Colleges pressed on loan ethics

Gansler wants code adopted as state investigates conflicts

June 12, 2007|By Gadi Dechter | Gadi Dechter,Sun reporter

Maryland Attorney General Douglas F. Gansler asked representatives of Maryland's public and private colleges yesterday to adopt within two weeks a statewide student-loan "code of conduct," governing the relationships between schools and lending institutions.

At a closed-door meeting at the University of Baltimore, Gansler also told the several dozen assembled college officials - among them several presidents - that his office would be requesting documents detailing their historical relationships with student-loan providers.

"We just let them know that we will be talking to each of the schools, public and private, to assure ourselves that ... there were no undisclosed financial relationship between people in their financial aid offices and any of the lending companies," Gansler said after the meeting.

As they walked out of the meeting, some college officials said they expect their institutions to sign onto Gansler's code once the language is tweaked for clarity. And the chancellor of the state university system said he would probably present the code to a committee of the system's Board of Regents later this month.

The meeting marked Maryland's formal entry into an already crowded field of attorneys general and politicians calling for sweeping reform in the wake of scandals that have rocked the $85 billion student-loan industry.

Members of Congress and the U.S. Department of Education have also been looking into whether undisclosed financial arrangements between schools and lenders undermine the best interests of students and their families.

Gansler's proposed code of conduct is almost identical to one established this year by New York Attorney General Andrew M. Cuomo, who spearheaded the investigations when he uncovered revenue-sharing schemes between schools and lenders - arrangements he called "kickbacks" - at several prominent universities.

Gansler's code, like Cuomo's, prohibits colleges and aid officers from receiving "anything of value" from lenders, or from entering into revenue-sharing agreements with preferred lenders.

Among the other conditions of Gansler's code:

College employees are prohibited from receiving gifts or trips from lending institutions.

Financial aid officers are prohibited from receiving payment for serving on lenders' advisory boards.

Colleges must disclose the criteria used to select preferred lenders, and students must be told of their right to borrow from companies not recommended by the school.

Cuomo's aggressive and wide-ranging probe reached into Maryland in April when he disclosed that a top Johns Hopkins University aid official had received more than $60,000 in consulting fees from a lender her office was promoting to Hopkins parents and students.

Ellen Frishberg, Hopkins' veteran director of student financial services, resigned in May after an internal investigation determined that her undisclosed consulting work violated Hopkins conflict-of-interest policies.

Hopkins has already committed to Cuomo's code, and spokesman Dennis O'Shea said yesterday that the private Baltimore university would likely sign onto Gansler's code, as well.

Cuomo and Hopkins have been in negotiations about the problems Cuomo uncovered, though both sides declined to reveal details. Cuomo argues that he has legal standing to sue if students from New York attend a school. Jeffrey Lerner, a Cuomo spokesman, would only say, "We are in discussions with Johns Hopkins. A full settlement or a lawsuit is imminent."

After yesterday's meeting, Tina Bjarekull, president of an association representing 18 of Maryland's private colleges, said she believed her member institutions would agree to Gansler's code, once minor details are ironed out.

"We all have the same interests in mind," she said, "in terms of adopting a code of ethics that guards against conflicts of interest."

The presidents of Goucher College, the Maryland Institute College of Art and the University of Baltimore also indicated yesterday that they expected to sign onto the code.

William E. Kirwan, chancellor of the 11-campus University System of Maryland, said an internal review has so far revealed no major conflicts of interest or ethics violations. But he said he would likely present Gansler's code to the Board of Regents at a scheduled committee meeting this month.

"The board might feel strongly enough that this is the right thing to do and want to establish it as a university system policy," Kirwan said, or it might leave it up to each campus to proceed individually.

Like Cuomo's code - which has been adopted by five major lenders and by more than 25 colleges in several states - Gansler's code focuses on so-called "preferred lender" relationships between colleges and loan companies.

Because of the numerous student-loan providers in the marketplace, most colleges endorse several "preferred" lenders to help students make a selection from the vast field.

The Sun has reported that at some Maryland schools, preferred lenders pick up the cost of printing financial aid brochures and other material. And they sometimes provide personnel to supplement financial aid office staff during peak periods.

A spokesman for Gansler said similar situations were discussed at yesterday's meeting and that the attorney general indicated that as long as the benefits to colleges were of "nominal" value and explicitly disclosed, those arrangements would likely not violate the code's general principles.

gadi.dechter@baltsun.com

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