Johns Hopkins Does Away With Preferred Lenders List

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April 25, 2007 11:04 PM

In response to a probe by the New York State Attorney General's Office and the disclosure that one of its top financial aid advisors had been paid $65,000 by a student lender recommended by the school, Johns Hopkins University Wednesday canceled all lists of so-called preferred student lenders and adopted a new code of conduct governing its seven financial aid offices.

Hopkins made the announcement Wednesday evening in a statement by university spokesman Dennis O'Shea that noted the two actions were part of the school's response to New York Attorney General Andrew Cuomo's investigation.

To date 15 schools have arrived at settlements in the probe into questionable business practices in the $85 billion-a-year student loan industry. Despite today's announcements, Johns Hopkins has not yet arrived at any formal settlement.

The probe by Cuomo into the intensely competitive industry has exposed the warts of an industry that thrives by serving the majority of students in the nation's four-year colleges.

Several aid officials have been found to have accepted stock, cash and other gifts from lenders they recommend students use. Several schools have been exposed as sharing revenue with their lenders. None of the schools has admitted any wrongdoing, however, about half have agreed to make direct restitution to students from any money the schools earned from steering their loans to certain lenders.

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Cuomo and Johns Hopkins were informed on April 9 by CIT Group, the parent company of Student Loan Xpress, that SLX had paid about $65,000 in tuition for or consulting fees to Ellen Frishberg, the director of financial aid at the university's schools of Arts and Sciences and Engineering and the person characterized in the past by university officials as the most prominent of the school's financial aid officers.

She has been on paid leave since the discovery of the payments.

"In a meeting with university attorneys last week, she (Frishberg) reported that she had consulted for other companies. The university is now investigating those relationships," the statement said.

It noted that Frishberg had not disclosed those relationships to the school. She had disclosed her role on SLX's advisory board and the portion of the SLX payments directly linked to advisory expenses. 

CIT, meanwhile, has suspended the entire top management of SLX after this disclosure and the disclosure that other aid officers, including one at Columbia University, had received and profited from restricted stock and stock options and other forms of payment from SLX.

"Though the university's inquiry is not complete and Frishberg remains on administrative leave, the university has made initial policy decisions regarding future relationships with companies that make loans to students and their families," the statement by O'Shea said.

It quoted John Hopkins president William Brody as saying the university "is absolutely committed to a financial aid program that serves students' best interests and meets the highest ethical standards. The actions the university is announcing today are intended to ensure that we meet that commitment."

A key component of that initial response was the adoption of the College Loan Code of Conduct proposed by the attorney general. The code requires, in part, that university employees be prohibited from accepting anything of more than nominal value from lenders.

The second part of the response was to have all seven financial aid offices "that serve Johns Hopkins' nine schools and nearly 20,000 students" cancel all lender lists. The university said it would not "issue any new lists of loan companies until there is a national consensus on standards for lists that are free of conflict of interest."

Those potential conflicts, according to Cuomo, include revenue sharing between lenders and schools, gifts, financial incentives and other blandishments to aid officers and a failure to fully disclose to students why a lender was recommended to students by the institutions.

The nation's top two student lenders -- Sallie Mae and Citi -- have both agreed to place $2 million into an account to help educate students who are contemplating loans. Neither lender has admitted any wrongdoing.

Nearly two-thirds of the applicants to four-year colleges take out student loans to help finance their studies. In the past, nearly 90 percent of those loans were written by lenders on the short list of "preferred lenders" promulgated at the schools.

Cuomo's office had no immediate comment on the actions by Johns Hopkins except to note that the attorney general has not yet arrived at a formal settlement with the university.

In its statement, the university said it has found "no evidence to date that any student has been harmed by the inclusion of SLX on its lender lists."

The university also said it "has found no evidence of any lender payments to Johns Hopkins in return for placement on any lender list or as compensation for loans to Johns Hopkins students."

However, "the university did identify two contracts, one of which ended in 2004, in which a university financial aid office agreed to place a company on a lender list as part of that company's agreement to provide loans to the university's international students."

And the school noted, some lenders, including SLX, "have occasionally paid for meals or entertainment for employees of Johns Hopkins financial aid offices at professional conferences or for meals during campus visits."