WASHINGTON – New York Attorney General Andrew Cuomo announced Wednesday that two more student lenders have agreed to abide by a code of conduct designed to protect students from questionable college lending practices.
JPMorgan Chase (JPM) and Bank of America (BAC), both leading student lenders, have agreed to adopt the code of conduct, Cuomo told lawmakers at a hearing before the House Education and Labor Committee.
Cuomo said the code was needed to sever too-cozy ties between lenders and colleges or student financial aid officers.
"We have to change the culture here," Cuomo said. "There are relationships here which have to be changed and broken."
The code of conduct bans lenders from paying colleges in exchange for being designated a preferred lender. Cuomo said Wednesday that students almost always use lenders that appear on schools' preferred lender lists.
The code of conduct also bans lenders from paying for trips for financial aid officers and other college officials. Lenders also cannot pay college employees to serve on advisory boards.
Sallie Mae and Citibank (C) previously entered into agreements with Cuomo in which they said they would adopt the code. Some congressional lawmakers want to write it into law.
Cuomo said his investigators uncovered numerous arrangements that benefited schools and lenders at the expense of students. For example, investigators say lenders have provided trips for college financial aid officers who then steered students to the lenders.
Cuomo also criticized revenue sharing agreements in which schools received a percentage of the money lenders made from loans to students at certain schools.
Cuomo criticized the Education Department Wednesday for having a laissez-faire attitude about the student loan industry. "I don't believe the oversight was adequate. I don't believe the guidance was adequate," he said.
Rep. George Miller, D-Calif., and chairman of the committee, agreed.
"I don't understand their slowness to respond," Miller said. He recently called on the Education Department to temporarily ban schools from using preferred lender lists and asked the agency to issue emergency regulations dealing with lender inducements to colleges.
Education Secretary Margaret Spellings on Tuesday ordered an internal department task force to come up with ideas for better regulating the student lending industry. She said the panel should look at inducements lenders give to colleges and preferred lender lists.
Spellings called for the department task force after a panel of industry, college and student representatives failed to come up with consensus recommendations.
Cuomo said he and other attorneys general, who joined him in his investigation in recent weeks, would fill the void but preferred to see the Department of Education and Congress do more.
"It's not the best way to do it," he said of letting the attorneys general reach agreements with individual lenders and schools. "I believe the best way to do it (is) with deliberate federal action, not federal inaction where the states fill the void."
To date, Cuomo has collected $6.5 million from lenders through his investigation. He said the money would go toward a fund to help educate students and their families about taking out loans.
He also has recovered $3.3 million from colleges who had been in revenue sharing agreements with lenders. Cuomo said that money was refunded to students who took out the loans.