The Financial Aid Fiasco
Colleges and lenders settle in New York, but probes continue
Colleges saw the benefits, too. Syracuse University had a revenue-sharing arrangement with Citibank from 2003 to 2006, covering some $32.6 million in loans. The school received $164,000 in referral fees, which they now must disburse to students as part of a settlement with Cuomo. David Smith, vice president for enrollment management at Syracuse, says Citibank was offering lower rates than the competition. "Our assumption was Citibank took lower profits" on the loans. While such arrangements are illegal for federally subsidized loans, "there is a very conspicuous lack of guidance in the matter" of private loans, says Smith.
Already under fire for high tuition, disappointing graduation rates, lack of access for poor and minority students, and ruthlessly competitive admissions, the last thing higher education needs is a scandal over student loan processes. Some education watchers worry that poor students now will be even more reluctant to seek loans in light of the investigations. "For many poor families, the whole process is a witch's brew that they don't well understand, and this is only going to make people more suspect," says Sean Callaway of Pace University.
The government is suspicious, too. Cuomo is continuing his investigation into several lenders and multiple universities, and Congress also is beginning to ask questions about the relationships. Sen. Ted Kennedy's Education Committee is looking into stock deals between a lending company and four officials-one from the U.S. Department of Education plus the university aid directors at Columbia University, the University of Southern California, and the University of Texas-Austin. Cuomo, meanwhile, will testify at hearings before the House Education and Labor Committee, which is investigating the loan industry, at the end of this month.
With Kim Clark and Elizabeth Weiss Green
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