Trenton,
NJ – Attorney General Anne Milgram
today announced that the New Jersey Higher
Education Student Assistance Authority has
instituted changes to its business practices
and has agreed to adopt a Code of Conduct
to eliminate conflicts of interest with
lending institutions marketing college student
loans. HESAA also agreed to the appointment
of an independent monitor for one year to
oversee its practices.
The
agreement is incorporated into an Assurance
of Voluntary Compliance between HESAA and
the Office of the Attorney General and the
Division of Consumer Affairs, which launched
an investigation last year into potential
conflicts of interests between schools and
student loan providers.
Separately,
41 colleges and universities in the state
have adopted a student loan code of conduct
that prohibits schools from having financial
relationships with student loan providers.
HESAA
administers the Federal Family Education
Loan Program (“FFELP”) for New
Jersey and is the state guarantor for that
program. During the course of the state’s
investigation, HESAA acknowledged that,
beginning in 2001, it had entered into a
“Marketing and Service” agreement
with Sallie Mae.
HESAA
marketed Sallie Mae as its preferred lender
to New Jersey colleges in exchange for a
fee based on a percentage of the value of
student loans made by Sallie Mae. HESAA
cancelled the Marketing and Service arrangement
with Sallie Mae in April 2007 after earning
approximately $14 million in revenue paid
from lenders from 2001 to 2007. Under the
Assurance of Voluntary Compliance, HESAA
has agreed to spend all remaining FFELP
sponsor monies in a manner that directly
benefits student loan borrowers.
“This
agreement will ensure that the interests
of students and their parents – not
the interests of financial lenders or their
guarantors – matter most for student
loans,’’ Attorney General Milgram
said. “For the first time, students
will know that loan recommendations from
HESAA and their colleges and universities
are based solely on what is best for the
students.’’
HESAA cooperated with the Attorney General’s
investigation and entered into the Assurance
of Voluntary Compliance without admitting
any violation of law.
The voluntary agreement states HESAA can
spend the FFELP sponsor monies, among other
things, by buying down student loan interest
rates, paying default fees, or providing
scholarships or loan forgiveness programs.
The specific types of programs to be established
that will benefit borrowers have not yet
been selected. As part of the agreement,
HESAA must forward to the state an exact
accounting of the FFELP sponsor monies.
HESAA
also agreed to the appointment of a monitor
to assess HESAA’s compliance with
the agreement for one year. The monitor
will be selected by an independent panel
of three people who are appointed by the
Attorney General.
The Code of Conduct prohibits HESAA from
engaging in any revenue sharing or other
financial arrangements with student loan
providers that would provide an unfair advantage
and prejudice student borrowers. The Code
of Conduct also prohibits HESAA from engaging
in any revenue sharing with any college
or university or providing gifts to any
college or university employee. The Code
of Conduct prohibits HESAA from providing
staffing services to any college or university,
except on an occasional, short-term basis.
In addition, the Code of Conduct requires
that HESAA include disclaimers on its website
that declare that borrowers have the right
to select the loan provider of their choice
and make clear that HESAA does not endorse
any specific loan products.
A separate code of conduct was also distributed
to all colleges and universities in New
Jersey last fall; to date, 41 have voluntarily
adopted the code and another four have agreed
in principle with state officials to adopt
the code.
The
college and university code prohibits schools
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
investigation began in May 2007, following
news reports that lenders provided benefits
to colleges and universities in order to
promote their loan products to students.
Attorney General Milgram issued subpoenas
to 65 universities, colleges, and technical
schools in New Jersey seeking information
related to preferred student lender programs.
The Attorney General also issued subpoenas
to HESAA and 17 student loan providers.
Lenders served with subpoenas included Student
Loan Xpress, Sallie Mae, Wachovia Education
Finance, Nelnet, Dollar Bank, Academic Management
Services, Education Finance Partners, JP
Morgan/Chase, and United Bank & Trust.
Also served with subpoenas were EdAmerica,
TERI, Citibank, Bank of America, Campus
Door, College Board, AFC, and Higher Education
Solutions.
The
subpoenas sought information related to
any revenue sharing or other 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.
As
a result of the state’s investigation,
colleges and universities, like HESAA, have
worked to effect changes in their business
practices to eliminate conflicts of interest
arising from relationships with lending
institutions and to preserve a student borrower’s
right to select a lender. New Jersey’s
investigation, as well as the investigation
by the New York Attorney General’s
Office and the efforts by U.S. Senator Edward
Kennedy (D-MA) to enact national legislation
to prevent abuses in the student loan industry,
have resulted in the United States Department
of Education’s adoption of regulations
which aim to address such abuses.
Deputy
Attorney General Lorraine K. Rak, Chief
of the Consumer Fraud Prosecution Section
within the Division of Law, concluded the
HESAA settlement. Assistant Attorney General
James Savage, former Deputy Attorney General
Jody Carbone and Deputy Attorneys General
Jeffrey Koziar and Nicholas Kant have represented
the State in this investigation.
#
# # |
