New York Attorney General Andrew Cuomo announced last week his intention to sue student lender Education Finance Partners (EFP). He alleges that the company offered to pay more than 60 colleges and universities, including Washington University, in return for naming it a preferred lender.
The notice of intent to sue said EFP encouraged schools to promote it as a preferred lender; in exchange, it paid a percentage of the net value of the referred loans back to the schools.
The notice contends that many universities referred students to EFP, even though the firm didn’t have the best rates and may have denied them better options. According to the notice, both parties failed to disclose these payments to students.
In an EFP press release dated Mar 22, CEO Tamera Briones said the company would defend its practice.
“We question whether the Attorney General’s office is seriously interested in learning all of the facts and whether there has been an actual violation of law,” she said. “Significantly, the Attorney General fails to mention in his press release that many colleges and universities use revenue share to fund student aid programs.”
She also said in the release that EFP’s revenue sharing never impacted borrowers’ interest rates and that EFP did disclose all relevant information.
Vice Chancellor for Public Affairs Frederic Volkmann said the University never accepted compensation from the lender in a revenue sharing program and added that the contract with EFP ended last March.
“Wash. U. has been committed for ages to helping students identify lenders that are responsive to students and that provide high quality customer service and competitive repayment options,” said Volkmann. “The University does not accept any form of compensation for making recommendations to students about what is a good option for them. They are based on experience and knowledge of the marketplace.”
According to Volkmann, students have obtained loans from more than 90 different lenders during this school year.
When the University first signed the contract, EFP offered loans to undergraduates without requiring a cosigner, meaning they were unsecured.
“This was a unique benefit to students,” said Volkmann. “The University thought this would be beneficial to students whose families wouldn’t cosign a loan. We never agreed to any exclusive relationship. In fact, we’ve never had an exclusive relationship with any lender ever.”
During the term of the contract, three University students took out loans with EFP totaling $25,000, according to Volkmann.
He also said that the company did make the type of offer for which it is being sued now, however.
“EFP did establish that if the institution working with them would provide at least $1 million in preferred loans, that it would provide return compensation,” he said. “Obviously that did not happen at Wash. U. When Cuomo’s office requested information regarding financial arrangements, we sent it to them.”
This lawsuit is the first of what is expected to be further legal action against the college loan industry. The investigation so far extends to 100 schools and at least six lenders, whose relationships Cuomo says are unlawful and deceptive.
“We simply just do not operate on the basis that the University and its officers accept any form of compensation in exchange for making recommendations,” said Volkmann. “This is a service for students. We try to provide them an excellent resource.”