Student Aid Financial Conflicts Draw Scrutiny of New York Official
In 2003, Ellen Frishberg, the financial aid director at Johns Hopkins University, turned down free tickets to a Huey Lewis and the News concert. The offer came from Sallie Mae, a private lending company that could profit from romancing aid directors into recommending its loans to students. Frishberg said such offers were common.
"It's an endless stream of invitations," she said in a 2003 interview with U.S. News. "It's quite comical at times."
But on Monday, New York Attorney General Andrew Cuomo's office said Frishberg is one of several student financial aid executives who may have had inappropriate ties to lending companies, part of a widening inquiry about the student aid community. According to Cuomo's office, whose investigation is ongoing, the lender Student Loan Xpress paid Frishberg about $42,000 for consulting and more than $21,000 in tuition reimbursement from 2002 through 2005. During that period, Student Loan Xpress was listed as a Johns Hopkins "preferred lender." In each of the past four years, more than 40 percent of Johns Hopkins's students took out loans through the company. Frishberg, who has been put on paid administrative leave, could not be reached for comment.
According to Cuomo's investigation,which began last year, Student Loan Xpress also paid the financial aid director at Capella University more than $13,000 to work as a consultant and sent a company owned by Widener University's dean of financial aid about $80,000 for fees for conferences attended by Student Loan Xpress representatives. Financial aid officers at three other schools–Columbia University, the University of Texas–Austin, and the University of Southern California–held stock in Student Loan Xpress, Cuomo's investigation found. The U.S. Department of Education official responsible for parts of the student loan program at one point in 2003 owned at least $100,000 worth of stock in Student Loan Xpress's parent company. The three aid officers as well as the federal official have all been suspended.
Cuomo's office has also exposed revenue-sharing agreements that allowed colleges to share lenders' profits, netting some schools thousands of dollars. (The University of Pennsylvania earned more than $1.6 million over a two-year period, and New York University got more than $1.3 million in five years.) More than 30 schools have since settled with Cuomo's office, agreeing to redistribute their profits back to students.
Both Sen. Edward M. Kennedy, the chair of the Senate Education Committee, and Rep. George Miller, chair of the House committee, have launched their own investigations into the relationships between colleges and lenders, as have the Department of Education's inspector general and several other states' attorney generals. In February, Miller and Kennedy introduced legislation that would require "full disclosure" of relationships between lending companies and colleges. That legislation has not yet moved forward.
But what are the effects of these investigations on the price that students pay to go to college? Most students borrow from the federal or state government, not private companies: In 2003-04, only 5.1 percent took out private loans, according to the Project on Student Debt. But the load borrowed from private companies has grown—by 30 percent in 2004-05 alone, says the project—and is likely to keep growing as tuition costs rise and overall debt climbs.
While the rules regarding public grants, like Stafford loans, are plain, the rules governing private loans can be confusing. "There is a very conspicuous lack of guidance in the matter [of private loans]," says Dave Smith, vice president of enrollment management at Syracuse University, one of the colleges that settled with Cuomo's office earlier this month.
Bob Shireman, executive director of the Project on Student Debt, said the investigations could help clear up the confusion, reducing the loans that schools recommend to just those that benefit the students—not a school's bottom line.
"Any time a company gives anything away to a campus," Shireman said, "that [money] could have been offered to students."
What's the best way to navigate the private sphere? USnews.com's Paying for College section has plenty of tips, including:
- Don't be fooled by letters promising to consolidate your loans.
- Don't pay for financial aid advice; it's free!
- A list of interest-free loans.
Kim Clark contributed to this report.
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