settled with the Nebraska AG on terms similar to those sought by Cuomo, but he continues to “investigate” Nelnet because they wouldn’t kneel before him.

OnThePeriphery, at 8:40 am EDT on May 16, 2007

No Laughing Matter

It is unfortunate that “finaidfollies” finds this matter humorous. There is nothing funny about the harm that this entire “witch hunt” will cause to the student borrowers. Lenders will cease offering borrower benefits, aid offices will spend less time counseling them because of an increase in administrative activities, including loan counseling. This whole matter is anything but laughable. Shame on you. As for Drexel and others that have decided to “settle” rather than defend their position, it’s too bad that financial aid offices have to supplement their budgets in order to effectively serve their students. Maybe in the future schools will not cut the financial aid office’s budget so deeply that their desperation trumps their ethics.

Mark, at 8:40 am EDT on May 16, 2007

This whole “student loan scandal” is the result of a perfect storm: the Department’s extremely lax and selective oversight of the FFELP community coupled with an aggressive and opportunistic NY AG who wants to push President Clinton’s direct loan program. Financial aid offices are buried layers down in college bureacracies, and typically have no direct contact with college leaders. Colleges already have codes of conduct that prohibit conflicts of interest, but if nobody’s enforcing them, what good are they? And, BTW, where is NCHELP in all this? Why hasn’t Brett Lief spoken up?

Concerned taxpayer, at 9:45 am EDT on May 16, 2007

REALLY SAD DAY

I agree with you Mark. People have lost their jobs, financial aid professionals have lost their value, loan reps have been referred to as “cronies” in a less than possitive way. I feel really sorry for anyone that loses their job. I don’t want to hear the screams of he deserved it. I just cannot even think he would have ever thought that what he was doing would cause him to lose his job. I feel sorry for any lender rep that has been calling on me for years and I do believe in them wanting to do the best for my office. Who would have ever thought that just because someone took my staff to lunch that I could have been considered on the take. I am not saying I agree with an FAD being on 10 advisory boards. Personally I wouldn’t have time for that. I am not saying I agree with list of picking lenders based on visability. Yet what I am saying is that it is sad that for the 1/2 percent that made bad choices, the rest of us, including my lender friends are being torn apart as evil. People are losing their jobs and students are in the middle asking question and wondering if they were really mislead. What a sad mess this really is. Do you have any idea what it would cost a school to hire a lawyer to fight this? They don’t get the luxury of having tax payers pay for it like Cuomo does. It is free for him to fight it. Does not cost him a red cent. Now we have the great political agenda jumping all over this trying to act like they are going to save the day if they are elected president. bla bla bla. I am sorry but as much as financial aid is under questioning, I am way more questioning politicians. They never have any of us in their best interest and only their own. I have past students calling in about their student loans and asking if they have to pay them back now. Are you kidding me? Students just do not listening when they are coming in and wanting these loans. Just crazy.

AGREE WITH MARK, at 9:50 am EDT on May 16, 2007

This attack is having negative affects

I agree with Mark. Our university is already changing the way we deal with student loan information. We have changed the way we speak with students by stating we have no prefferred lender list. We will certify any lender they choose. But our students are not the most financially savy and the incoming class is frustrated by our lack of direction.

Another staff member I work with jokingly stated he should quit and form a financial aid consulting business. His thought was the lenders could then negotiate with him to generate student volume. This would pull it out of the university regulated setting and allow him to create an even more financially lucrative deal — sort of like car salesmen and their prefferred lenders.

While it was funny at the time, it scares me as an advocate for students. If this idea catches on, are students going to end up paying to get financial aid advice? Are the “financial aid brokers” going to be as regulated as our offices?

If the NY AG had addressed this issue in a different manner, would we have come to some common ground rather than chaos and mistrust it has created?

Beleaguered, Concerned Staff Member, at 10:20 am EDT on May 16, 2007

Drexel’s Flip-Flop

Don’t observers who detect a dollop of grandstanding and ascribe a soupcon of political opportunism to the New York State Attorney General also have to admit that there are real issues here and some revelations fail the sniff test? Contrast that to the picture 20 years ago when members of the “Overlap Group” targeted by Ronald Reagan’s Justice Department were unanimously appalled at what they saw as a blatant attemot to redistribute aid from the poor to the wealthy. Yet only MIT refused to sign a consent agreement on advice of lawyers that discretion was the better part of millions in legal fees — and paid a dear price for its temerity. If practicality did overtake principle at Drexel it was probably with the realization that it is hard — and expensive —for even a Dragon to slay a dragon with all its presumed allies on the sidelines.

Edward Hershey, at 10:30 am EDT on May 16, 2007

Mark hit the nail on the head

Go Mark — you speak the truth. It is a terrible shame that the end result of all of this is going to be underserved students because lenders have had to back away from their partnership with the schools. When I was a Financial Aid Director I relied on the lenders who volunteered to help in our loan counseling programs, staff training opportunities and supplying us with basic office supplies because the budgets were so tight we had to look outside the school for support. None of those actions caused a lender to be on the preferred list. We had published criteria that a lender had to meet in order to be identified as preferred and they included discounts to students and service to the students. It had nothing to do with service to the aid office or a free lunch. The vast majority of Financial Aid officers are trustworthy and fiscally responsible leaders who are advocates for students. The political nightmare has to stop.

Finprin, at 11:10 am EDT on May 16, 2007

Whats really going on

Ok, as I read all you all I can smell that some of you are ffel and the others are fdsl. That is what I smell. The ffel are scared they are going to lose their way of processing and fdsl are afraid they might have to open up their “no lender list ways” to include choice. Then the politicians, well we can smell them right through the computer can’t we? We all know what they are up to. NYAG is gunning for a bigger seat in the White House. We know what the 2008 pres hopefuls want and then we have some place in the middle- students just wanting to get through college “free” What do you mean I took out that much loan money and I have to pay it back?? That mean evil lender. And then to think they took that financial aid office out to dinner, golf and a show. I know they are the ones that got me into this debt so I shouldn’t have to pay it back now right? I got this bill in the mail. It was a loan I took out for a cooking certificate and it had accrued interest over the last 18 months. Now I owe $45k instead of $35k. How dare that horrible lender for doing that to me. Bad bad lender.

Maybe now we can get NYAG to get on the phone companies for raising phone rates. The electric companies for raising electric rates. Gas companies for raising gas rates. Oil companies for raising oil rates. Um lets see what else can I blame for colleges having to raise the cost of tuition due to the rising cost of operating each year? Hum!! I can come up with more stuff I am sure. Maybe if someone could take me to dinner or a round of golf we could come up with some ideas. I am willing to bet Cuomo would go along even if a bank was paying for it if he thought he was going to get some press out of it and a few votes for the White House. For that matter, Edwards would also go after he’s done with his hair cut of $400. We have to wait for his private jet to land. Obama’s and Hillary’s took off ahead of him and he’s late since it took so long for his hair to dry. Michael Moore Want to Be.....

INDIFFERENT, at 11:40 am EDT on May 16, 2007

Disclosure — with competition

Andy Cuomo, Michael Moore, Pat Robertson, et al., believe the public are patsies who need someone to protect them.

Well, if one thing was learned by Hurricane Katrina and noted in the movie “The Pursuit of Happyness” — protect yourself. The calvary is not always going to arrive in time. So:

Borrowers — you are responsible for your signature — do NOT sign unless 99% certain you have best deal for YOU. Not your FAO or college.

FAOs — see above. Just because you are FAO does not mean you are font of all knowledge.

Trustees — have your executive officers and their staffs FULLY disclosed all material facts (e.g., stock holdings, board memberships) to the public, in a timely fashion?

Students: having only one provider (e.g., direct lending) is the fastest way to future problems, IMHO. Just think of the waiting lines at your local post office, or how insolvent Social Security/Medicare really are. Demand that you have options.

L.L., at 2:40 pm EDT on May 16, 2007

OPINION

Okay I posted this same question under a different blog but really want to point out the difference or the difference. I am just an outsider looking in but just had an opinion. Here goes:

I am wondering for the lack of a better way to say this, is using a “preferred lender list” any different than using a preferred lender? When you use a list of preferred lenders, you are listing out a number of lenders with whatever options or programs right? When you don’t use a list then you are most likely using a preferred lender called federal government. Aren’t they both promoting a preferred lender(s)? One just promotes a list of several (meaning more than 2) while the other prefers one so a list of one preferred lender but without the list? I don’t know, it just seems that way to me. So what you are trying to say is that schools that use a “list of several lenders” are most likely promoting a scam? I don’t know — sure seems the pots calling the kettle black to me.

Just kind of doing some of the smell test that some others have suggested.

IHE reader

CANDY APPLE, at 8:00 pm EDT on May 16, 2007

Mark try reading next time

If only Mark had actually responded to the substance of my post. Then he would have had something to say about my amusement that Drexel found it necessary to explain its use of opportunity funds as helping students with ’sudden emergency situations’.

Instead, he conflates my amusement with taking pleasure at the denigration of aid professionals, at the stressful conditions under which they work, and the desperation that parents and students feel at the prospect of paying for college.

If Mark bothered to read any of my other recent posts, he would know that I have voiced sympathy for these beleaguered groups, and others too. Lenders, unsung, do a lot of heavy lifting in this industry. ED professionals labor to make useable sense of the gibberish in the regs.

For this, then, Mark has the moral authority to intone, ‘Shame on you’. Well Mark, I read your post, and here’s what I see:

By my definition, a ‘witch hunt’ takes place when a crusade multiple innocents are charged and found guilty. Sorry Mark, but there’s just too much fishiness out there for anyone to be calling this a ‘witch hunt’.

Whereas I must be compelled by Mark to feel shame for (justifiable) amusement, Mark wholesale excuses offices that ‘have to supplement their budgets in order to effectively serve their students’. He might be right that schools ought not cut FAOs’ budgets, but needn’t conclude that the ‘desperate’ choice of opportunity funds in any way justifies the trumping of their ethics.

finaidfollies, at 10:40 am EDT on May 17, 2007

I think a lot of “us” cheered when we heard that Drexel was going to take on the AG. I know I wanted to believe that this was all just political posturing by the NYAG (not unlike his predecessor). However, sadly, as the facts have come out it does appear that many FAOs across the country exercised questionable ethics in their selection of lenders.

It makes me sad because I believe that “we” hold ourselves to a higher standard than the for-profit world. I think we like to hold ourselves up as above that kind of thing ("Perks don’t influence me” {wink}{wink}). So along comes the NYAG and he finds some pretty bad practices going on and though we’d like to fight but we can’t because he is right.

It is a black eye for sure...

Mike, at 2:25 pm EDT on May 17, 2007

Mark and the Defenders

Dimensionally “making loose ends meet” and ” the motivation of lendors”

are not even in the same chapter. Lendors are not going away and no they are not trying to assist you they are simply trying

to make money from the products they sell to your ethical charges (students) whose own independence is subverted by packaging their purchase within indecipherable prose and its conveyance through the veil of naive pronouncement in too many finacial aid offices.

Robert, at 1:25 pm EDT on May 22, 2007

No surprises about Drexel

This comment comes a bit late, but in the event “you” do come across this, ss someone previously connected with Drexel, I am not surprised by these shananigans. The WSJ—profiling Drexel and its President cited this source and quotation:

“While Drexel is keen to attract top students, there’s a periodic tug-of-war within the Drexel inner sanctum over how much financial aid and scholarship money to offer.

‘It’s the most market-driven institution I’ve ever worked with’ says George Dehne, president of George Dehne & Associates Inc., a consulting firm that specializes in academia.” WSJ 2/23/05

ag, Recovering college professor at Non-mental, at 8:55 am EDT on June 19, 2007

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