Cuomo: School Loan Corruption Widespread

New York Attorney General Andrew Cuomo speaks during an interview in Colonie, N.Y., Tuesday, April 10, 2007. Cozy arrangements between colleges and the companies that loan their students billions of dollars are far more widespread than anticipated, Cuomo told The Associated Press Tuesday. (AP Photo/Mike Groll) (Mike Groll - AP)

Financial aid director Timothy Lehmann was put on paid administrative leave after Cuomo's office said he received more than $13,000 in fees from the company. Capella President Michael Offernan says Lehmann disclosed the payments last Friday.

The school is cooperating with Cuomo's office and doing an internal investigation as well, Offernan said.

"No one is even defending the situation anymore," he said.

Cuomo said he suspects "dozens" of financial aid officers around the country have similar arrangements that he has called deceptive, unethical and at times, illegal.

Last week, Cuomo sent subpoenas to SLM Corp., commonly known as Sallie Mae, requesting information on any current or former employees who had worked at the Education Department over the past six years.

In some cases, investigators said, lenders provided all-expense-paid trips for college financial aid officers to exotic locations. Financial aid officers at schools in some cases served on loan company advisory boards, Cuomo said.

Cuomo said the arrangements are particularly predatory because of the relationship between students and the colleges they pick.

"Ninety percent of the students take the 'preferred lender,'" he said. "Why? Because that's the nature of the relationship. You trust the school. The school is in a position of authority. The school is there to nurture you."

Cuomo said various officials have been examining the issue for about a year but his investigation was spurred after a lender came to him to complain about the domination of a few lenders in the lucrative market. Cuomo would not name the lender.

"The new lenders were saying because they weren't doing the conferences, they didn't have these relationships with financial aid offices, they weren't willing to do or hadn't been doing the financial aid incentive," Cuomo said. "They couldn't even compete."

The attorney general said he has talked with lawmakers in Washington _ including Sen. Edward Kennedy, D-Mass., who heads the Senate Health, Education, Labor and Pensions Committee, about new legislation to rein in the student loan industry.

"There hasn't been enough supervision," he said. "There hasn't been enough regulation."

Earlier this year, House Democrats in Washington introduced a bill that would ban gifts from lenders to college employees and would require lenders to disclose the terms of their arrangements with colleges and universities.