Sallie Mae Settles in Student Loan Inquiry
Sallie Mae will give $2 million to the New York attorney general's office and change its practices with college financial aid offices as part of a settlement announced today. Under the agreement, the student loan company will phase out contracts with 19 colleges that allow Sallie Mae employees to work at call centers giving students financial aid advice and also stop covering travel, food, and entertainment expenses for university financial aid officers. In addition, the lending giant will donate $2 million to fund a program that educates students about loan options.
This settlement is the latest development in a group of investigations that could reshape the $85 billion student loan industry. Citibank already settled with New York Attorney General Andrew Cuomo for $2 million earlier this month, and six universities agreed to return to students the funds the schools received from revenue-sharing arrangements with private lenders and end those sharing practices.
The New York attorney general's office is not the only agency examining student loan practices. Aides from Sen. Edward M. Kennedy's office last night sent a letter to the Securities and Exchange Commission questioning whether deals between the former president of Student Loan Xpress and four officialsfinancial aid officers at Columbia University, the University of Southern California, and the University of TexasAustin, and one U.S. Department of Education officialviolated securities law. The financial aid officers have since been suspended from their positions.
The Senate investigation focuses in particular on the way stock was transferred to the four officials. Though former Student Loan Xpress President Fabrizio Balestri filed the transfers as "gifts," the Senate aides say all four officials actually paid for their shares. Balestri acquired the stock through a special kind of arrangement called a "private placement," and such stock is restricted from public sale. The SEC has not responded to Kennedy's request for an investigation.
During the period the officials held Xpress stock, Columbia, USC, and UTAustin all listed that company as a "preferred lender." Student Loan Xpress's market share of Columbia student debt surged from 5.1 percent in 2002 to 12.17 percent in 2006, one Senate aide said.
CIT Group, which owns Student Loan Xpress, on Monday placed SLX's top three officialsincluding Balestrion administrative leave.