Slowly, bit by bit, Andrew M. Cuomo is turning himself into the nation's student loan czar.
Cuomo put the issues of perceived and real conflicts of interest between lenders and college officials on the national map in a big way this winter with a series of revelations and allegations about questionable arrangements and practices, and he cemented his role as the industry's watchdog with a steady stream of settlement agreements between the New York attorney general's office and lenders, colleges and universities.
With his latest such agreements, reached Thursday with the National Association of Student Financial Aid Administrators and with Columbia University, Cuomo has assured himself (or at least his office) a significant role in oversight of the student loan industry potentially well after he has left his current job.
In both instances, the attorney general's office secured commitments from Columbia and NASFAA, respectively, that Cuomo or his representatives would monitor their student loan and other practices for at least five years. In the case of the university, Columbia agreed to report annually to the attorney general for five years on its "all policies and procedures relating to student lending" and "any conflicts or violations of the Code of Conduct" that the university agreed to adopt. In the sweeping agreement signed by the financial aid administrators' group, it agreed to have representatives from Cuomo's office at its annual meetings and "any other NASFAA meetings the office wishes to attend."
That arrangement will begin this year, quite likely with a visit from Cuomo himself, to whom NASFAA has issued an invitation to speak.
Like many aspects of the inquiry that Cuomo (along with his Congressional collaborators, Sen. Edward M. Kennedy (D-Mass.) and Rep. George Miller (D-Calif.)) has inspired, Thursday's developments show how quickly the ground shifts in the student loan space, and how Cuomo is pretty much always on top when it does.
Just weeks ago, when Cuomo began releasing findings and accusations of wrongdoing by financial aid officers, often in strongly worded language, NASFAA's president, Dallas Martin, fought back. In a March 19 letter, he accused Cuomo of doing financial aid officers a "great disservice" and having "dishonored their good names" with broad-based accusations of illicit behavior. Some financial aid administrators, privately and on e-mail listservs, cheered Martin for standing up for them.
But as the weeks wore on and the revelations uncovered by Cuomo and others grew more serious -- and as NASFAA's own practices of heavy bank sponsorship of its conferences themselves came under scrutiny -- NAFSAA officials began changing their tune. Martin and other NASFAA leaders began more openly acknowledging that Cuomo was raising good points, and in late April, the group said it would consider adopting new guidelines for the behavior of its members and for its own relationships with student loan providers.
Cuomo's office, though, kept the pressure on. Two weeks ago, the attorney general's deputy counselor and special assistant, Benjamin M. Lawsky, wrote Martin to say that he believed the code of conduct the organization was developing was inadequate. "The code you have proposed is inadequate in that it does no more than recite vague, lofty goals of generalized ethical behavior," the New York attorney general wrote. "The train has left the station. NASFAA must get on board now or be left behind. Either way, we believe the law and the marketplace will soon impose the appropriate restrictions that your organization has, thus far, been unwilling to accept."
In the last week and a half, officials and lawyers from NASFAA and from Cuomo's office have been engaged in intense deliberations over a revision of the code and of NASFAA's policies governing its own relationships with sponsors and vendors. And Thursday, at a news conference in New York, Cuomo and Martin stood side by side announcing their agreement, saying that they were now on the same page. After being "initially opposed to Cuomo’s code," the attorney general's office said in a news release, "NASFAA is now committing itself to a new set of practices aimed at deterring corruption in the student loan industry."
“Hyper competition for preferred lender status led lenders – and some school financial aid officers -- into ever lower ethical and moral depths,” said Cuomo. “But today shows that this industry is no longer engaged in a race to the bottom. By adopting the code, agreeing to end bad practices, and beginning to operate in the best interest of students, these institutions have begun a race to the top. Lenders and schools now realize that to compete, they must do business cleaner and better than others in the industry.”
Under the multipronged agreement reached by NASFAA and Cuomo, the financial aid administrators' group agreed to conform its own refurbished code of conduct for its members in campus financial aid offices largely to the one that Cuomo's office has been promulgating, which will mean that Cuomo's principles will, in one fell swoop, reach the vast majority of financial aid offices in the country. Under the group's code of conduct, which its board adopted this month, financial aid administrators would:
- Refrain from taking any action for his or her personal benefit.
- Refrain from taking any action he or she believes is contrary to law, regulation, or the best interests of the students and parents he or she serves.
- Ensure that the information he or she provides is accurate, unbiased, and does not reflect any preference arising from actual or potential personal gain.
- Be objective in making decisions and advising his or her institution regarding relationships with any entity involved in any aspect of student financial aid.
- Refrain from soliciting or accepting anything of other than nominal value from any entity (other than an institution of higher education or a governmental entity such as the U.S. Department of Education) involved in the making, holding, consolidating or processing of any student loans, including anything of value (including reimbursement of expenses) for serving on an advisory body or as part of a training activity of or sponsored by any such entity.
- Disclose to his or her institution, in such manner as his or her institution may prescribe, any involvement with or interest in any entity involved in any aspect of student financial aid.
In addition, NASFAA agreed to radically alter its own practices regarding exhibitors and sponsorships at its conferences, which result in hundreds of thousands of dollars in revenue for the association each year. (As similar practices do for other higher education groups, particularly those, like for presidents, business officers and technology administrators, whose members have their fingers on purse strings.)
Under the latter agreement, NASFAA said it would bar all social activities sponsored by lenders or other exhibitors; prohibit prize drawings and limit the value of giveaways by lenders or other exhibitors to $10; eliminate named sponsorship of conference events and tiered recognition and pricing of sponsorships, and end (at least temporarily) a lender-financed scholarship program that has given away in the neighborhood of $200,000 at recent annual meetings.
In an interview after Thursday's news conference with Cuomo, NASFAA's Martin said the changes in the association's conference policies would have "some financial impact on us" (the association has offered to return all payments to 2007 conference sponsors who wanted the money back, and has refunded at least $120,000, Martin said.) But despite that short term pain, he said, "in the long term, it's the correct thing to do."
He said he did not believe that NASFAA's own practices had been corrupt, since "we're not the ones who have been sponsoring the parties or doing the wining and dining," which has occurred during financial aid officers' "private time" at NASFAA meetings. But he acknowledged that the association had provided the venue at which that wining and dining took place, and that "we're going to say now that we're going to extend our venue, and this just isn't going to happen in our venue."
Martin said that NASFAA did not control the decisions of the regional and state groups of financial aid officers that, like the national association, bankroll their annual meetings largely with support from student loan companies and other vendors. (The practices of those groups have come in for news media scrutiny, too.) But he said he was confident that "they will fall in line pretty quickly.... I'd like to think they'll say, 'NASFAA has given us a new business plan, and this is a model we should adopt, too.' I can't control them, but I really believe almost everybody's going to insist on doing this, too."
The NASFAA chief said he welcomed the provision of the agreement under which the association would invite Cuomo or another representative of the attorney general's office to attend its meetings for five years, "to ensure compliance with these policies and procedures." Although some financial aid officers described the plan as excessively intrusive, Martin said he did not "see that as an intrusion at all.... If we're not behaving correctly, I expect somebody to call us on it." He added: "If he wants to do it for the next 10, we don't care. We're glad to have him."
Mark Kantrowitz, publisher of FinAid, said the agreement between NASFAA and Cuomo would allow "the national conference to focus on its core mission of professional development and student aid policy advocacy, without distraction." In the recent past, he added, "there's been an environment that blurred ethical boundaries. The agreements set clear standards as to what is and is not acceptable behavior.... The agreements also distance the lenders (and other exhibitors) a bit from the conference attendees. This will increase objectivity, transparency and accountability. When the dust settles, I think this will ultimately be healthy for the profession and the industry and beneficial for students.
The university's agreement with Cuomo was designed to resolve the attorney general's findings that David Charlow, who resigned last month as its executive director of financial aid, had owned stock in Student Loan Xpress, a loan provider that appeared on the university's list of preferred lenders, to which it referred prospective student borrowers. (In a related development, the University of Southern California announced Thursday that its financial aid director, Catherine C. Thomas, would retire as of today, becoming the fourth campus aid official to lose his or her job because of the student loan inquiry. Thomas, like Charlow, owned stock in Student Loan Xpress.)
Columbia denied having violated any law, and said in a statement Thursday that "it is important to note that Columbia University never had the revenue sharing relationships with lenders prohibited by the Code or the subject of the Attorney General's settlements with other schools. We regret that a long-time, well-regarded employee failed to uphold the trust that had been placed in him by the University and did not conform to standards that are commonplace in universities and business."
Under its agreement with Cuomo, the university said it too would adopt the Cuomo code of conduct, that it would pay $1.125 million into the national fund that Cuomo has established to educate potential borrowers about their student loan options. ("Columbia is not paying a fine or making any restitution as part of the settlement," the university insisted in its news release.)
Columbia officials also said they would institute changes -- some of which had been in the works before Cuomo began his inquiry -- that would centralize the financial aid operations of its three undergraduate colleges, apply its conflict of interest policies more clearly to a broader range of campus officials, and require that all preferred lender lists be approved by committees of at least three people and approved by a senior administrator from outside the financial aid office.
In addition, the university agreed that it would make annual reports to Cuomo's office for the next five years, a provision upon which the attorney general's office insisted.
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