Cuomo calls student loan corruption widespread

April 11, 2007|Associated Press

ALBANY, N.Y. -- It was a call from an industry whistleblower that first drew New York Attorney General Andrew Cuomo's attention to dubious practices in the student loan business.

While various authorities have been looking at the issue for a year, Cuomo became interested after a lender trying to break into the business told him that a few lenders dominated the market. Cuomo saw it as an antitrust issue and started asking questions.

Two months after launching the case, Cuomo believes cozy arrangements between colleges and the firms that lend their students billions of dollars are more widespread than even he anticipated.

"This is like peeling an onion," Cuomo said. He is investigating alleged kickbacks to school officials who steered students to lenders.

So far, six schools, including the University of Pennsylvania and New York University, have agreed to reimburse students $3.27 million for inflated loan prices caused by revenue-sharing deals, he said.

Yesterday, two more school officials joined a list of those who have been placed on leave for possible ties to lending companies.

Widener University in Pennsylvania placed Walter Cathie, dean of financial aid, on leave. Cuomo's office said Cathie was paid $80,000 by Student Loan Xpress since 2005. Investigators said they also believed Cathie had an agreement with the company to market its services to graduate schools.

Capella University, a Minneapolis online school, said that it suspended Timothy Lehmann, its director of financial aid, after he admitted accepting consulting fees from Student Loan Xpress.