Student Loan Probe Expands to Include Alumni Associations
Friday, May 4, 2007
The New York attorney general has broadened his investigation into the student loan industry to discover whether university alumni associations are steering graduates toward a major loan company in exchange for payments from the lender.
The lender, Nelnet, said it has agreements with about 120 alumni associations across the country, including those affiliated with the University of Maryland and Old Dominion University in Virginia. Nelnet said it typically pays the associations in return for data used to mail marketing materials to graduates.
"Unfortunately it appears that student loan scams don't end at graduation," New York Attorney General Andrew M. Cuomo said yesterday in a statement. "Our investigation seeks to put an end to kickback schemes and payoffs that benefit lenders and their partners -- be they schools or alumni associations -- at the expense of students trying to control their debt."
Nelnet, a Nebraska-based company that targets loan consolidations, denied wrongdoing but said it will begin to disclose to customers whether it pays fees to their alumni associations "to eliminate any potentially perceived conflict of interest."
The company added in a statement: "These relationships provide valuable information and opportunities to alumni regarding student loan consolidation, as well as generating income that helps alumni associations carry out their mission."
The new focus on alumni groups widens a nationwide probe of the $85 billion-a-year loan industry that has focused on financial ties among lenders, universities and government officials. Cuomo has said he is seeking to uncover potential violations of consumer protection law, acting on behalf of students from his state who attend schools nationwide.
The attorney general's office said it has begun sending subpoenas and information requests to 90 alumni groups across the country, which it declined to identify, but the six alumni groups and schools in the Washington region that have relationships with Nelnet said they have not received any.
Nelnet said its alumni partners also include those affiliated with Bowie State University, the Community College of Baltimore County, James Madison University in Virginia and Southeastern University in the District.
Millree Williams, a University of Maryland spokesman, said the school's alumni association entered into an arrangement with Nelnet in 2002. He said the association provides Nelnet with its alumni list, which the company uses to market consolidation services to anyone who graduated in the previous decade.
Williams declined to discuss how much Nelnet pays the alumni group or any other details, citing a confidentiality clause in the contract.
Dana Allen, assistant vice president for alumni relations at Old Dominion, said its alumni association has worked with Nelnet since 2003 and provides mailing information to the company for marketing purposes. She declined to disclose specifics of the arrangement but said it benefits alumni.
"The funds received as a result of the contract are put back into alumni programs," she said.
Nelnet pays Bowie State a flat fee of less than $10,000 a year, according to Monie Broadus, the assistant vice president for alumni relations at the school, which began a relationship with Nelnet last year. She said the school sends marketing materials to seniors and recent graduates.
Ashley Privott, director of the alumni association at James Madison, said Nelnet has paid the group an annual flat fee, which she declined to disclose, since 2004 in exchange for a mailing list of recent graduates.
The chief financial officer of Southeastern, Peter Canine, said the school recommended Nelnet as a loan consolidator but did not receive payment for doing so. He said the recommendation was not tied to the school alumni association.
At the Community College of Baltimore County, Stephanie Melvin, director of alumni relations, said she agreed to distribute Nelnet information for free.
"They approached me about sending out information to graduates about student loan consolidation, and I said, 'Okay, it sounds like a good idea,' " said Melvin, who is now reviewing the arrangement.