State's colleges sign code of conduct

Rules govern ties with student lenders

June 23, 2007|By Gadi Dechter | Gadi Dechter,sun reporter

The governing body of the University System of Maryland directed its 11 member campuses yesterday to adopt a student loan "code of conduct," joining the state's private and community colleges in accepting the voluntary guidelines.

The code generally prohibits colleges and their aid officers from benefiting financially from lenders endorsed by the school.

The statewide initiative is Maryland's response to national investigations into cozy relationships between many colleges and lenders. Maryland Attorney General Douglas F. Gansler had asked colleges in the state to accept the rules by yesterday.

"I'm not aware of any other state that has done this in a wholesale fashion, in terms of getting all public and private colleges to voluntarily commit" to restrictions on their relationships with lenders, Gansler said.

The Maryland code is very similar to one established this year by New York Attorney General Andrew M. Cuomo, whose probe into conflicts of interest between schools and the $85 billion student loan industry has led to federal investigations and dismissals of at least four top college officials.

Among the Maryland code's key provisions:

Colleges may not receive "anything of value" from lenders in exchange for appearing on a school's "preferred lender list."

Financial aid officers may not take anything of "more than nominal value" from lenders.

Colleges may consider only the best interests of students when compiling a preferred-lender list.

Colleges must disclose the criteria and process used to select preferred lenders.

Several state attorneys general have been pushing similar measures. The Missouri attorney general announced this week that he has persuaded 12 universities to adopt a student loan code of conduct, and he hopes to eventually sign up all 60 or so colleges in the state. The attorneys of Florida and Minnesota are considering similar codes of conduct, officials said.

At Cuomo's urging, the New York Legislature has taken the strongest action yet, recently passing the Student Lending Accountability, Transparency and Enforcement Act of 2007, which codifies Cuomo's code of conduct into state law.

This week, attorneys general from 31 states sent a joint letter to U.S. senators urging passage of the pending Student Loan Sunshine Act, which would cement in federal statute many of the provisions in the state codes of conduct. Gansler did not sign that letter, but he sent a separate letter to Washington supporting the bill, said Steven A. Silverman, chief of the attorney general's consumer protection division.

At a Board of Regents meeting yesterday in College Park, the university system's governing board voted to support Gansler's code of conduct. "It's a good policy, and it reflects the way we think business should be conducted," said regent Chairman Clifford M. Kendall after the vote.

Student leaders welcomed the decision.

"I'm very pleased that they have recognized the need to ensure that students and families who borrow money to finance a college education are protected," said Devin Ellis, a UM graduate student who chairs the university system's student council.

Widespread calls for sweeping reform of the student loan industry began in March, when Cuomo disclosed revenue-sharing arrangements between schools and lenders - which he called "kickbacks" - at several prominent universities.

He also uncovered several situations in which top financial aid officers had lucrative consulting relationships with loan companies who were on the school's so-called "preferred lender lists." The problem with too-close relationships between lenders and colleges, critics say, is that they might provide the schools with an incentive to steer borrowers away from other lenders with better interest rates or lower fees.

Though most student loans are federally backed products with interest rates capped by the government, private providers compete on fees, repayment terms and customer service.

Congress is considering legislation that could usher in major changes to the student loan industry, including substantial subsidy cuts to private lenders.

Among Cuomo's early targets was Ellen Frishberg, a financial aid director at Baltimore's Johns Hopkins University, who received over four years about $65,000 in consulting fees from a lender her office was promoting. Frishberg resigned in May.

Last week, Hopkins agreed to contribute more than $500,000 to Cuomo's "national education fund" in order to avoid a threatened lawsuit by the New York attorney general. Under the settlement, Cuomo will monitor Hopkins' financial aid operations for five years.

Gansler said he will investigate whether other Maryland schools had similar problems in their financial aid offices.

An internal investigation by the University System of Maryland has uncovered no evidence of unethical behavior or conflicts of interest in the financial aid offices of the system's public colleges, officials said.

gadi.dechter@baltsun.com

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