High-ranking financial aid officers at three major universities owned stock in a loan company they recommended as a "preferred lender," according to New York Attorney General Andrew Cuomo.
Earlier this week, Cuomo announced a settlement with Citibank and seven major universities, in which the schools acknowledged they received kickbacks for steering student-loan business to the bank. Now the probe of the $85 billion college-loan industry is widening.
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 school recommending "preferred lenders" — 90 percent of those families go with the school's recommendation.
Benjamin Lawsky of the New York attorney general's office uncovered payments to universities by the lenders on those lists.
Citibank agreed Monday to stop the practice and to spend $2 million on a public education campaign. Seven universities — including New York University and 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.
The revelations came as no surprise to at least one lender. Rahza 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.
"Those kickbacks are being paid by the students," Khan says.
The investigation has also found that calls to some financial aid offices ring directly to a loan company call center. Investigators are looking into 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 $1 per share; two years later, he sold for $10 per share.
But Burt says the process of determining lenders isn't tainted.
At Columbia University, the financial aid director has reportedly been put on leave. The National Association of Financial Aid Administrators says the purchase of stock may not necessarily be evidence of improper conduct, but they concede that it presents an appearance of conflict of interest.