University receives requests for documents from New York State attorney general (updated)

New York State Attorney General Andrew Cuomo served the University with requests for documents Wednesday as part of an investigation into whether athletic departments around the nation colluded with student loan lenders.

Thirty-nine other universities received similar requests, along with Student Financial Services, a loan provider that did business under the name University Financial Services, according to a release from Cuomo’s office.

“Cuomo is investigating whether athletic departments at these universities agreed to promote [Student Financial Services] loans to students in exchange for kickbacks,” the release said.

An Athletics Department employee in 2006 signed a $7,500 contract with Student Financial Services “for the ability to market to students,” said Kim McBroom, associate vice president for marketing and communications.

McBroom said that the employee was not authorized to sign such contracts. The University canceled the contract after hearing about it two or three months later and returned the money, she said.

McBroom also said the University was not aware of any students who received loans from Student Financial Services and that the athletics employee now works at a different school. She did not know whether any disciplinary action had been taken.

The request includes documents, including e-mails, detailing how and why the athletic departments came to recommend Student Financial Services to students. It aims to see whether recommendations were made based off of “payments from the lender,” which constitute illegal revenue sharing.

McBroom said the Ohio Attorney General’s would work to handle Cuomo’s request and would ask the University to provide documents when needed. The University does not know how long the process will take, she said.

The student loan industry has been under intense scrutiny from federal and state lawmakers in recent months.

Cuomo’s requests yesterday coincided with the release of a report from the Government Accountability Office that criticized the Department of Education for having “no oversight tools in place designed to proactively detect potential instances of lenders providing improper inducements … or schools limiting borrower choice of lender.”

The GAO said the department has primarily relied on complaints from external sources to alert them to any illegal activities, practices that have left both regulators and loan providers unsure about the legality of their methods.

Last month the House and Senate passed bills cutting federal subsidies to lenders by at least $18 billion. The Senate also passed a second bill restricting the ability of lenders to give gifts to college officials. The bills have been signed by President Bush but he has not indicated he will veto either of them.

Cuomo himself has been a leading force in pursuing lenders.

Earlier this week he announced a $2 million settlement with lender Nelnet after he began looking into their practices, including operating call centers for colleges that helped students with financial aid questions.

That settlement was part of a series that has had lenders pay out $15 million, according to the Web site Inside Higher Ed.

Earlier this year he led an investigation into Dowling College on Long Island after finding their athletic director signed a contract with Student Financial Services.

That contract gave Dowling College $75 for every loan application “directed to them from the school’s athletic department,” Cuomo’s release said, in exchange for Dowling’s assistance in marketing University Financial Services loans to students.

Check our Web site and future editions of The BG News for more details as they develop.