April 3, 2007
As per an investigation by the New America Foundation, Higher Ed Watch has learned of several financial aid administrators who had significant personal investments in a publicly traded, for-profit student loan company. Following our request for university comment, an implicated Dean was placed on leave by his parent institution and the case referred to the New York State Attorney General's Office.
According to a September 2003 SEC filing by Education Lending Group (see chart on page 18), the original owner of the lender Student Loan Xpress, financial aid directors at Columbia University, the University of Southern California, and the University of Texas at Austin, were preparing to sell 10,500 shares of stock in the company, which were worth more than $100,000 at the time.
The three college aid officials -- Lawrence Burt of University of Texas at Austin, David Charlow of Columbia University, and Catherine Thomas of University of Southern California -- sit on an advisory board that provides strategic advice for Student Loan Xpress. According to sources familiar with the company, the owners of Student Loan Xpress offered stock options as a way to compensate members of that board. Some aid administrators on the board reportedly turned down the offer, citing ethical concerns.
It appears the largest investor among aid administrators was Mr. Charlow, who owned at least 7,500 shares, worth approximately $72,000 at the time of the proffered sale. It is uncertain whether Mr. Charlow, and his colleagues, had purchased the stock or were given the shares as a gift. As a result, it's unclear how much money Mr. Charlow made off the deal. Mr. Charlow didn't respond to multiple phone calls from Higher Ed Watch for comment.
Columbia University officials, however, responded to Higher Ed Watch's request for comment with notification late today that in light of our investigation, Mr. Charlow has been placed on leave pending a full review. According to Robert Hornsby, a spokesman for Columbia University, the institution decided to investigate the matter itself after learning from Higher Ed Watch that Mr. Charlow had "a financial interest in one of our preferred lenders." Mr. Hornsby also indicated that Columbia University alerted New York Attorney General Andrew Cuomo to our findings. Mr. Cuomo promptly issued a subpeona to Columbia University and sent letters to USC and UT-Austin seeking more information about the stock ownership.
It is clear that Mr. Charlow's office has been a strong supporter of Student Loan Xpress for some time. The company, which was sold to the CIT Group in 2005, is the largest lender at Columbia University. Each year, it provides approximately $14 million in loans -- primarily to the parents of Columbia students. The university's next largest lender, Citibank, provided only $5 million in federal loans to students and parents in 2006.
Mr. Charlow also has provided a personal endorsement of Student Loan Xpress on the company's website. "We have worked with the Student Loan Xpress team for many years because they consistently meet the very high standards for service that our students and parents expect not only from our University, but also from our partners," Mr. Charlow states.
Mr. Burt and Ms. Thomas each held at least 1,500 shares of Education Lending Group's stock. Student Loan Xpress is a small lender at each campus -- making less than 5 percent of student and parent loans at each campus.
In an interview, Mr. Burt said that while he took the stock, it didn't influence his decision making. "No, I don't think it did," he stated. Ms. Thomas didn't return Higher Ed Watch's calls.
Higher Ed Watch is deeply concerned about increasing evidence of conflicts of interest in student financial aid. Students going to their financial aid office think theyre getting advice from an impartial, informed intermediary. Were finding that advice isnt always impartial and it isnt always fully informed.
The larger story is that conflicts of interest at issue in the case of certain financial aid administrators are symptomatic of a complicated system awash in excessive taxpayer subsidies to student loan providers. The system facilitates corruption. It's in need of an overhaul. Financial aid is supposed to help students, not banks and not university employees.
Michael Dannenberg, Editor of Higher Ed Watch, contributed to this report.