College Officers Profited by Sale of Lender Stock

<p>School official raised profit from student loan program. I though you would be interested in this issue if you are one of the people who are interested in student loans.</p>


<p>The directors of financial aid at Columbia University, the University of Texas at Austin and the University of Southern California held shares in a student loan company that each of the universities recommends to student borrowers, and in at least two cases profited handsomely. </p>

<p>Lawrence Burt, on the site for the University of Texas at Austin.
The personal stake of the three university officials in the company, now known as Student Loan Xpress, is the latest revelation in an expanding investigation by Attorney General Andrew M. Cuomo of New York into the relationships between student loan companies and universities. Student Loan Xpress is one of the ?preferred lenders? recommended at all three universities.</p>

<p>Government filings show that the three officials sold shares in a stock offering by the parent company of Student Loan Xpress in 2003 and held additional stock options in the company, known as Education Lending Group. One of the officials made more than $100,000, according to documents and lawyers in Mr. Cuomo?s office. In one case, that of Texas, the official says he was invited to invest in the company.</p>

<p>The documents show the largest gains went to David Charlow, executive director of financial aid at Columbia University. Columbia said yesterday that it had put Mr. Charlow on paid leave ?pending a full review.?</p>

<p>Mr. Charlow sold 7,500 shares for about $10 each and held options on 2,500 more shares. Officials in the attorney general?s office said he had originally bought the shares for about $1 each. </p>

<p>The officials said that Mr. Charlow sold additional shares ? perhaps the result of exercising the 2,500 options ? in 2005, and that he earned a total of more than $100,000 from all the sales. Student Loan Xpress was put on Columbia?s preferred lending list in 2005. </p>

<p>Mr. Charlow, who the officials said sat on Student Loan Xpress?s advisory board, did not return a call. </p>

<p>Officials at the university notified Mr. Cuomo of Mr. Charlow?s investments. The attorney general has now subpoenaed Columbia for documents describing its relations with loan companies. </p>

<p>Mr. Cuomo also sent subpoenas to Student Loan Xpress and its current parent company, CIT Group, seeking documents and testimony. And he wrote to the universities in Texas and California seeking more information. </p>

<p>Student Loan Xpress was acquired by CIT in 2005. C. Curtis Ritter, a spokesman for CIT, said the transactions at issue ?occurred several years prior to CIT?s acquisition of the company.?</p>

<p>?We are currently seeking to determine the facts surrounding those transactions,? Mr. Ritter said in an e-mail message.</p>

<p>Student Loan Xpress accounts for nearly 39 percent of the federal loan volume to undergraduates at Columbia, according to Student Marketmeasure, a research firm that focuses on the student loan industry. </p>

<p>Student Loan Xpress has also featured praise from Mr. Charlow on its Web site. ?We have worked with the Student Loan Xpress team for many years because they consistently meet the very high standards for service that our students and parents expect not only from our university, but also from our partners,? he was quoted as saying.</p>

<p>The revelations that financial aid administrators had investments in a student loan company come as state and federal lawmakers have stepped up their scrutiny of incentives that loan companies offer to curry favor with universities as tuitions ? and student debt ? rise. Last year, according to the College Board, students took out $85 billion in loans. Students rarely comparison shop and often rely on the preferred lenders list recommended by universities to take out a loan. Sometimes, only a handful of companies make the list.</p>

<p>?There?s an implicit assumption that the financial aid office is an impartial, informed intermediary,? said Michael Dannenberg, director of education policy at the New America Foundation, a public policy institute in Washington. ?What we?re finding out now is that some colleges and some financial aid administrators may not be so impartial.? </p>

<p>The 2003 government filings show that Lawrence W. Burt, associate vice president and director of student financial aid at the University of Texas, and Catherine Thomas, associate dean of admission and director of financial aid at the University of Southern California, also had investments in the Education Lending Group.</p>

<p>Mr. Burt said yesterday that he had been invited to invest in the student loan company in 2001 at about $1 a share. Records show he sold 1,500 shares at about $10 a share two years later and held 500 options on additional shares. </p>

<p>Ms. Thomas also sold 1,500 shares and held 500 options. She did not return a call yesterday, and it was not clear whether she had initially bought stock at the same price as Mr. Burt and Mr. Charlow.</p>

<p>Mr. Burt said the University of Texas had not known that he owned stock in Student Loan Xpress. He said that Student Loan Xpress became a preferred lender at the university in the 2002-3 school year and that his ownership of stock in the company did not influence his decision about whether to place it on the list. He said he no longer held any stock in Student Loan Xpress. </p>

<p>Education Lending Group, Inc. S.E.C. Filing (Page 14) Mr. Burt said the university received no financial benefit from putting Student Loan Xpress on its lender list. ?We do not direct students to specifically choose one lender over another,? he said. ?All the lenders on our lender list are only on our lender list because they provide good service and good borrower benefits.?</p>

<p>Juan C. Gonzalez, vice president for student affairs at the University of Texas, said in an e-mail message that the university would review how preferred lenders were selected. ?In addition, we will review if any individual at the university has any perceived or real ?conflict of interest? in this selection process,? he said.</p>

<p>Under the rules of the University of Texas System, a state employee ?may not have a direct or indirect interest, including financial and other interests, or engage in a business transaction or professional activity, or incur any obligation of any nature that is in substantial conflict with the proper discharge of the officer?s or employee?s duties in the public interest.? </p>

<p>James Grant, a spokesman for the University of Southern California, said the institution had ?received the letter today from the attorney general, and will now review the information in the letter and respond.? It is not clear when Student Xpress became a preferred lender there.</p>

<p>The National Association of Student Financial Aid Administrators said in a statement yesterday that it ?believes it would be inappropriate for a school to place a lender on a preferred lender list in exchange for shares of stock.? The group added, ?We would also note that if the financial aid administrator purchased the stock with their own funds, their ownership of the shares may not be evidence of improper conduct, but would certainly present the appearance of a conflict of interest.?</p>

<p>The disclosures that university financial aid officers had a financial stake in a loan company came a few days after five other universities agreed in a settlement with Mr. Cuomo to pay back $3.2 million to students to resolve an investigation of arrangements in which the institutions were paid by lenders based on student loan volume. Citibank also agreed to pay $2 million to a fund to educate students and parents about student loans. The institutions all said they had done nothing wrong.</p>

<p>In Washington, the Education Department is considering whether to regulate preferred lending lists. Senator Edward M. Kennedy, the Massachusetts Democrat who is chairman of the committee on education, has requested information from lenders on their ties to universities, as has his counterpart in the House, Representative George Miller, Democrat of California. </p>

<p>At least one other state attorney general, Lori Swanson of Minnesota, has begun to look into such relationships as well.</p>

<p>JONATHAN D. GLATER. New York Times. College Officers Profited by Sale of Lender Stock. 5 April 2007. <a href=""&gt;;/a&gt;&lt;/p>