By Valerie Strauss
Washington Post Staff Writer
Friday, April 13, 2007
College and university presidents in the Washington area are grilling their financial aid directors amid a widening investigation of deceptive practices in the $85 billion student loan industry, school officials said yesterday.
The scandal, centered in New York, touched close to home when a financial aid director at Johns Hopkins University was placed on paid administrative leave this week after receiving pay from one of the loan companies under scrutiny.
"These issues had to bubble up eventually," said Yvonne Hubbard, director of student financial services at the University of Virginia. "They exist, and now Congress will look at the whole student loan industry. It's sad, but necessary."
New York Attorney General Andrew Cuomo has focused on the sometimes cozy relationship between lenders, schools and government officials. Lenders get preferential treatment on campus while school officials are rewarded with money, company stock and other perks.
The two largest student lenders, Sallie Mae and Citibank, on Wednesday agreed to no longer pay travel and entertainment expenses for university officials. Cuomo has sent letters to more than 400 schools nationwide urging them to end questionable dealings with lenders. And financial aid directors at six universities, including Johns Hopkins, have been suspended, as has a U.S. Department of Education official in the unfolding scandal.
Officials at Howard University, the University of Maryland, American University, the University of Virginia and other schools said that reviews of their financial aid operations have revealed none of the practices that have come under scrutiny. None reported being contacted by Cuomo.
"We have surveyed our current financial aid staff and confirmed that none of our financial aid staff serve as consultants to private lending institutions, serve on their boards of directors, own any shares of stocks, or maintain any other kind of relationship that would result in prohibited behavior under the University's Code of Ethics and Conduct," Howard University President H. Patrick Swygert said in an e-mail.
"We have no reason to believe we have anything to be concerned about," said George Washington University President Stephen Joel Trachtenberg.
Cuomo has targeted deceptive practices that lead to a particular lender being placed on a school's "preferred lender list" for students seeking advice on a loan. Many area schools said committees -- not single individuals -- decide which companies will be on the preferred lender lists.
Sarah Bauder, financial aid director at the University of Maryland, said she stays out of the decision. The school has a complicated system of choosing lenders that involve qualitative and quantitative data obtained from surveys of lenders and loaners, she said.
"There are no outside influences," she said. "Taking me to lunch has no influence on whether you get on the list or not."
Most schools have lists with multiple loan lenders, but the University of Virginia has only one, Bank of America.
"We know how students choose loans, and it is not well," Hubbard said. "If the school is going to have a preferred lender, we had better believe that it is the best you can probably get, and that's what we really believe we have negotiated with the Bank of America. U-Va. gets nothing from this, no recompense in any way."
The probe at Johns Hopkins centers on longtime director of student financial services Ellen Frishberg, who was placed on paid administrative leave after the parent company of Student Loan Xpress Inc., a specific target of Cuomo's, said Frishberg had been paid about $65,000 in consulting fees and $1,200 in travel expenses since 2002.
Frishberg could not be reached for comment. Johns Hopkins spokesman Dennis O'Shea said that the probe is continuing.
Financial aid directors across the country privately expressed dismay, saying Frishberg has long been a vocal advocate for sound practices and is one of the most respected officials in the profession.
Brian Lee Sang, financial aid director at American University, said he believes that only a small fraction of industry officials are involved in deceptive practices and that he hopes everyone is not tarnished by the investigation.
"Look at what they are saying about the industry, about our ethics," he said. "I'm insulted by it."