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Trenton,
NJ – Attorney General Anne Milgram
announced today she had sent a code of conduct
for state colleges and universities to prohibit
the schools from having financial relationships
with student loan providers.
The code addresses questionable practices
in the student loan industry and seeks to
protect students and parents from potential
conflicts of interest and deceptive marketing
that would steer students to more expensive
loans.
The
code was written and distributed to higher
education institutions in New Jersey as
an investigation by the Attorney General’s
Office and the Division of Consumer Affairs
continues into potential conflicts between
the lenders and schools.
The
code prohibits colleges and universities
from accepting anything of value from any
lending institution and prohibits lenders
from paying for, or reimbursing, college
employees for lodging, meals or travel to
conferences or training seminars related
to loan programs.
The
code also declares that the college’s
decision to include a lending institution
on a preferred lending list should be determined
solely by the best interests of the borrowers.
In addition, no employee of a lending institution
should be identified to students as an employee
of the college.
Colleges
should not solicit or accept any discounted
computer software to manage student loan
accounts from one lender unless the software
can manage accounts for all lending institutions.
“The
key is to be sure that no student is steered
to a so-called preferred lender simply because
the college has a special deal with the
lender,’’ Attorney General Milgram
said. “What should be most important
is that students get the best loan terms
possible. Preferred lender lists shouldn’t
be lists masking hidden costs. Universities
shouldn’t put their own interests
ahead of their students.’’
Milgram
asked the higher education institutions
to adopt the code voluntarily as the investigation
continues.
In
May, following reports from other New York
and other states that lenders made payments
to have colleges promote specific loan companies
to students, the Attorney General issued
subpoenas to 66 universities, colleges,
and technical schools in New Jersey asking
for information related to preferred student
lender programs. The New Jersey Higher Education
Student Assistance Authority (HESAA) and
17 student loan providers were also subpoenaed.
The subpoenas sought information related
to any revenue sharing agreements or agreements
to promote lenders in exchange for benefits
financial aid officers may have received,
including direct payments, dinners, golf
outings and travel. The subpoenas also sought
to determine whether school financial aid
officers had more direct relationships with
lenders such as sitting on advisory boards.
New
Jersey Student Loan Code of Conduct
for Institutes of Higher Education
1
Prohibition Against Certain Remuneration
to the College
1.1 The College shall not solicit, accept,
or agree to accept anything of value from
any Lending Institution in exchange for
any advantage or consideration provided
to the Lending Institution related to
its Student Loan activity. This prohibition
shall include, but not be limited to:
1.1.1 Any Revenue Sharing agreements;
1.1.2
The College’s receipt from any
Lending Institution of any computer
hardware for which the College pays
below market prices; and
1.1.3
Printing costs or services.
1.2 The prohibition of Section 1.1 shall
not be constructed to prohibit the College
from soliciting, accepting or agreeing
to accept favorable terms or conditions
of a Student Loan inuring directly to
Borrowers.
1.3 The College shall not solicit, accept,
or agree to accept from any Lending Institution
any computer software for the electronic
management of Student Loan disbursements
unless such software can manage Student
Loan disbursements from all Lending Institutions.
1.4 Notwithstanding anything else in this
Code of Conduct, the College may accept
assistance as contemplated in 34 CFR 682.200(b)(definition
of Lender)(5)(i).
2
Prohibition Against Remuneration to College
Employees
2.1 The College shall require and ensure
that no officer, trustee, director, employee,
or agent of the College accepts anything
more than nominal value on his or her
own behalf or on behalf of another during
any 12 month period from, or on behalf
of, a Lending Institution.
2.2 The prohibition of 2.1 shall include,
but not be limited to, a ban on any payment
or reimbursement by Lending Institutions
to any College employee for lodging, meals,
or travel to conferences or training seminars.
2.3 The prohibition of Section 2.1 shall
not be constructed to prohibit any officer,
trustee, director, employee, or agent
of the College from conducting non-Student
Loan business with any Lending Institution.
3
Limitations on College Employees Participating
on Lender Advisory Boards
3.1 The College shall prohibit any officer,
trustee, director, employee, or agent
of the College from receiving any remuneration
for serving as a member or participant
of an advisory board of a Lending Institution,
or receiving any reimbursement of expenses
for so serving provided, however, that
participation on advisory boards that
are unrelated in any way to Student Loans
shall not be prohibited.
3.2 The prohibition of Section 3.1 shall
not prohibit any officer, trustee, director,
employee, or agent of the College, who
is uninvolved in the affairs of the College’s
financial aid office, from serving on
a Board of Directors of a publically traded
or privately held company.
4
Preferred Lender Lists
4.1 The College shall not provide or otherwise
disseminate or make available a Preferred
Lender List that:
4.1.1
is used to deny or otherwise impede
a Borrower’s choice of lender;
or
4.1.2
contains fewer than three unaffiliated
Lending Intuitions.
4.2 Every brochure, web page or other
document that sets forth a Preferred Lender
List must disclose in plain language the
process by which the College selected
lenders for the list, including but not
limited to the criteria used in compiling
the list and the relative importance of
those criteria.
4.3 Every brochure, web page or other
document that sets forth a Preferred Lender
List or identifies any lender as being
on said Preferred Lender List shall state
in the same font and same manner as the
predominant text on the document that
a Borrower has the right and ability to
select the Lending Institution of his
or her choice, is not required to use
any of the lenders on the Preferred Lender
List, and will suffer no penalty or unnecessary
delay by the College for choosing a lender
that is not on the Preferred Lender List.
4.4 The College’s decision to include
a Lending Institution on any Preferred
Lender List shall be determined solely
by consideration of the best interests
of Borrowers who may use the Preferred
Lender List, without regard to the pecuniary
interests of the College.
4.5 The composition of any Preferred Lender
List shall be reviewed and updated at
least once a year by the College.
4.6 No Lending Institution shall be placed
on any Preferred Lender List unless the
Lending Institution provides assurance
to the College and to Borrowers that advertised
benefits upon repayment will continue
to inure to the benefit of Borrowers regardless
of whether the lending institution’s
Student Loans are sold.
4.7 No Lending Institution that, to the
College’s knowledge after reasonable
inquiry, has an agreement to sell its
Student Loans to another unaffiliated
Lending Institution shall be included
on any Preferred Lender List unless such
agreement is disclosed therein in the
same font and same manner as the predominant
text on the document in which the Preferred
Lender List appears.
5
Prohibition of Lending Institution’s
Staffing of College Financial Aid Offices
5.1 The College shall prohibit and shall
ensure that no employee or other agent
of a Lending Institution is ever identified
to students of the College or their parents
as an employee or agent of the College.
5.2 The College shall prohibit and ensure
that no employee, representative, or agent
of a Lending Institution provides staffing
services to the College’s financial
aid office.
5.2.1 The prohibition of Section 5.2
shall not be construed to prohibit any
Lender from providing “entrance”
and “exit” interviews allowed
by 34 CFR 682.200(b)(Definition of Lender)(5)(i),
provided, however, that the College
shall ensure that any such employee,
representative, or agent of a Lending
Institution conducting such interview
identifies himself or herself as a representative
of the Lending Institution and does
not promote the Lending Institution’s
products during such interview.
6
Electronic Loan Documents
6.1 The College shall not direct in any
manner potential Borrowers to electronic
loan applications, electronic master promissory
notes or other loan agreements that do
not provide a reasonable and convenient
alternative for the Borrower to complete
such a document with any federally approved
Lending Institution offering the relevant
loan in this State.
7
School as Lender
7.1 If the College participates in the
“school as lender” program
under 20 U.S.C. 1085(d)(1)(E), the College
may not treat School as Lender loans any
differently than if the loans originated
directly from another lender; all sections
of this Code apply equally to such School
as Lender loans as if the loans were provided
by another lender.
8
Prohibition Against “Opportunity Loans”
8.1 The College shall not arrange with
a Lending Institution to provide any Opportunity
Loans to Borrowers. Nothing in the Agreement,
however, shall be construed to prevent
the College from offering or arranging
loans to international students, at fair
market rates, when those students would
be otherwise unable to secure a domestic
loan.
9
Definitions
9.1 “Borrower” means a student
attending a College in New Jersey, or
a parent or guardian of the student, who
obtains an Student Loan from a Lending
Institution to pay for or finance higher
education expenses.
9.2 “College” means a public
or private institution of collegiate grade
in New Jersey licensed by the Commission
on Higher Education or otherwise authorized
to grant academic degrees under N.J.S.A.
18A:68-6 and accredited by the Middle
States Association of Colleges and Schools
or a post-secondary vocational institution
or vocational school in New Jersey which
is licensed or approved by the appropriate
agency or department and accredited or
pre-accredited by a nationally recognized
accrediting association.
9.3 “Lending Institution”
means any entity that directly or through
an affiliate engages in the business of
making or securitizing Student Loans,
or any entity or association of entities
that guarantees Student Loans.
9.4 “Opportunity Loans” means
Student Loans that a Lending Institution
agrees to make up to a specified aggregate
amount to students with poor or no credit
history, who the Lending Institution claims
would otherwise not be eligible for the
lender’s alternative loan program,
which are made in exchange for certain
minimum loan volume or other benefit that
a College agrees to provide to the Lending
Institution.
9.5 “Preferred Lender List”
means a list of recommended or suggested
Lending Institutions that a College makes
available for use, in print or in any
other medium or form, by Borrowers, prospective
Borrowers, or others.
9.6 “Revenue Sharing” means
any arrangement in which a Lending Institution
pays a College or an affiliated entity
or organization of a College a percentage
of the principle of each loan directed
towards the Colleges from a Borrower at
the College or any form of commission
related to the loan.
9.7 “Student Loan” means any
loan that is made, insured, or guaranteed
under “Part B of Title IV of the
federal “Higher Education Act of
1965" or any private loan issued
by a Lending Institution or any loan issued
pursuant to a New Jersey statutorily established
loan program for the purposes of paying
for or financing higher education expenses
but not including credit cards or home
equity loans.
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