Fed Looked At For Student Loan Investments

Education Department Official, 3 Universities Under Scrutiny For "Potentially Improper Stock Grants"

(CBS)  By CBS News producer Phil Hirschkorn.

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A federal government official is now under scrutiny in a widening probe into the $85 billion-a-year college student loan industry.

Three major universities have suspended top financial aid officials in the wake of the investigation by the office of New York State Attorney General Andrew Cuomo.

The investigation now extends to a current Education Department official with former stock holdings in a leading student loan company, Matteo Fontana, the general manager of the National Student Loan Data System, a central database for student aid, including the federal direct loan program and Pell Grants, CBS News has learned.

Fontana and the universities are being scrutinized for their ties to Student Loan Xpress Inc., one of the fastest-growing student loan companies since its launch in late 2001, and its current parent company, CIT Group Inc., a Fortune 500 company traded on the New York Stock Exchange.

Cuomo is investigating what he calls “potentially improper stock grants,” including one stock sale that Cuomo alleges netted an Ivy League official a six-figure profit.

Cuomo’s office says it has issued subpoenas for documents and testimony to Student Loan Xpress and CIT, as well as a subpoena to Columbia University and document retention letters to the University of Texas-Austin and University of Southern California.

According to financial documents and the New York attorney general, the officials in question were once stockholders in Education Lending Group, Inc. (EDLG), which until 2005 was the parent company of Student Loan Xpress. All three schools currently list EDLG as a “preferred” lender for students needing financial aid. About 90 percent of college students who currently borrow money for college turn to lenders designated by their schools as preferred, Cuomo says.

Based in San Diego, Student Loan Xpress says it is now the eighth largest student loan provider in the country, according to Student MarketMeasure, Inc.

Fontana once owned 10,500 shares of EDLG stock, according to a prospectus filed by EDLG with the Securities and Exchange Commission in September 2003. At the time, the company was offering more than 8 million shares of its common stock then trading on NASDAQ for $9.54 a share. CIT completed the buyout of EDLG for $19.05 a share in Feb. 2005.
“The department takes this matter very seriously, and our office of the general counsel is actively reviewing it,” said Education Department spokeswoman Samara Yudof. “We are providing the department's Inspector General all relevant documents." She added that Education Secretary Margaret Spellings has been briefed by staff. Fontana did not immediately reply to a request for comment.
“We need to ensure that those charged with administering federal student loan programs put the interests of students first,” said Edward Kennedy, who chairs the Senate Committee on Health, Education, Labor, and Pensions, and is also probing the student loan industry. “It is inexcusable for students to be paying the price for backroom deals in the student loan industry.”

On Thursday, USC and UT-Austin joined Columbia in placing financials aid administrators on paid leave pending the outcome of the probe.

The attorney general’s letters to the school presidents ask them to determine whether their financial aid officers “received any payments, stock, or other benefits” from any lenders and to divulge how the schools choose their preferred lenders during the past six years.

Cuomo’s office singled out the financial aid directors at UT-Austin, Larry Burt, and at USC, Catherine Thomas.

“We have reason to believe,” the letters said, that the officials may have received shares or stock options “directly from the company … in exchange for placing Student Loan Xpress” on its preferred lender list. Burt denied the charge. Thomas was not available to comment.

UT-Austin President William Powers suspended Burt on Thursday, telling the university community in a letter, “It is important that the university ensure the integrity of its financial aid program and maintain unimpeachable practices on behalf of students and their families.”

[MichalHussay]

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I really like to read.Hope to learn a lot and have a nice experience here! my best regards guys!
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[mainemade]

No wonder colleges are so expensive....

[glennj6]

Up until the legislative session of 2003, tuition-setting authority in Texas was in the hands of the Texas State Legislature. In 2003, by way of House Bill 3015, the Legislature granted tuition-setting authority to public university governing boards.

Since that time, the Boards of Regents of the Texas A&M University System, the University of Texas System and the University of Houston System (all members of which are appointed by the Governor) have visited draconian tuition increases on Texas students and their families.

While Attorney General Andrew Cuomo is investigating stock grants and possible kickbacks from student loan companies to financial aid officials, I think he would be wise to determine if members of the respective Boards of Regents have any financial ties to the loan companies, as well.

Everybody might be shocked about what is uncovered.

[mwcinin]

For those of you that think college is not worth it, well you deserve what you get. For every Bill Gates there are 10,000 out of work dead beats that I'm paying their welfare for. In a lot of ways the college experience teaches you very little. However, a college degree seperates you from the 1000's of others that want the same job. An employer cannot possibly review all applicants for a job, so they set up weeding mechanisms, such as a college education. It is an indicator of self management, fortitude, stress management, time management, general knowledge, and the ability to deal with futility. It is not and indicator of intelligence or job specific knowledge. Again, for those of you who don't think its worth it; I say "No!"..."I don't want fries with that!"

[mo005]

I went to college for three semesters. Talk about a waste of time and money. I went to learn about computers. Didnt learn a *** thing about them there. Thaught my instructors how a hard drive works, and what a motherboard, processor,and memory chip looks like. I learned about computors on my own. Oh well I lied, they taught me how to make a screen saver and how to copy and paste. They dont teach anymore. You have to take drama class's and walking class's all this *** that has no bearing on your major. I learned more about computors from a next door nieghbors daughter than I did from any professer in college. I droped out and went back to work. Now I owe all this money for what nothing.

[mo005]

monkfellow: Thank you you said it all for me.I agree 100 percent.

[yorkark]

This whole country is on the take,but the well is running dry. What are they going to do when we are just illigal immigrants who cannot read or write. Third world country here we come.

[dowjones20k]

"Tuition profits at Universities are indeed going toward Bushes war in Iraq".

Posted by djermano1


HAHAHA

Are you serious? Do you honestly beleive that the elite academia would stand for Bush getting in on the charade of higher education?

This is another ploy ... one that is causing huge financial burden, while dupping the American public.

Yes, yes, send your children to college, let them learn to drink, party, sleep in class, take classes that have nothing to do with the major or be educated by a TA or ST? PLEASE !!!

All the while, overpaid at $150,000 a year professors are on sabaticals, writing books that will soon be required reading in their courses, all the while looking to pad their already fat retirements? PLEASE !!!

You dont think the elite are capable of stealing from the American public? Think again !!!

College is over-rated and just another sad gimmick in American society ..... ask Bill Gates.

[mwcinin]

djermano1


Your comments are idiotic; ergo you are.....

[monkfellow]

I KNEW someone would slam the president..it boggles the mind.
"My dog died, it's the fault of the Bush war machine that we don't have more state aid for veterinary students...."
You could count the number of poor kids going to Columbia on one hand. UTA and USC are top flight schools that are extremely selective, no matter how "diverse" pressure groups try to force them to be. Student aid is a small part of the picture in those institutions.
The bigger crime is the Clinton sleaze machine pushing through the legislation in the 1990s taking the free market out of student lending and putting it in the hands of government officials. Absolutely power corrupts, absolutely.

[rray52]

Greed and corruption in our universities?
Impossible, They are shining beacons of integrity.

"Say it aint so Joe."

[mcvet]

Where has America gone? It seems those in our Government are just out to pad their wallets at Tax Payer Expense and those who are supposed to prevent such things just jump on the bandwagon. We need to turn around this country and get back to what we as a nation stand for. HONESTY, COMPASSION and COMMON GOOD!

[djermano1]

Making money off the backs of poor students, what a racket. Tuition profits at Universities are indeed going toward Bushes war in Iraq. They don't tell you this being afraid of the public withdrawing from schools across the country. Low lifes in high places. Accreditation is a complete farce in my book.