Another Suspension In Student Loan Probe
By CBS News producer Phil Hirschkorn.
A financial aid administrator for a major university was suspended from her job Monday when her employer learned she has been paid tens of thousands of dollars in consulting fees by a student loan company, Student Loan Xpress, which shook up its leadership amidst a widening investigation of conflicts of interest among universities and lenders.
New York State Attorney General Andrew Cuomo is questioning the conduct of the financial aid director at Johns Hopkins University, in Baltimore – Ellen Frishberg – who sits on the advisory board of Student Loan Xpress.
Frishberg received about $65,000 in payments from leading lender Student Loan Xpress during the past five years, according to Cuomo's office and the university. At the same time, Johns Hopkins has designated Student Loan Xpress a "preferred" lender for federal PLUS and private loan programs, which help parents and graduate students borrow beyond the limit of the federal government's direct loan program.
Frishberg, who oversees financial aid programs for arts and sciences and engineering students, was placed on leave, said university spokesman Dennis O'Shea. An automatic e-mail message reply from Frishberg and a person in her office said she was on vacation.
According to Cuomo's office and Johns Hopkins, Frishberg's payments from Student Loan Xpress included $43,000 in direct payments. About $22,000 was in tuition payments for a doctoral program at the University of Pennsylvania in higher education administration.
Meanwhile, the University of Wisconsin-Milwaukee was defending its financial aid director, Jane Hojan-Clark, who also sat on the Student Loan Xpress advisory board.
Since UWM named the company as its single lender two years ago, Student Loan Xpress has dominated campus borrowing by managing $72.5 million in federally-backed student loans and representing 55 percent of the student body's loan volume, according to Student Marketmeasure, a firm that tracks student loan data.
Hojan-Clark told CBS News that after an open bidding process, UWM picked Student Loan Xpress in 2005 for a transition period in which the school used preferred lenders for the first time. This year, the school added four more lenders to the list.
Hojan-Clark said she did not receive any financial benefits from serving on the advisory board, but Student Loan Xpress did pay her travel expenses for two trips to meetings in Ohio and New York.
"I've never owned stock," Hojan-Clark said. "I have never been offered stock."
"The vast majority of financial aid administrators across this country, like myself, do not have any personal interest in the selection process of lending institutions," Hojan-Clark continued. She said he had "dedicated her whole career to proving the best financial information to students and making sure student have access to higher education."
The parent company of Student Loan Express, CIT Group, placed three Student Loan Xpress executives on leave Monday — Vice Chairman Robert deRose, CEO Mike Shault, and President Fabrizio Balestri — as a result of the Cuomo investigation.
Last week, Cuomo began questioning past stock holdings among financial aid officers at schools where Student Loan Xpress is listed as a preferred lender.
"As a company that holds itself to the highest standards of business ethics and integrity, we take the allegations raised by New York Attorney General Cuomo very seriously," said CIT Chairman and CEO Jeffrey Peek in a written statement. "We will continue to cooperate fully with the attorney general's office in this matter as we continue our internal review."
At least one financial aid administrator, Larry Burt of the University of Texas-Austin, has said it was Balestri who had offered him the opportunity to invest in a precursor of Student Loan Xpress, Education Lending Group, in 2001.
Burt, financial aid administrators at Columbia University and the University of Southern California, and a student aid administrator for the U.S. Education Department, Matt Fontana, are among those placed on leave from the jobs while their past stock holdings are investigated.
Cuomo's office is also questioning financial arrangements between Student Loan Xpress and the financial aid directors at Widener University, in Pennsylvania, and the online Capella University, based in Minnesota. Both financial aid officials sit on the Student Loan Xpress advisory board.
Widener's financial aid director, Walter Cathie, allegedly ran an outside company that was paid $80,000 by Student Loan Xpress for running lending conferences the past three years, according to a letter from Cuomo to Widener's president. More than 90 percent of Widener families obtained federal PLUS loans through Student Loan Xpress in the past two years, Cuomo's letter said.
"We received the letter, and we're looking into it," Widener spokesman Dan Hanson told CBS News.
In a letter to Capella's president, Cuomo's office asserts that Capella's financial aid director, Timothy Lehman, received $13,000 in consulting fees from Student Loan Xpress while the company was one of the school's 15 recommended lenders.
"They were on there when he arrived in April 2001," Capella spokeswoman Irene Silber tells CBS News. "Tim has told us he did do some consulting for Student Loan Xpress. We're reviewing that."
According to Silber, the company in 2005 paid Lehman $12,400 to develop a business plan for them and compose a training document.