Drexel named in loan scandal

University receives over $100,000 per year from "preferred lenders."

By: Noah Cohen

Posted: 4/6/07

The University has been named by the New York Attorney General's office as receiving "kickbacks" from the student loan industry as part of a probe into the practice of schools recommending lenders to students.

According the Attorney General's investigation, the University received $100,000 per year from the lender Educational Financial Partners. In exchange, the University recommended EFP as the "sole preferred lender" for students seeking financial aid.

"The Attorney General's office will be filing suit over deceptive business practices in the company's student loan business. The suit is the first filed in a nationwide investigation into the college loan industry," according to a press release from the New York Attorney General, Andrew Cuomo.

"A preferred lender ought to mean that the lender is preferred by students for its low rates, not by schools for its kickbacks," Cuomo said.

Since the Attorney General's Mar. 22 announcement several schools named in the investigation have said they will return the money received from lenders.

University officials maintain the money is being used for legitimate purposes.

"A revenue reinvestment that is being used for scholarships is really not a kickback," said Executive Director of Financial Aid Melissa Englund.

Englund explained that the money received from EFP is put in a "special account" and is used for an "extraordinary change in circumstances" that could occur in students lives.

Englund said 43 students have used the funds to help them continue their education while dealing with events ranging from a family death to severe illness.

"That is a designated scholarship account so it will never be removed from that, if we don't use all the money in a particular year it will be rolled over to the next year" said Englund.

The money received from EFP can only be used for these special purpose financial aid situations explained Englund.

"It can never be taken out for another use," she added.

A statement from EFP echoed the University's claim that the money is being used legitimately.

"The funds are directly provided to schools because the company believes that schools are in the best position to know how to serve students," read the statement.

EFP spokesman Kirk Copeland refused to comment further.

Funding returns to the University was not all the Attorney General cited.

"EFP engaged further in deceptive marketing practices by using schools' logo's, mascots and names in EFP promotional materials" said the Attorney General's statement.

The Attorney General released a recommended code of conduct for schools when dealing with student loans.

"Colleges must ensure that employees of lenders never identify themselves to students as employees of the colleges" stated the recommended code of conduct.

Employees of Educational Financial Services, not of the University, staff Drexel's prospective student financial aid call center.

EFS is a non-profit corporation that supplies "free college planning services, scholarships and low-cost loans" according to its website. EFS has not been named in the suit.

Executive Director Englund explained that EFS staffers are not University employees. "They are not employees of Drexel but they identify themselves as such," Englund said.

When The Triangle placed a call to Drexel University's prospective student financial aid help, a representative, when asked, said she was not an employee of the University, but of EFS. In addition a greeting message says "Thank you for calling the Ed Financial Drexel help line" immediately after dialing the number.

Englund said that Drexel has not received a settlement letter from the Attorney General's office and has no plans to return the money.

"At this point we have not been asked to do so," Englund said, "If we were approached the University would look at that."

Arthur Harris, spokesman for the Attorney General's office said, "schools absolutely should" return the money gained from relationships with the lending industry.

Harris declined to comment on any specific discussions between the University and the Attorney General's office.

When asked if the Attorney General would sue specific schools Harris said, "Potentially but we have not taken that step".

Follow up calls to Harris were not returned at the time of this writing.

Although the University believes that it can best manage the use of the funds for scholarships the University of Pennsylvania has taken a different approach.

"Penn will modify its arrangements with Citibank to ensure that borrowers are reimbursed for their share of the fee, and Penn will no longer accept fees from Citibank in connection with this program" according to a statement issued by Penn.

Another element of the investigation was personal gifts given to members of school administration.

Toby Oxholm, General Counsel for the University, said no Drexel staff received gifts from lenders.

"Absolutely not, we have had a conflict of interest policy for years," he said.

Englund also said she was never offered gifts and "would contact appropriate legal officials at the University" if she was approached by lenders.

Drexel selected EFP after gathering proposals from several other vendors. EFP was selected because it included the most options for students.

"We want the best rates, the best customer service, electronic processing" said Englund on why EFP was selected as the "preferred lender."

She added that EFP was able to provide loans for international students with "less then stellar" credit.

While the Attorney General has subpoenaed other schools including Columbia University, Drexel turned over all information voluntarily.

"We got a letter in March and we gave them all the information" Oxholm said.

Since then the University has not received any further communication from the Attorney General.