Education Finance Partners, a private student loan company based in San Francisco, is the first target of lawsuits to be brought by New York Attorney General Andrew Cuomo alleging "unlawful and deceptive acts and practices" that Cuomo claims hurt students and parents who borrow money to pay for college.
At a news conference in his Lower Manhattan office Thursday afternoon, Cuomo announced his intent to sue and seek restitution from EFP concerning its financial agreements with more than 60 universities around the country.
"EFP has repeatedly and persistently offered to make payments, and has in fact made payments, to colleges, universities, and vocational schools in exchange for these schools steering students to EFP loan products and placing EFP on the schools' 'preferred lender' lists," said a letter sent by Cuomo's office to Tamera Briones, EFP's founder and CEO.
"Such steering and placement on the preferred lenders lists occurred without disclosure to student borrowers and their parents," the letter added. Cuomo gave EFP five business days to furnish information that would dissuade him from filing the civil suit.
Briones said she was "surprised and dismayed" at his move.
"We understood that Mr. Cuomo's investigation was in its early stages, and we were cooperating fully with his office," Briones said in a written statement. "We question whether the Attorney General's office is seriously interested in learning all of the facts and whether there has been an actual violation of law."
Cuomo says universities that have agreements with EFP include: Baylor and Texas Christian, in Texas; Drexel and Duquesne, in Pennsylvania; Clemson, in South Carolina; Pepperdine's business school in California; the University of Mississippi; Washington University, in St. Louis; and Boston University. The New York state schools with such agreements include Fordham, St. John's, Union College, and Long Island University, Cuomo says.
"Fordham no longer participates in revenue-sharing opportunities with EFP or any other student loan firm," said spokesman Bob Howe. "It became apparent that the modest good it accomplished for a small number of students could be outweighed by the perception that it was an inappropriate practice."
In exchange for loan business, according to Cuomo, EFP pays schools a small percentage of the net value of the total loans referred in a given academic year, an arrangement the attorney general calls "kickbacks" that he says can inflate loan rates and cost borrowers more.
Briones rebutted that contention, saying, "The price to the borrower is based on the borrower's risk profile, not whether the student attends a school that participates in the program." She also said EFP does disclose its revenue-sharing deals.
According to Cuomo, Boston University receives .25 percent of the net value of loans referred to EFP totaling $1million to $5 million; .50 percent of the net value of loans totaling $5 million to 10 million; and .75 percent of loans exceeding $10 million.
"We never signed such an agreement," said Colin Riley, BU's Director of Public Relations. "In fact, EFP asked us to sign an agreement to actively promote them, and we refused."
According to Riley, during the past two years, EFP paid the school a $1,500 service fee for helping process $1.5 million in loans, a fraction of the $50 million BU students borrowed in that time, mostly from the federal government. Riley said BU had no preferred private lenders and gave EFP no preferential treatment.
Duquesne's agreement with EFP gives the school .60 percent of the net value of referred loans, confirmed spokeswoman Bridget Fare. After receiving its first query from Cuomo on Thursday, the school posted a "clarification" to its financial aid Web site acknowledging its "limited commission" from loans steered to EFP, PNC Bank, and Citizens Bank. Fare told CBS News, "We take access and affordability to higher education very seriously, which is why any monies collected form these agreements are put right back into need-based grants."