ALBANY, N.Y. – CIT Group Inc. has placed three top executives of its student loan business on paid leave following an investigation into stock transactions with a high-level U.S. Department of Education official and college financial aid officers, the company said Monday.
The three men couldn't be immediately reached for comment Monday morning.
The management changes come amid an investigation by New York Attorney General Andrew Cuomo into Student Loan Xpress. The company is one of several targeted by Cuomo in his investigation of the $85 billion student loan industry.
On Friday, Cuomo's office issued new subpoenas to CIT Group and Student Loan Xpress, seeking information on stock and gifts made by the company or its subsidiaries to federal or state government officials.
"As a company that holds itself to the highest standards of business ethics and integrity, we take the allegations raised by New York Attorney General Cuomo very seriously," CIT Chief Executive Jeffrey Peek said. "The management changes announced today should facilitate CIT's independent review of Student Loan Xpress' student lending practices and its assessment of existing policies and procedures governing student lending."
On Friday, Matteo Fontana, a Department of Education official who oversaw the student loan industry, was put on leave after it was reported that in 2003 he owned at least $100,000 worth of stock in Education Lending Group Inc., the former parent of Student Loan Xpress. The company was acquired by CIT in 2005.
All three executives put on leave Monday held positions with Education Lending Group before CIT's acquisition of the company, according to Securities and Exchange Commission records.
The case has been referred to the Education Department's inspector general. At issue is whether Fontana violated department conflict of interest rules.
Cuomo is investigating allegations of possible kickbacks to school officials for steering students to certain lenders. His investigators say they have found numerous arrangements that benefited schools and lenders at the expense of students.
Investigators found that many colleges have established "preferred lender" lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have "exclusive" preferred lender agreements with the companies.
Cuomo said CIT "has taken appropriate action in light of problematic practices we have uncovered at Student Loan Xpress."
"The New York attorney general's office will continue to take appropriate legal actions to ensure lending companies like Student Loan Xpress change their conduct and pay for what they have done," he said.
Last week, Cuomo's office found that student loan officers at three universities -- Columbia University, the University of Texas and the University of Southern California -- also owned thousands of dollars of Education Lending Group stock in 2003. Student Loan Xpress was listed as a preferred lender at each school.
Peek said his company will cooperate with the attorney general's office and continue with an internal review.
Sen. Edward Kennedy, D-Mass., who heads the Senate Health, Education, Labor and Pensions Committee, said CIT's decision to place the three executives on leave was "a welcome first step toward ensuring that the facts surrounding this matter come to light quickly."
Kennedy is conducting an investigation from Washington on the student loan scandal. Rep. George Miller, D-Calif., chairman of the House education committee, also is looking into the issue.