New York Attorney General (AG) Andrew M. Cuomo is in the midst of collecting information for a possible lawsuit against Education Finance Partners (EFP), one of Emerson College's student-loan companies.,A lawsuit against one of Emerson College's student-loan partners could change how student loan companies partner with colleges across the country.
New York Attorney General (AG) Andrew M. Cuomo is in the midst of collecting information for a possible lawsuit against Education Finance Partners (EFP), one of Emerson College's student-loan companies.
Cuomo is attacking EFP's process of paying fees to colleges that put the company on their "preferred lender list." The company practices this business technique with more than 60 colleges in the country. Six of those are in Massachusetts, including Emerson.
Cuomo suspects that the colleges and universities who use EFP guide their students into using this loan service in order to receive kickbacks. He is also questioning why schools did not inform their students who use loans of the fact that the school receives money back.
A preferred lender list is a recommendation of certain loan companies that a college might provide for students.
Emerson creates a list of preferred lenders in order to assist families and students in finding the best rates. The college can benefit from students using loan companies on preferred lender lists by gaining money from student use.
However, students are welcome to use loans that are not mentioned on the preferred lender list.
EFP is a San Francisco-based loan company that gives a small percentage of its proceeds to the colleges it works with.
"EFP gives Emerson about .25 of 1 percent of a loan from one student," said Daniel Pinch, the dean of Enrollment Management. "Almost all alternative loan companies try to give back something so they don't look like they are just getting money," said Pinch.
In response to Cuomo's accusations, Tamera Briones, the founder and chief executive officer of EFP, stated in a press release:
"While nearly all of the universities use the proceeds to help students today, we will now explicitly require that all schools use these proceeds for the benefit of students," Briones said.
This could include opportunity funds, grants or scholarships, like the kind Emerson has created with the money received.
EFP is one of seven lenders Emerson mentions. Some lender companies, such as EFP, give back a percentage of business or fees to the college they have worked with.
"The College received $1,350 in fees from EFP," said David Rosen, the vice president of Public Affairs. "The funds were put into a scholarship for a needy student."
Students interviewed didn't see the problem with Emerson accepting money from a loan company to put them on a list.
"They are obviously a good lender, why not help them out and put them on the list," said Andi Rothwell, a sophomore print journalism major who is dependent on federal student loans. "Emerson is doing a good thing referring their students to someone who will give them money back which goes to another student."
Emerson has worked with EFP for the past two years, and in both circumstances donated the funds to a scholarship for a student in need. This year the money will be donated as the EFP Scholarship.
"This year, Emerson processed 1,424 alternative/PLUS loans totaling $22.6 million," said Rosen. "Fifty-two of these loans totaling $861,000 were processed through EFP."
Cuomo sent a letter to Emerson on Feb. 7, expressing his concern with the possible "offering or providing in order to secure placement on school's 'preferred' lender lists, as well as other lender activity which might create possible conflicts of interest and compromise the interests of individual student borrowers."
The letter requested 28 specific pieces of information about Emerson's financial aid office and their student loan lenders. Cuomo inquired Emerson of their lenders, payment policies and copies of any documents that pertain to the investigation.
Christine Hughes, the vice president and general counsel of administration and finance at Emerson, drafted a letter in response, explaining some of the information that Cuomo's office called for.
"In selecting 'preferred' lenders, we evaluate rates and terms, customer service and technological efficiency," Hughes stated in the response.
As stated in the letter, "The College's designation of certain lenders as 'preferred' is one of the ways in which the College assists students and their families in sorting through the bewildering numbers of lending opportunities."
Hughes' letter also confirmed that "Emerson has and will continue to process any loans submitted by a parent of student, without regard to whether the lender is on the College's 'preferred' list."
Emerson is not the only school in the Massachusetts area to be questioned by Cuomo. Berklee College of Music and Boston University also work with EFP and were given the third degree by Cuomo's office.
Boston University answered Cuomo in an alternative way.
According to a written statement made by Colin Riley, the director of Media Relations at Boston University, the school has not even reviewed the letter.
Riley's declaration said, "EFP asked us to sign an agreement to actively promote them, and we refused. When the N.Y. AG notified us of his concerns, we made a decision that we will return the $1500 to EFP and that we will not accept any additional funds from them."
"I don't see anything wrong with the process as long as the money is going back to the students," said Sarah Maddix, a sophomore psychology major at Boston University.
According to Riley's written statement, "Boston University students receive approximately $50 million in educational loans from private, non-governmental lenders. Loans from EFP represent approximately $1.5 million of that amount."
For now EFP will have to wait to hear back from Cuomo's office in regard to the possible lawsuit.
"It's like good karma and helps everyone," said Rothwell. "It is not a bad thing and it is not hurting anyone."