Kennedy Report Alleges More Misconduct Between Colleges and Lenders

Sep 05, 2007

Senator Edward Kennedy, chairman of the Senate Education Committee, released a report on Tuesday alleging inappropriate relationships and kickbacks among lenders, universities, and alumni groups. Sallie Mae, Nelnet, and Citibank are at the center of the investigation, as are schools like Georgia State University, the University of Nebraska, the University of South Carolina, and Fairfield University.

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Findings of the Kennedy Report

  • Student loan lender Nelnet paid almost $1 million to a University of Nebraska alumni group in exchange for exclusive referrals. Nelnet also paid $141,000 to a Georgia State group.
  • Nelnet sponsored $50,000 towards a University of Maryland event in hopes of becoming a preferred lender. The University of Maryland denied the request.
  • Sallie Mae used Opportunity Loan funds to barter for more market share.
  • Sallie Mae also gave Fairfield University Boston Red Sox tickets on at least one occasion.
  • Citizens gave Duquesne University $2,900. This monetary gift, referred to as a 'marketing fee', was actually a kickback equal to 0.5 percent of the school's outstanding private loans.
  • Citibank gave an accepting University of Southern California financial aid director tickets to the Rose Bowl.
  • SunTrust sales reports detail numerous benefits offered to a student aid official at Florida State University. Benefits included golf tournament tickets for the official's children.

Under the current law, colleges and universities are not allowed to accept 'gifts' or kickbacks from lenders because it may give the school an incentive to recommend one bank over another.

But according to a report yesterday released by Senator Edward Kennedy of the Senate Health, Education, Labor and Pensions Committee, many schools have been doing just that. Everyone from financial aid officers to alumni associations have been implicated by internal documents from lenders like Sallie Mae and Citibank.

Lenders reportedly provided donations, loan funds, services, and a variety of perks like sports tickets in exchange for placement on a university's preferred lender list or other preferential treatment.

The investigation was initiated earlier this year after reports of misconduct at several universities surfaced. Documents were requested from 16 lenders, who collectively represented 72 percent of last year's outstanding student loans (federally-guaranteed). The amount of evidence collected against the lenders and schools previously mentioned is overwhelming, indicating there is a serious problem in the $85 billion industry.

'The findings of the report underscore the urgent need for reform of the student loan system,' said Senator Kennedy in a statement released with the report.

The need is definitely there, but will the government really crack down on this behavior? Terry Hartle, senior vice president of the American Council on Education, says yes.

'The federal government has realized that if lenders have the resources to do these things, lender subsidies are too high,' Hartle said. 'There is no doubt Congress is very upset and they'll take very strong action.'

Let's hope so.

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