Drexel to Cuomo: Um, Never Mind

University that vowed to fight New York attorney general on student loan practices backs down and settles instead.
May 16, 2007

“Fight on, Drexel!” “Stand Strong Drexel!”

Those were representative of the comments that flowed from some financial aid officers and other college officials last month when New York Attorney General Andrew M. Cuomo threatened to sue Drexel University and the Pennsylvania private institution vowed in strong terms to go to court to defend the revenue sharing arrangement it had with a lender. Some campus officials felt that Cuomo and other critics were painting their industry with an overly broad brush and overreaching in implying that laws had been broken. Someone needed to stand up to him, they suggested, and Drexel took up the mantle.

“Drexel will vigorously defend its position in this matter and will fully respond to any lawsuit in due course. We believe the allegations are without foundation in law or in fact,” President Constantine Papadakis said in an April 19 prepared statement. He didn’t stop there, lashing out at the attorney general. “The timing and public release of the attorney general‘s notice of intent to sue raises troubling questions as to his motivations and to his tactics. Indeed, his conduct violates fundamental principles of fair play to which Drexel and its students are entitled, and therefore we will move forcefully to protect our position in this matter.”

But Tuesday, Cuomo’s office sent out the latest in its steady stream of news releases about colleges or lenders settling the attorney general’s accusations against them, and this time, Drexel (as well as Capella University) was featured.

Under the terms of the accord, Drexel agreed to redistribute to student borrowers about $250,000 that it had received from Education Finance Partners as part of revenue sharing agreements in which the lender paid the university a portion of the private loans its students took out. Drexel also agreed to abide by the code of conduct that Cuomo’s office has promulgated, and that two dozen colleges and a half-dozen lenders have endorsed.

Drexel officials did not return telephone calls seeking an explanation for their drastic about-face. In a brief written statement, which was not available online as of Tuesday evening, the university said that it had settled as a way of “avoiding the expense and distraction of protracted litigation.” The statement said that the university’s “revenue reinvestment” arrangement with the lender had not influenced Drexel’s decision to put Education Finance on its list of preferred lenders, as Cuomo had charged, and that the university had given $115,000 of the $124,000 it had received from the company so far to students “who faced sudden emergency situations.”

With Drexel declining to discuss its change of heart, college officials who have been following the cascading and overlapping student loan inquiries were left to speculate. Some noted that Cuomo’s announcement about Drexel and Capella (see below) had come a day after the University of Texas System released the results of its investigation into charges that Cuomo had made against the financial aid chief at the university’s Austin campus, which uncovered a series of troubling practices that seemed to take university officials by surprise.

The Texas situation, which resulted in the firing Monday of Lawrence J. Burt, drove home for many observers just how little some top university administrators may know about the practices taking place in their financial aid offices. After reacting belligerently to Cuomo’s planned lawsuit on the night it was announced, Drexel officials may have encountered a similar feeling when they examined their own practices more closely in the light of day, people familiar with the university’s situation said Tuesday.

“They had a sense that they wanted to fight at first, but after thinking it over, they decided” otherwise, said one source who requested anonymity.

The other settlement Cuomo announced Tuesday was with Capella, which at the same time struck a deal with Lori Swanson, the attorney general in the university's home state of Minnesota. The New York attorney general had revealed last month that Tim Lehmann, director of financial aid at Capella, had received $12,400 from another lender, Student Loan Xpress, in 2006 for consulting work, helping the company find better ways of working with online students. Capella had included Student Loan Xpress on its list of recommended lenders to students before Lehmann arrived at the university in 2001.

In his announcement Tuesday, Cuomo fleshed out details. “Between 2003 and 2007, Lehmann served on the advisory boards of several banks and lenders for varying periods of time, including Wells Fargo, Nelnet, Chase, Student Loan Xpress, Citibank, T.H.E. Northstar, Wachovia, College Loan Corporation, EdFinancial, and TERI/First Marblehead,” the attorney general’s office said. “In addition to travel, lodging, meals, and gifts, the loan companies treated Lehmann to approximately one or two rounds of golf at most advisory board meetings. Furthermore, Lehmann received travel, lodging, meals, entertainment, and gifts – such as wine, golf accessories, and clothing – as part of the sales and marketing initiatives of those lenders. Lehmann also received thousands of dollars in honoraria from some of the lenders.”

Cuomo’s announcement Tuesday (and Capella’s own) said that university officials had not known about or approved of Lehmann’s consulting arrangement, which violated university policy. Capella said that Lehmann remains on administrative leave.


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