Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

New Regulations Adopted to Stymie Loan Fraud

In the wake of nationwide scandals involving improper relationships between colleges and student loan companies, Georgetown and other local universities have adopted a more reasonable code of conduct for dealing with private lenders.

Under the agreement, which was facilitated by the District of Columbia’s Office of the Attorney General, university financial aid employees may not accept gifts, trips or lodging from student loan companies worth more than the value of their work as consultants for such companies. Financial aid officials also may not receive compensation for sitting on loan company advisory boards.

Furthermore, universities cannot hire student loan company employees to work in their financial aid offices. Universities are also prohibited from accepting anything of value from lenders in exchange for marketing advantages.

The code also establishes disclosure requirements for universities’ preferred lender lists and prohibits universities from arranging with loan companies to provide opportunity loans if such loans prejudice any other borrower. Opportunity loans are loans offered to students with poor or no credit history and international students who loan companies claim are ineligible for other types of loans.

The code does not apply to non-employee trustees or directors of universities.

Last year, Georgetown was forced to cut ties to Student Financial Services after New York Attorney General Andrew Cuomo accused the company of paying 63 university athletic departments, including Georgetown’s, for the right to use their logos, mascots and clothing and deceiving students by acting as though the lender was affiliated with the university.

Student Financial Services was found to use revenue sharing, in which the company would pay $75 to a school for each loan application received from it. Revenue sharing is explicitly banned under the D.C. code.

But university spokesperson Julie Bataille said the code reinforces practices already in place at Georgetown.

“This code originated from the D.C. Attorney General’s office, as I understand it, not in response to any particular issue but from conversations with many of the local universities in order to provide a common understanding of what was taking place in D.C.,” she said.

Last year, the U.S. Senate issued a 600-page report detailing allegedly illegal practices by student loan companies to increase business. The report cites numerous incidents, including Citizens Bank taking university officials to Disney World for a 2006 meeting and paying for tours of the park, rounds of golf and a $4,100 dinner. In 2005, Texas Tech University allegedly told student loan companies that they could be listed as preferred lenders if they paid $500 to the school, the report said. And Citibank was added to the University of Texas at Austin’s preferred lender list after a university official accepted a post on the company’s advisory board.

Former Johns Hopkins University Student Financial Services Director Ellen Frishberg accepted $130,000 from eight lenders during her tenure, according to the Washington Post.

Cuomo’s investigation led to several settlements in New York and elsewhere, prompting the development of a code of conduct for lending practices and resulted in increased scrutiny of the relationships between universities and lenders.

In response to these allegations, Congress passed the College Cost Reduction and Access Act, which reduced subsidies to student loan companies. The law took effect last September.

The code, which was signed earlier this month and takes effect on Monday, was also signed by American University, Catholic University, Gallaudet University, the George Washington University, Howard University, Southeastern University, Trinity University and the University of the District of Columbia.

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