Correction to This Article
An April 24 article in the Business section may have left the impression that 8Career Education Corp. began steering students toward the lenders Sallie Mae and Wachovia after the lenders paid $21,000 to 8Career Education's scholarship fund. Sallie Mae and Wachovia were already on 8Career Education's preferred-lender's list at the time of the donation.

3 Schools Settle Lending Charges

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By Amit R. Paley
Washington Post Staff Writer
Tuesday, April 24, 2007

Attorneys general across the country have begun forcing universities and student loan companies to revamp their business practices as part of a burgeoning nationwide investigation into the $85 billion-a-year student loan industry.

The attorneys general in Illinois and Missouri joined yesterday with New York Attorney General Andrew M. Cuomo, who launched the loan probe last year, to announce multi-state settlements with Washington University in St. Louis and two of the largest for-profit schools in the nation. The Nebraska attorney general settled with lending giant Nelnet last week.

With more than 40 state attorneys general coordinating with Cuomo's office on the investigation, experts expect far more agreements and revelations of financial conflicts of interest between lenders, universities and government officials.

"The tide is turning," Cuomo said yesterday in a news conference, during which he called the loan scandal "one of the greatest injustices that have been done to the American people." He added: "I'm very proud that attorneys general across the country are stepping up to the plate."

The three schools that settled yesterday -- Washington University and for-profit schools DeVry University and Career Education Corp. -- agreed to a code of conduct developed by Cuomo's office that bars student loan companies from offering perks to university financial aid officials, sending company staff to work for free in financial aid offices or paying schools to steer students to their loans.

Devry University, an Illinois-based school with more than 52,000 students at 84 locations in the United States and Canada, acknowledged that it received more than $88,000 from Citibank, which the school encouraged students to use as a lender.

As part of the settlement, the school will pay that money back to students who took out loans with Citibank while the revenue-sharing was taking place.

Illinois Attorney General Lisa Madigan disclosed that Sallie Mae and Wachovia paid more than $21,000 to Career Education, which then steered its students to take loans from those lenders. The Illinois-based school, which has 90,000 students at 75 campuses around the world, then put the lenders' money toward scholarships. As part of the settlement, the school will contribute the money to a national fund to educate students and parents about loans.

At Washington University, the school entered into an agreement with Education Finance Partners, a lending company, to share part of the company's profits from loans taken out at the school. But the university did not receive any income because only three students took out loans with the company.

All three schools denied any wrongdoing.

Also yesterday, the Department of Education released new details about the No. 3 official at the agency, who reported holdings of more than $10,000 in student loan companies on her financial disclosure forms. The Washington Post reported on Saturday that the official, Sara Martinez Tucker, the agency's undersecretary responsible for financial aid and higher education, disclosed the shares of stock on forms filed in October 2006.

Katherine McLane, a department spokeswoman, said she learned after publication of the article that the holdings were part of a 401(k) that belonged to Martinez Tucker's husband. She said the shares were sold in November shortly before Martinez Tucker, who has declined to comment about the holdings, was confirmed by the Senate.


© 2007 The Washington Post Company

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