UMES named in student-loans probe

Fla. company created revenue-sharing plan involving 63 colleges

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

The University of Maryland Eastern Shore is among 63 colleges that participated in a "deceptive" revenue-sharing scheme with a Florida student-loan marketing firm, New York's attorney general said yesterday.

Under the partnerships, Clearwater, Fla.-based Student Financial Services Inc. paid universities and athletic departments for the right to use college mascots and trademarks in marketing federal-loan consolidations to students, said New York Attorney General Andrew M. Cuomo. Campuses typically also received payments of $75 to $100 for each loan application processed.

"This is just about the worst of the situations that we've been talking about all year long," Cuomo said at a news conference. "A private company masquerading as the school ... is in our opinion a deceptive practice. The school's mascot becomes a wolf in sheep's clothing."

The settlement announced yesterday is the most recent in Cuomo's yearlong investigation of the $85 billion student-loan business, which has uncovered many financial relationships that have tarnished the industry -- from stock options to campus aid officials to payments for steering students to "preferred" lenders. Many financial aid experts and politicians have decried such arrangements, saying they place the best interests of students behind the profit motive.

Under the settlement, Student Financial Services agreed to terminate such sponsorships and abide by a voluntary "code of conduct." Company officials did not return requests for comment yesterday, but as part of the settlement, it denies having broken any law.

UMES is the only Maryland college named in Cuomo's announcement, but many big-name schools -- including Georgetown University and the University of California, Berkeley -- struck similar deals.

Partnerships typically were made with athletic departments, Cuomo said, and of the 63 schools, 57 have NCAA Division I sports programs.

Student Financial Services is not a lender. It is an intermediary that directly markets to students the opportunity to refinance a package of federally backed student loans into one loan with a single monthly payment. The consolidated loans are then sold to major lenders, such as Wells Fargo Bank.

"This was purely a monetary transaction," said Benjamin Lawsky, Cuomo's deputy counselor and special assistant. "SFS simply bought the rights to exploit the students' trust in their schools and the students' enthusiasm for their teams. There was no evaluation of the terms of the ... loans."

That appears to be the case with UMES. Officials at the campus in Princess Anne reacted yesterday with disbelief at Cuomo's announcement. Financial aid director James W. Kellam and Vice President for Administrative Affairs Ronnie Holden said they were unaware of the contract and said that it would not have passed muster with them.

It turns out that the school's contract was signed in January by Danita Townsend, a midlevel administrator in the athletics department. Holden said Townsend's boss, athletic director Keith Davidson, was not aware of the arrangement.

"She was enticed because it was considered a fundraiser," said Holden, who declined to discuss any disciplinary action UMES might take.

The contract was terminated in October by SFS -- by then under Cuomo's investigation -- and no money changed hands under the agreement, according to Holden. Unlike most of the colleges involved, UMES did not receive an upfront payment of about $15,000 in exchange for the right to use its name in marketing materials.

Among the terms of the UMES contract:

The Florida company had permission to distribute its advertisements "throughout campus, including bookstores, student unions and/or other meeting places."

UMES would provide the marketer with athletic department interns to "to assist with promotion distribution at events."

Student Financial Services would be referred to as "Official Student Loan Consolidation Provider of University of Maryland -- Eastern Shore Athletics."

Loan consolidations are a major part of the student loan industry, said Mark Kantrowitz, publisher of, a financial aid Web site. In the 2006-2007 academic year, more than $36 billion in federally backed student loans were refinanced as consolidations, he said.

Kantrowitz called the scheme uncovered by Cuomo "an abuse of trust" between the colleges and their students.

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