AMHERST, Mass. - The relationship between colleges and the student loan industry has come under investigation by New York's Attorney General Andrew Cuomo, who has launched a nationwide inquiry into apparent unethical practices behind school's bank preferences when referring to alternative loans.
"My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to schools of financial aid administers," Cuomo said.
In November 2006, six major lending firms were asked to submit information regarding their financial situations with universities. As of Feb. 1, 2007, the investigation has expanded to include nearly 60 universities, both public and private. The attorney general's office has sent inquiries to these universities asking them to formally explain what factors lead to a lending company being placed on their preferred lender list.
According to a press release issued by the office of the New York state attorney general, eight schools in Massachusetts have received these requests. However, the names of the schools were not released.
"Financial Aid Services at (the University of Massachusetts) and the university's General Counsel office at the Amherst campus are not aware of any request from the New York Attorney General," said Edward Blaguszewski, director of the University of Massachusetts news office.
As far as the allegations are concerned, Blaguszewski maintains that this university is not a preferred lender school.
"Financial Aid Services says it works with up to 30 lending institutions per year. It discusses a variety of lending options with students, and it lists options in its printed brochure and on its Web site," Blaguszewski explained in an e-mail.
On the Web site however, only seven lending companies are listed including Citibank, Bank One, Nellie Mae and AFC Campus Door.
A New York Times article published on Feb. 1 reported that last year alone, $17 billion dollars were taken out in private student loans. Therefore, being placed on a preferred lender list gives loan companies a huge advantage.
UMass junior Lauren Thorsell said that her parents were given many options by UMass's financial aid department but chose to use their credit union when it came time to taking out a loan.
"For parents who have a first time college student, recommending a company would probably be helpful. As long as you are not forced to do anything, I don't see the problem," Thorsell said.
The director of financial aid at UMass, Kenneth Burnham, could not be reached for further comment on this civil investigation, and there is no word on when this case should conclude.