Higher Ed's Conflict of Interest Problem

As revelation after revelation about real and potential conflicts of interest wrongdoing has battered the student loan industry in recent months, college leaders and higher education groups have largely responded (when they have done so at all) by acknowledging problems -- and proposing possible solutions -- in and around financial aid offices.

June 6, 2007

As revelation after revelation about real and potential conflicts of interest wrongdoing has battered the student loan industry in recent months, college leaders and higher education groups have largely responded (when they have done so at all) by acknowledging problems -- and proposing possible solutions -- in and around financial aid offices.

Numerous higher education associations, of financial aid administrators and university presidents, are at work on new codes of conduct and other policies aimed at governing the relationships between loan providers, student borrowers and the campus financial aid officials who are charged with serving as objective third-party intermediaries between them.

Overdue as such policies may be, they may be little more than a finger in the dike. Virtually every practice and perceived conflict of interest that has been questioned in the unfolding student loan controversy can be found to occur elsewhere on often highly decentralized campuses where the interests of corporate vendors and students increasingly intersect, with college and university officials at the intersection.

Many technology companies have advisory boards of college IT administrators that closely resemble the bank panels that have drawn New York Attorney General Andrew M. Cuomo's scorn. Food service and beverage companies, cellular telephone providers and numerous other vendors seeking to reach a campus's students and employees sometimes offer revenue sharing arrangements or other sweeteners (like refurbishing a cafeteria) that primarily benefit the colleges, much like the various "inducements" that Congress and the Education Department are vowing to prohibit in financial aid. Accounting and auditing firms, like banks, often make contributions to college fund raising drives or sponsor tables at campus events in the course of doing business.

And many if not most higher education associations help pay for their annual and other meetings in large part from corporate sponsorships and memberships of the sort that has put the National Association of Student Financial Aid Administrators in hot water. The American Council on Education's corporate alliance program offers members of the "president's circle" the chance to meet with college presidents, among other benefits, for a contribution of at least $200,000, and provides other benefits at lesser donation levels. The several dozen corporate partners of Educause, the higher education technology association, pay anywhere from $20,000 to more than $100,000 over the course of a year for a series of benefits that include the opportunity to make presentations to the association's members at the group's annual meeting. And the National Association of College and University Business Officers, for instance, has 11 "diamond" sponsors for its annual meeting next month -- technology, bookstore and other companies that agreed to pay at least $30,000 for various forms of visibility at the conference. ( Inside Higher Ed is among six "friends of NACUBO" that paid $1,000 each.)

It can be argued that in none of these other areas are college officials so directly in a position to make decisions that could negatively affect students, as Cuomo and Congressional critics of the loan industry (from a consumer protection standpoint) argue that financial aid officers are when they choose a lender to which they refer prospective borrowers. But a technology administrator who chooses one vendor over another or a chief financial officer who has a hand in selecting the food provider can affect what students pay and the quality of the services they receive.

Given the widespread existence of such perceived conflicts of interest across campuses, college leaders risk reacting too narrowly and ignoring the underlying problems if they limit their response to the student loan scandal to their financial aid offices, a broad chorus of higher education leaders and experts on conflicts of interest say.

Don't merely draft codes of conflicts that apply to financial aid offices; ensure that colleges and universities have strong and clear conflict of interest policies that apply broadly to anyone with authority or influence over campus spending decisions -- and that the institutions monitor and enforce those policies, for example. Only by acknowledging that potential conflicts exist across many campus departments and programs, these experts say, can higher education avoid having today's student loan scandal become tomorrow's damaging controversy elsewhere.

"I don’t think we serve our institutions well ... if we try to look at this as simply a student loan issue," says John Lippincott, president of the Council for Advancement and Support of Education, whose organization has its own annual meeting sponsorships.

"For every story like this about financial aid, there's probably a story for every other area in higher education," agrees Jane Robbins, an independent researcher who has studied conflicts of interest in higher education. "Universities are really in a position of power here, where a lot of people want access to [their students and employees]. They risk throwing that power away if they put at risk their public trust, which is their primary asset, for really marginal amounts of money. Institutions have to be proactive about this; they can't just respond in discrete little bits and pieces. Everything is connected."

Lessons from the Loan Scandal

As incendiary and ground-shaking as the waves of damaging allegations in the student loan controversy have been, this is not the first time that higher education has been shaken by significant charges of conflicts of interest.

Most of the previous instances have involved the academic research enterprise, through which billions of dollars of federal and corporate money flows: the indirect cost scandal of the early to mid-1980s, for instance and, perhaps more acutely, the concerns that emerged about the safety of human research subjects in the wake of the 1999 death of a gene-therapy patient, intensified the demands on universities to monitor and prevent potential conflicts of interest that might lead them to put their own financial interests over those of patients. (In the human subject domain, as in the student loan area, conflict of interest accusations carry particular gravity because campus officials are seen as direct intermediaries -- ideally "honest brokers" -- between corporate interests and those of potentially vulnerable individuals: patients, in the case of biomedical research, and financially unsavvy borrowers, in the student loan realm.)

The controversy over human subjects research indeed led many colleges to put conflict of interest policies in place -- Web searches turn up scores of campus conflicts policies , and anecdotally, most higher education leaders describe such policies as being commonplace.

But one of the most striking aspects of the revelations that have emerged in recent weeks about campuses' student loan practices is how little campus leaders seemed to know about the activities being questioned in their financial aid offices. As several universities where officials were accused of wrongdoing have examined and reported on their situations, it has become clear that their campus conflict policies either were weak or vague or did not apply to their financial aid officers or that the officials' had not reported their conflicts and the breaches had gone undiscovered.

As the student loan scandal has escalated, college and university officials have often bristled at the suggestion that it is inappropriate for them to consider any factor but the lowest price for students in making decisions about lenders (or vendors generally). Many of the factors colleges considered in choosing their “preferred lenders” or the “benefits” they have received from student loan providers -- enhanced service, computer equipment, staffing help, payment for printed materials -- are all things that either benefited students or saved institutions money that they could use for other, student-related purposes, they argue.

But whatever legitimacy those objections might have have been swept away by the reality that some of the practices college officials have engaged in are difficult if not impossible to defend. Under intense pressure from Cuomo and the members of Congress who have ring-led the scrutiny, Rep. George Miller (D-Calif.) and Sen. Edward M. Kennedy (D-Mass.), college leaders have increasingly responded by vowing to subject their financial aid officials and practices to significantly tougher oversight, in many cases barring outright the practices that have drawn criticism.

Dozens of colleges, several lenders and, last week, the National Association of Student Financial Aid Administrators have embraced the Student Loan Code of Conduct promulgated by Cuomo's office, which would prohibit revenue sharing agreements between colleges and student loan companies and bar lenders from giving campus aid officers anything of more than "nominal value," among other things. In addition, groups that represent coalitions of colleges, like the Association of American Universities, have released principles to guide financial aid offices' and officers' relationships with lenders.

"Recent investigations in New York and other states have uncovered instances of individual wrongdoing as well as a number of practices that have raised questions about whether lenders are able to gain unfair advantage in obtaining the business of institutions and students," Robert M. Berdahl, president of the AAU, said in announcing its statement in April. "As institutions seek to ensure that their implementation of the federal loan program always puts the interests of students first, these principles offer them a framework for the measures they are considering.”

The Response So Far

In the wake of the intense scrutiny the student loan scandal has brought on financial aid offices, it is not surprising college leaders would focus their responses there. But with higher education often accused of being reactive rather than forward-looking, or of responding too slowly to changes (for instance, to calls for better measuring how well they educate their students or to threats from international competitors), some experts on college finances and ethics say responding too narrowly would be a mistake, given how many of the practices for which financial aid offices are being criticized are apparent in other college and university departments.

In interviews with a range of such experts, they cite examples in other campus departments of practices comparable to those that Cuomo, Kennedy and other critics have at various points characterized as troubling, unethical or worse:

  • Advisory boards in which manufacturers of technology hardware or software solicit the ideas and expertise of campus IT officers, often in exchange for travel and other expenses, if not honorariums.
  • Bidding processes for food service or beverage vendors in which the companies agree to build or update cafeterias or kitchens or other facilities as "value added" to the deals.
  • Consulting arrangements in which campus business officers give lectures (sometimes in exotic locales) for money managing companies, much like psychiatrists or physicians give product talks on behalf of pharmaceutical companies.
  • Offers of contributions to college annual funds by accounting or other financial firms seeking campus business.
  • And, of course, the usual tickets to ballgames, U.S. Open tennis matches, or nice dinners by any number of companies to campus administrators with decision making authority.

And that does not touch the many national and regional higher education associations and other organizations that take in significant corporate funds, in sponsorships and other arrangements, to provide training, services and entertainment to their members at annual meetings. The National Association of Student Financial Aid Administrators has agreed to end such such arrangements under pressure from the New York attorney general, but just try to find a major meeting of college administrators that doesn’t have most of its major events underwritten by corporate sponsors .

There are significant differences between the student loan world and the other realms mentioned above. Much of the money at issue in the relationships cultivated by campus financial aid officers is federal funds, which is not directly so in campus technology or food service. And officials in other campus departments play an arguably less-direct intermediary role between corporate interests and those of students than do financial aid officers, though the selection of a bookstore manager could ultimately result in students' paying more for books or other products.

But Robbins, the conflict of interest expert, says that even if the consumer protection angle is less apparent outside the worlds of biomedical research and student aid, college and university officials and their institutions put at risk their most important asset -- public trust -- any time they are perceived as acting for personal gain or putting institutional interests ahead of those of students or the public.

“Financial aid is just an example,” she says. “It doesn’t mean [that efforts that focus on student aid offices] might not be able to clean up some of these relationships [in that realm]. But I believe [conflicts] are alive in all the major activities of the university -- sports, admissions, research, technology. All these little boxes, they link together, and it is a mistake to just look at one thing, to compartmentalize. You cannot run down one road and leave all the others to just go on as they are.”

Berdahl, president of the AAU, defended the association’s decision to focus on drafting a set of principles for financial aid offices. “Because of the nature of this immediate issue, and the disclosures that we’ve learned of, we want to help institutions address this with a code of conduct right now,” he said. “This goes to an issue of public confidence in the recommendations that our institutions are making to students about loans. We have an immediate problem, and that’s why we’re responding in this fashion.”

He acknowledges, though, that the issues raised by the loan mess extend elsewhere in the university, because “we have many more relationships today with the private sector than we have in the past.... As universities outsource things or select vendors for bookstores or soft drinks or whatever, those have to be done in a way that inspires confidence that we’re doing it in the interest of the people we serve,” just like in the financial aid office, Berdahl says. “Universities have lots of people who are interacting with the business community, in ways in which a conflict of interest could develop.”

What Might Be Done

One of the things that has most disturbed many observers about the student loan controversy is how little campus administrators outside the financial aid offices seemed to know about the sometimes questionable practices being conducted there, including aid officers' ownership of stock in lenders. In some cases, the officials involved had failed to report their conflicts, but in others, they were not obligated to report them, because they were not covered by their campuses' policies.

Many higher education leaders assert that most colleges and universities have conflict of interest policies. But they also acknowledge that gauging whether that's so, or how broad and robust such policies are, is difficult because none of the associations that might have done the survey to show it -- like the National Association of College and University Business Officers -- has done so.

Given what has unfolded in recent months, says Lippincott of the Council for Advancement and Support of Education, "if an institution does not have conflict of interest policies in place at this time, particularly in the post Sarbanes-Oxley era, they need them. It is extremely important that institutions of higher education, which operate in the public trust and for the public good, ensure that they have policies and procedures in place that will maintain that public trust."

But having conflict of interest policies only matters if the institutions take them seriously, says Robbins, the higher education ethics expert. Too often, she says, campuses that have conflicts policies that "show a bias toward allowing conflicts, but trying to manage them, through "an overreliance on disclosure and management tools."

Disclosure and compliance are important, Robbins says, if conflicts policies are to be meaningful. But she urges colleges and universities to begin viewing conflicts of interest less in "legalistic and compliance terms" and as more of an "ethical and organizational leadership issue."

Institutions should make "conflict of interest a strategic priority in the office of the president," because people "are not going to change unless there is a role model at the top," Robbins says.

"What's at stake here are the values of the institution, and that's the job of the president," she adds. "When colleges and universities put at risk the public trust, they are putting at risk every dollar they receive. Public trust is the university's primary asset."

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