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From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
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And I'm Melissa Block.
New York Attorney General Andrew Cuomo is investigating the $85 billion-a-year college loan industry. Earlier this week, Cuomo announced a settlement with Citibank and seven universities in which the schools acknowledged they received kickbacks for steering student loan business to the bank. Now the probe is widening. Investigators say at least three financial aid officers owned stock in a loan company they recommended as a preferred lender.
NPR's Nancy Solomon reports.
NANCY SOLOMON: This is the week many college students learn whether they'll get financial aid and begin to look for loans to pay for their education. Many families receive mailings from the schools recommending preferred lenders, and 90 percent of those families go with the schools recommendation.
But the way loan companies get on to that list may not be in the best interest of the students. Benjamin Lawsky of New York Attorney General's Office has uncovered payments to universities by the lenders on those lists.
Mr. BENJAMIN LAWSKY (Special Assistant to New York Attorney General): When students are misled into thinking, hey, this preferred lender list should be preferred by me, the student, when in reality it's preferred by the college.
SOLOMON: Citibank agreed Monday to stop the practice and spend $2 million on a public education campaign. Seven universities, including NYU and the University of Pennsylvania, have agreed to pay students back the money they received from Citibank for sending them business.
But now the top financial aid officers at three other schools - Columbia, University of Texas and the University of Southern California - are under investigation for ties to Student Loan Xpress by the New York attorney general.
Mr. LAWSKY: The top people in those offices were taking stock from a company who was on the preferred lender list. We know, in the case of at least one of them, the person getting the stock was the person in charge of creating the preferred lender list all on his own. And he was holding the stock.
SOLOMON: These revelations come as no surprise to at least one lender. Raza Khan, president of the company My Rich Uncle ran advertisements warning students to question the financial aid office about recommended loan companies. Khan says his company was rejected as a preferred lender because, he says, he wasn't offering cash incentives.
Mr. RAZA KHAN (President, My Rich Uncle): Those kickbacks are being paid for by the students, and not just once. Those students are paying the interest on those kickbacks for the life of a loan. And every dollar, when it comes to loans, is expensive.
SOLOMON: The investigation has also found that calls to some financial aid offices ring directly to a loan company call center. Investigators are also looking at accusations of lavish gifts, junkets and parties for financial aid officers.
Securities and Exchange Commission reports show Lawrence Burt, the director of financial aid for the University of Texas in Austin, sold 1,500 shares of stock in Education Lending Group, which owns Student Loan Xpress, a preferred lender. He says he paid one dollar a share and two years later sold for $10 per share. But Burt says the process of determining lenders isn't tainted.
Mr. LAWRENCE BURT (Financial Aid Director, University of Texas): Right now, I get input from several staff members about the lenders who are on the lender list. Have they done a good job? Did they continue to provide the best benefits for students? Have we had any processing issues? Perhaps we'll change that a little bit and make the decision not rest on me, and that may not be a bad idea.
SOLOMON: At Columbia University, the financial aid director has reportedly been put on leave. The National Association of Student Financial Aid Administrators says the purchase of stock may not necessarily be evidence of improper conduct, but they concede it does present an appearance of conflict of interest.
Nancy Solomon, NPR News, New York.
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