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As Andrew M. Cuomo took office in January as New York's attorney general, he and his team of lawyers and investigators had no shortage of issues and potential targets in their sights. Between inquiries that had begun under Cuomo's Democratic predecessor, now-Gov. Eliot Spitzer, and fully formed and preliminary ideas for new avenues to explore, the staff needed to be choosy about how to spend its time. Which investigations had the most potential to produce change and, not insignificantly, to show the public that the state's new top law enforcement official meant business?

In late January, two assistant attorneys general briefed two of Cuomo’s top aides, Steven Cohen and Benjamin Lawsky, about their fledgling investigation -- initiated by Spitzer's office days before Cuomo's election in November -- into the relationships between student loan providers and colleges. As the investigators ticked through the fruits of their initial request to lenders in November, one finding jumped out: Education Finance Partners, a relatively new lender, had reported that its business model paid colleges a proportion of their students' private loan volume in exchange for a place on the list of "preferred lenders" to which the institutions referred students seeking those loans.

"Wait -- they give schools a cut of the profits in exchange for preferential treatment?" Lawsky remembers asking, as he and Cohen looked at each other, stunned. "How many schools are we talking about?" The answer jolted them further: "About 100."

The identification of a widespread practice that Cuomo's team believed represented a clear conflict of interest – and possibly a violation of state consumer protection law, because students were not told of the arrangement -- propelled the student loan investigation to the top of the list on the whiteboard Lawsky used to track the office's priorities. Cuomo gave the go-ahead to send letters on February 1 to other lenders and to dozens of college clients of Education Finance, asking for information about how they selected their lists of preferred lenders. "At that moment," Lawsky says, "we knew we were on to something big."

Even Cuomo and his staff did not realize quite how big, however, and they certainly did not anticipate the almost lightning speed at which it would unfold. Barely six months later, dozens of colleges and lenders have signed settlements with Cuomo, paying a total of $15 million and agreeing to abide by a set of principles and practices encapsulated in his "Code of Conduct." The New York Legislature unanimously enacted his code of conduct into a new state law. And his inquiry not only prompted parallel investigations by leading Democrats in Congress, but added political momentum to their plans to toughen enforcement of the student loan industry through increased regulation and a new federal law, which both houses of Congress have now passed.

"If you had told me that you can expose this institutional conflict dealing with very powerful players ... the nation's top universities, which heretofore have not been questioned on this level, and the top banks, and you're going to be able to expose the issue, and get past the initial opposition to the exposure, and actually bring the institutions around to the point where they settle ... and you're going to get a piece of state legislation passed, and you're going to have pending federal legislation, and you're going to get this all done in six months," " Cuomo said in an interview this month in his Manhattan office, "I would have said it's a wholly unrealistic expectation.

"But when you successfully bring [attention to] a chronic problem that affects millions of people, on an issue as sensitive as access to higher education, it generates an energy in and of itself,” he said. “That's what this was."

In wide-ranging interviews this month in the attorney general's Manhattan office, Cuomo and his aides offered an inside look at an investigation that has changed an industry. (A recording of the interview with Cuomo can be heard here.) They described a process that was well orchestrated on the one hand, yet bolstered by good fortune and timing on the other. Cuomo characterized his goals as far exceeding the stereotypical law enforcement mission of the attorney general, focusing instead on "problem solving" -- altering behavior, moving the market, and driving new policies.

And the attorney general and his staff left the clear impression that their brush with the student loan system would, in the coming months, lead them to closely examine potential conflicts of interest and relationships with companies in other college and university operations.

Looking Back

In broad outlines, the Cuomo investigation has unfolded like this: In March, Cuomo accuses lenders and colleges of engaging in an “unholy alliance” in which “deceptive practices” – some that “may break the law” – are widespread. The harsh rhetoric and broad reach of the accusations startle many financial aid administrators and student loan officials, many of whom attack the attorney general for exaggerating the scope and severity of the problem.

But over a period of weeks, through March and early April, Cuomo’s office releases a steady stream of damaging allegations, which land like right hooks to the jaws of college officials and lenders: revenue-sharing agreements between Education Finance Partners and dozens of colleges, which colleges defend as producing money for need-based financial aid but Cuomo strategically calls “kickbacks;” accusations (prompted by an investigation by the New America Foundation that officials at several high-profile universities and the U.S. Education Department had taken stock from Student Loan Xpress; and charges of cash payments, in one case totaling $65,000, to other leading financial aid administrators.

One or two of the colleges and lenders singled out by the attorney general threaten to fight him, suggesting that he is overreaching in trying to apply New York consumer law outside the state. But one by one, finding many of the most serious breaches impossible to defend, Cuomo’s targets roll over and settle the charges against them, in some cases paying millions of dollars and in all cases agreeing to abide by his code of conduct. Cuomo works with legislative leaders in New York to turn the code into state law, which happens in a matter of weeks.

Meanwhile, Cuomo’s investigation lights a spark under two Congressional leaders on education policy, Sen. Edward M. Kennedy and Rep. George Miller, who had vowed to get tough on student loan companies (and the Bush Education Department, charged with overseeing the loan programs) when the Democrats controlled the House and Senate. Kennedy and Miller crank up their own investigations, resulting in a three-ring circus -- marked, it seems, by both cooperation and competition -- of dueling press releases and headlines, battering the financial aid world into submission. This summer, both houses of Congress pass their own legislation, initiated before Cuomo’s but influenced by it, to restrict the relationships between lenders and colleges.

Cuomo may say now that anticipating such a sweeping outcome would have been “wholly unrealistic.” But Lawsky, Cuomo's special assistant and deputy counselor, and the lead staff person on the loan investigation, says the attorney general more or less saw it coming from the start, envisioning a scenario in which the various strands -- threats of legal action, lots of newspaper headlines, a push for state legislation, supportive noises from Kennedy and Miller in Washington and the push for federal legislation -- would “play off each other” to crank up pressure that would “move the market” and bring about significant change.

“Andrew had a vision about which he was very optimistic,” says Lawsky -- who admits now, with a laugh, to thinking at the beginning that his boss was “arguably delusional.”

If January’s “aha! moment” involving Education Finance Partners made Cuomo’s confidence seem somewhat more plausible, the attorney general’s investigation did not take off until the office made a somewhat unconventional decision in mid-March. The investigation had proceeded largely out of public view since the February 1 letters went out. But as the attorney general and his advisers discussed the case, Cuomo suggested that, believing as they did that they had identified practices that could hurt potential borrowers, it would be wrong to let a new group of students go through the upcoming annual financial aid process without warning them.

So while law enforcement agencies typically do not go public with accusations until they have all their ducks in a row, Cuomo’s office issued a news release -- based on what Lawsky calls a “essentially a half-baked case” at that point -- in which the attorney general said that his “preliminary investigation” had revealed a set of “deceptive practices” damaging to students in that now-famous “unholy alliance” between lenders and colleges. Letters went out at the same time to 400 colleges, identifying some of the practices that Cuomo found troubling and signaling to academic leaders that “if you’re doing any of these, you have a problem, and we’re a-coming,” Lawsky says.

Cuomo’s critics speculated at the time that the attorney general had settled for sending out a warning like that because his legal case was weak and he did not have the actual goods to bring specific charges. That kind of thinking perhaps inspired A. Dallas Martin, president of the National Association of Student Financial Aid Administrators, to blast Cuomo in a letter a few days later, accusing him of using rhetoric “designed to inflame rather than to inform, and to exaggerate rather than illuminate.” He also demanded an apology for “unwarranted character assassination of public servants who only want to do what is best for their students and their families.”

Martin, giving full-throated voice to views expressed privately or quietly on listservs by the rank and file, argued that many of the practices Cuomo was criticizing were not only long-established and accepted, but plainly legal under federal law. College leaders were particularly aggrieved that they were bashed for the revenue sharing agreements, which they saw as a creative source of financial aid for needy students at a time of flat federal budgets.

The Tide Turns

But Cuomo’s March 15 warning shot was only the beginning. A week later, the attorney general announced that he would sue Education Finance Partners over its revenue sharing agreements with colleges, a dozen of which he named in his news release. A few days after that, several universities and lenders -- under intense pressure (characterized in some quarters as bullying) from the attorney general himself, as well as public pressure -- agreed to settle with Cuomo’s office. New York University and the University of Pennsylvania agreed to end revenue sharing agreements they had with Citibank (which also settled) and to refund $1.4 and $1.6 million, respectively, to borrowers. The charges of individual wrongdoing by financial aid officers at some of the country’s most visible universities -- Columbia, Johns Hopkins, and the Universities of Southern California and Texas at Austin -- followed quickly in succeeding days.

The findings of personal wrongdoing by some of the leading lights in the financial aid world added a sensational and tangible element to the student loan investigation; while talking about "preferred lender lists" can make some eyes glaze over, people understand "cash and stock payments." But while the more sensational and serious breaches may have dominated the headlines and quieted the critics, Cuomo says they were not what mattered most. Much more significant was the sense that it had become standard operating procedure in the industry for colleges to refer students to certain lenders based on arrangements that benefited the institutions and their officials, and that those relationships were not disclosed.

“No one ever said that most financial aid officers have personal conflicts of interest. I never said that.... I still don't believe that's the case,” he says. “Were there financial aid officers who did bad things? Yes. But what was endemic, systemic, was the relationship between the [lender and the] school, and maybe the financial aid office as an institutional player within that school. Did it capture the imagination of the press, the individual financial aid officer stock? Yes, but that was never the main thrust of our investigation. As a matter of fact, it was repugnant to the main theory of the case.... Our whole point is it's not about individuals, it's about the system, and it's about the relationships.”

Still, the more sensational -- and seemingly indefensible -- charges turned the tide in Cuomo’s favor. Quite suddenly, lenders and colleges were almost to be tripping over themselves to reach agreement with Cuomo’s office. “We started to have schools and lenders calling us, saying, ‘You haven’t gotten to us yet, but ...’ “ says Lawsky. The pace of activity picked up in other ways, too: Attorneys general in numerous other states, exhorted by Cuomo, began their own inquiries into student loan practices. Congressman Miller rolled out the red carpet for Cuomo to testify before the House education committee, New York passed its student loan code of conduct law, and by early June, even the National Association of Student Financial Aid Administrators, which had criticized Cuomo’s campaign, joined it.

Asked why the investigation seemed to unfold so quickly, almost easily, Cuomo bristles, if gently. “There was nothing easy here,” he says. But having acknowledged that the outcome of the investigation exceeded his expectations, the attorney general speculates as to why so much happened so fast.

“The initial stage in so many of these episodes is denial, or resistance or defensiveness. We had quite a bit of opposition. I got called all sorts of names,” he says. “But when you have the facts, which are irrefutable, and it's not just one incident, you can't dismiss it as just the bad apple in the barrel. That's why we very consciously initially revealed the pervasive nature of these practices. You couldn't just say it was one financial aid officer, well, it's just one college. No, it was big schools, small schools, public schools, private schools, N.Y. schools, California schools.

“Once we demonstrated how pervasive it was, we got past the denial, the defensiveness, then I think what happened was a dynamic that in retrospect I see, but I frankly did not see at the time,” he says. “It affected so many people, on such a precious commodity, and it was such a betrayal for so many people, that their colleges, their universities ... it's not like you're going to a used-car dealer, and you get surprised when you get defrauded. This was your college, with 90 percent of students relying on their college. You put together the magnitude of people affected, the level of betrayal, the economic consequences. That created a dynamic that just drove it.”

What Comes Next

Given that the dynamic has driven right over them, beleaguered financial aid directors and lenders are constantly wondering if the student loan investigation has run its course. "It's not over 'til it's over," Cuomo says when that question is put to him, evoking another famous New Yorker, Yogi Berra. When will it be over? "When we pass the federal law," Cuomo says. Yes, attorneys general tend to be seen primarily as law enforcers, he notes. But "this office is a problem solver office," not merely a legal office. Sometimes the solution lies in prosecuting laws ... but sometimes just enforcing the law doesn't get you to the ultimate solution resolution. And here, the ultimate resolution is you need new laws."

So with Congress poised to pass a version of Miller and Kennedy's Student Loan Sunshine Act, which incorporates aspects of Cuomo's conduct code, and Sen. Chris Dodd promoting legislation that would expand federal oversight of the private student loan market, does that mean Cuomo has done his job and is ready to move on?

Not exactly. In its "problem solver" role, Cuomo's office will use the $12 million it has collected from lenders and colleges so far for its "borrower education fund" (the institutions have returned another $3 million back to borrowers) for two purposes: educating students and families about their financial aid and student loan options, and helping to design or finance an "objective" source of information about which loans are best for individual students, most likely through an online database.

From a watchdog standpoint, Cuomo expresses confidence that college officials and lenders now "get it" -- that "they understand now that they have to change their behavior, they have to change their relationships, they have to change their ethics." And he believes colleges will be much more thoughtful and transparent now in how they put together their lists of preferred lenders, which he says he continues to think have a useful role to play in helping students.

But Cuomo also warns that his office will be watching for "manifestations" of the underlying problems elsewhere in the student loan enterprise, such as the tactics lenders might use as they increasingly market their loans directly to students over the Internet, for instance.

Academic leaders might also expect scrutiny in other parts of their institutions, Cuomo says. While college officials have responded to the student loan scandal mostly with changes in their financial aid enterprises, he says, if "they're not reevaluating all of their arrangements and relationships in light of this, I would be surprised, and it would be irresponsible of them."

Irresponsible and risky, because "if we find another manifestation of the illness," Cuomo says, "then we will prosecute that, too ... be it credit cards, or health care services, or food services."

Lawsky amplifies that point. "We have a team of very good lawyers who have developed some expertise in understanding these types of relationships between businesses and universities, and the impacts the arrangements can have on the students and the students' parents," he says. Through the student loan inquiry, "we have learned how important it is to students to make sure those relationships are honest and fair and in the best interests of the students. And we've learned that universities are often a place where you have a captured market and sometimes, potentially a real bottleneck, where a university can control students' access to a product, whether it's loans or textbooks or other items."

He adds: "Now that we have the expertise and we’ve understood the importance, it's a natural outgrowth that we will continue to dig deeply into these sorts of relationships. I think there's real potential that we will pursue similar avenues in other areas."

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