Loan Inquiry Turns to Deals With Alumni Associations
"Even as universities are agreeing not to accept cash incentives from student lenders, dozens of college alumni associations are taking payments from loan companies and providing names and addresses of graduates that the companies can use for marketing purposes.
Such arrangements between the associations and lenders have become the latest focus of an investigation by the office of the New York attorney general, Andrew M. Cuomo, into ties between lenders and universities.
Mr. Cuomo's office announced yesterday that it had begun sending 90 subpoenas and document requests to alumni associations at colleges and universities across the country, asking for information about the relationships between associations and lenders.
One large student loan company, Nelnet, of Lincoln, Neb., has also been sent a subpoena. In a statement, Nelnet said it would cooperate with the attorney general's office. ''We believe our agreements are appropriate and completely in accordance with the law,'' the company said.
The companies are trying to sell consolidation loans, by which graduates combine multiple student loans, ideally lowering their overall interest rate, so that they make a single monthly payment. Last year, $72 billion in federally guaranteed loans were consolidated, said Mark Kantrowitz, publisher of FinAid.org, a Web site devoted to financial aid.
In a typical arrangement between a loan company and an alumni association, the lender promises a payment for access to the names of graduates. The lender may pay the association more if more graduates use its consolidation loans. Lenders send marketing materials, typically with the logo of the university or the alumni association, to alumni.
Mr. Cuomo said the arrangements could be ''kickback schemes and payoffs that benefit lenders and their partners -- be they schools or alumni associations -- at the expense of students.''
Some alumni associations have recently begun to back away from the practice.
The alumni association of Ohio State University this year renewed a contract with Student Trust, a loan company, for at least $35,000 a year. But it has asked the company to suspend marketing efforts.
''We contacted them last week and asked them to halt any future mailings, to put those on hold and give us an opportunity to review the situation,'' said Jay Hansen, director of communications for the association.
Marketing materials sent to graduates did include the association's logo and did not disclose that Student Trust had paid the association a fee, Mr. Hansen said. ''A partnership implies that,'' he said.
In the four years that the association had an arrangement with Student Trust, Mr. Hansen said, 910 alumni bought consolidation loans out of about 40,000 who were sent marketing materials. ''Of that 910 people, we've not had any complaints from anyone,'' he said.
A call to Student Trust, based in Rockville, Md., was not returned.
Last week, the alumni association at the University of Michigan decided to terminate its contract with JPMorgan Chase & Company, said Jerry Sigler, vice president and chief financial officer of the association. Under that agreement Chase had agreed to pay at least $25,000 annually to market loans to the university's graduates. The amount to be paid would have been affected by the number of students consolidating, Mr. Sigler said.
Tom Kelly, a spokesman for Chase, said the bank would be winding down similar relationships with other universities ''by Aug. 15, if not sooner.'' He declined to identify the other colleges. Chase has signed a code of conduct governing relations between universities and lenders developed by Mr. Cuomo's office. Mr. Kelly said the bank believed the code prohibited the arrangements with alumni associations.
Nelnet has said it has marketing arrangements with alumni associations at more than 100 alumni associations. Mr. Cuomo's office said Nelnet's partners in New York include the Juilliard School, Niagara University, Manhattan College, City College and four campuses of the State University of New York. Nelnet signed a different code with the office of the attorney general in Nebraska. The company appears to view its marketing relationships as permissible in Nebraska.
''We are comfortable with the code of conduct that Nelnet has agreed to follow,'' said Jon Bruning, Nebraska's attorney general, in a statement.
Separately, Mr. Cuomo's office announced yesterday that its code of conduct had been adopted by Dowling College, which has three campuses in New York."