Kickback Scheme Alleged in Student Loan Market

NEW YORK – Attorney General Andrew Cuomo said yesterday he plans to sue a California student loan provider, claiming the company is making illegal kickbacks to schools in exchange for business. The Attorney General sent a notice of intent to sue Education Finance Partners Inc., based in San Francisco. The notice, a precursor to a lawsuit, is the first legal action to come from a nationwide probe of the $85 billion student loan industry that Cuomo launched in February. The company said it was "surprised and dismayed" by Cuomo's announcement and is prepared to defend its business practices. Cuomo's office said EFP had arrangements with more than 60 colleges in which the schools were rewarded for sending students to EFP for their loans. The arrangements were structured to encourage schools to transfer as much business as possible to EFP. As an example, Cuomo's office said Boston University would get 0.25% of the net value of the loans made to its students by EFP if the total value reached more than $1 million. If the value of the loans reached more than $5 million, BU would get to keep 0.5% of the amount. If the loans reached more than $10 million, the school would reap a 0.75% reward, Cuomo's office said. Other schools that had similar agreements included Baylor University, Clemson University, Duquesne University, Drexel University, Fordham University, Long Island University, Pepperdine University and it's Graziado School of Business, St. John's University, Texas Christian University, Washington University in St. Louis and the University of Mississippi. Cuomo’s office is investigating at least five other student loan companies, including SLM Corp.— commonly known as Sallie Mae; Nelnet Inc.; EduCap Inc.; the College Board; and CIT Group Inc.