NEW YORK (Legal Newsline) - Federal lawmakers have passed legislation that will further protections for students from the college loan industry, picking up on a quest started by New York Attorney General Andrew Cuomo.
Congress on Thursday passed the Higher Education Opportunity Act of 2008, modeled after the Code of Conduct that Cuomo created and into which several leading student lenders joined prior to the legislation.
"This historic legislation allows the rest of the nation to follow New York State's lead in cracking down on the deceptive student loan industry," Cuomo said.
"Last year my office's investigation set the benchmark for reining in unscrupulous student lenders, who we discovered were all too intent to ensnare students in loan packages that left them drowning in unnecessarily high debt. (Thursday's) legislation will make it easier for millions of students to afford a college education."
Cuomo's investigation focused on alleged inappropriate relationships between lenders and schools. He alleged that Education Finance Partners, against whom he filed his first lawsuit and with whom he eventually settled, was put on schools' "preferred lender" lists because it offered a cut of its profit to those schools. EFP settled those allegations.
Eventually, he settled with dozens of colleges and universities, as well as each of the five largest student loan providers in the country -- Sallie Mae, Citibank, JP Morgan Chase, Wells Fargo and Bank of America. Each agreed to abide by Cuomo's College Loan Code of Conduct and paid a total of $9.5 million to a fund designed to educate future college students about their loan choices.
In April 2007, he criticized the federal Department of Education for not enforcing its own regulations as he testified before a House committee.
"My investigation has shown that even where the DOE regulations did exist with respect to the (Federal Family Education Loan Program), there is significant evidence suggesting these regulations were flouted. For example, one school my office investigated had a preferred lender list of four FFELP lenders, without disclosing that one of the lenders had an agreement to purchase the loans placed by the other lenders on the list," Cuomo said.
"The State University of New York had a college which required students to pick a particular FFELP lender as their Stafford lender."
In October, he began an investigation into those that marketed student loans.
The Higher Education Opportunity Act addresses, Cuomo said, widespread conflicts of interest in the student loan industry by requiring colleges and universities to develop a code of conduct with respect to federally guaranteed loans that:
-Prohibits "revenue sharing," a practice where a lender provides a payment or other benefit to a school in exchange for the school's promise to recommend that lender to students;
-Prohibits financial aid officers from accepting any favors, meals, entertainment, or other gifts from a lender;
-Prohibits financial aid officers from assigning first-time borrowers to particular lenders and from refusing to certify loans based on a borrower's selection of a particular lender; and
-Prohibits the college and university from using a lender's employees to staff the financial aid office or a financial aid call center.
The Act also includes requirements related to private loans, such as:
-Prohibiting private lenders from offering gifts or other items of value to colleges or financial aid officers in exchange for advantages related to the lenders' loan activities;
-Prohibiting private lenders from charging prepayment or repayment penalties;
-Prohibiting misleading 'co-branded' marketing, where a lender or marketer uses a school's name, emblem, mascot, and/or logo to create the false impression that the school has endorsed the lender;
-Requiring private loan providers to inform borrowers of the availability of federal aid and the interest rates available in connection with federal loans; and
-Requiring private loan providers to provide uniform, detailed, and timely disclosures to borrowers regarding the interest rate and other terms of offered loans, enabling borrowers to better understand the cost of their loan and to comparison shop for the best deals.
From Legal Newsline: Reach John O'Brien by e-mail at firstname.lastname@example.org.