Cuomo's First Catch

New York Attorney General Andrew Cuomo announced on Thursday that he plans to sue a private student-loan company that he said has provided illegal kickbacks to more than 60 colleges to get their student-loan business.

At a press conference, Mr. Cuomo said he had sent a notice of intent to sue Education Finance Partners, a San Francisco lender that offers colleges a share of the revenue the company makes on each private loan taken out by their students.

Mr. Cuomo accused Education Finance Partners of engaging in deceptive business practices for failing to alert students that it has paid to be promoted as a "preferred lender" on their campuses.

Some colleges particularly made out big, he said, noting that Drexel University received over $100,000 in payments in one year for making the company its sole preferred private-loan provider.

"EFP aggressively offered schools cash kickbacks in exchange for business," Mr. Cuomo said. "This kickback scheme was widespread and took place from coast to coast, at colleges large and small, public and private."

Among other schools with which Education Finance Partners has revenue-sharing agreements, the Attorney General's office said, are: Boston University, Clemson University, Fordham University, Pepperdine University, Washington University in St. Louis, and the University of Mississippi.

In a news release, the company disputed Mr. Cuomo's characterization of the financial arrangements they make with colleges. "Education Finance Partners provides these funds directly to the schools because we believe schools are in the best position to know which students have the greatest unmet financial need," Tamera Briones, the company's founder and chief executive officer stated.

At the news conference, Mr. Cuomo made clear that the lawsuit was just the first he will file as part of his investigation into the sweetheart deals that some lenders have struck with financial aid administrators to win student loan business.

"This lawsuit is just the beginning of an investigation that will show that lenders put market share above fair play," Mr. Cuomo stated. "A preferred lender ought to mean that the lender is preferred by students for its low rates, not by schools for its kickbacks."