U. settles over suspect student loan policies

The University reached a $1.6 million voluntary settlement agreement with New York Attorney General Andrew Cuomo yesterday, pledging to clean up its student loan practices.

Penn was one of many universities nationwide that came under scrutiny as part of Cuomo's investigation into what he called "kickbacks" that universities received when their students used certain student-loan programs.

Penn will redistribute a total of $1,617,580 to students who have taken loans from the CitiAssist program offered by Citibank over the past two years.

Thirty-four other universities, mostly in New York, also chose to settle yesterday.

The settlement is a result of Penn's participation in a revenue-sharing agreement with Citibank, one of the preferred lenders that Penn recommends to students.

In this agreement - which was not disclosed to students who took loans from CitiAssist - Penn was paid two percent of the principal amount each student borrowed, said Executive Vice President Craig Carnaroli. This money was then put back into funding financial-aid programs.

The settlement price reflects the total amount Citibank has paid to the University.

"The main source of contention is that the Attorney General feels that this fee relationship should have been disclosed to borrowers," Carnaroli said.

But Cuomo's office said it is irrelevant that the University was putting the money back into financial aid - it was still bad policy.

"It doesn't matter where the money went," said Cuomo's press secretary Arthur Harris. "The office of the Attorney General believes that it's a conflict of interest to do this without full disclosure."

And Carnaroli agrees that Penn made a few mistakes.

"We should have written stronger disclosure, so students who participated were aware of this relationship," Carnaroli said.

CitiAssist is an optional, non-federal loan program for students who do not qualify for financial aid. It is primarily used by graduate and professional students.

In the end, about 3,000 current and former Penn students who have participated in the program in the past two years will receive about $500 each.

Student interest rates will not be affected.

The University will transfer the funds to a third-party account and is working with Citibank to distribute the money within 30 days.

While Penn will no longer receive the two-percent fee, it will otherwise maintain its relationship with CitiAssist.

Cuomo, who has been in contact with hundreds of schools about similar issues, is pleased that universities like Penn chose to settle the issue up front.

"These schools and Citibank are setting the example the entire industry should live by," he said in a press release. "We are beginning the process of restoring trust between universities and students, and now it is time for other schools and lenders to step up."

Carnaroli also sees Penn as a leader in this situation.

"We feel it's important that students have confidence in our programs and offerings," Carnaroli said. "We are being positioned as a leader in higher education as a school that is willing to attack this directly and quickly."

The settlement also requires that universities comply with the new College Code of Conduct, which sets standards for relationships between lenders and schools.

Penn is already in line with most of these requirements and will only need to eliminate fees from its CitiAssist program and improve language in its brochures and Web site in order to be in full compliance, Carnaroli said.

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