Suggests schools adopt “Code of Conduct”
Sept. 4, 2007 -- Attorney General Paul Morrison announced today the findings of his three-month student lending probe. Overall, Kansas schools are acting responsibly when providing lending options to students.
In May, Morrison sent investigation letters to 55 Kansas schools, including traditional colleges, community colleges and technical schools. The letters requested specific information about their preferred lender practices, including preferred lender lists, information provided to students and loan statistics. All schools complied with the request and provided the Office of Attorney General with adequate information about their practices.
“We are pleased with the responses provided by Kansas schools,” Morrison said. “With their cooperation, we were able to get a good picture of the student lending practices at schools across Kansas.”
In reviewing the materials submitted, the Office of Attorney General focused primarily on the following:
• Whether or not the school had a “preferred” lender list and how that list was established.
• How the lender list was communicated to students and what information was provided to students about the lenders on the list.
• What criteria or procedures were used by the school to determine whether a lender would appear on the school’s lender list.
• Whether the school had been offered or had accepted “compensation, equipment, services, or other consideration” from the lenders in exchange for being placed on the lender list.
• Whether or not the school had been offered or had accepted any “gifts, compensation, equipment, services, expense-paid trips, meals, tickets” or other items of value from any of its lenders.
• Whether employees of the school were currently serving or had served in the past on boards or advisory panels for any of the lenders.
• Whether the school had revenue sharing agreements with any lender or had entered into such agreements in the past.
• What type of “student loan entrance counseling” was provided to students, who provided this counseling and what information was communicated to students as a part of that counseling.
The Office of Attorney General found that most schools considered a number of factors when selecting their list of preferred lenders. These factors included loan and default fees, electronic processing capability, life-of-loan servicing, interest rate and principal balance reductions, number of loan programs available and customer service. Most schools also made the information about the selection process available for students to review.
The schools reported that lenders have offered expense-paid trips, meals, and temporary clerical assistance for their financial aid offices in the past but the schools have routinely declined such offers. Schools did note that lenders offer gifts of nominal value (i.e pens, cookies), but that they are now declining those offers as well.
A number of schools reported that one or more of their employees had served on lender boards or advisory panels in the past and a few are currently serving in these positions. The schools report that the employees do not receive compensation for serving on these boards and panels. However, expenses for travel and attendance at these meetings are generally paid by the lenders.
“Based on the information collected in our investigation, it does not appear that Kansas schools are engaging in the types of inappropriate or unethical lending practices identified by the New York Attorney General in his investigation of schools in New York and other states,” Morrison said. “However, there’s always room for improvement.”
The Office of Attorney General recommends that all schools adopt a “Code of Conduct” similar to the one proposed by the New York Attorney General’s Office, with some modifications. This code will be sent to all schools in a follow-up letter.
“We are confident-after conversations with officials from schools across the state-that they will gladly accept the recommendations we propose,” Morrison said. “Adopting this “Code of Conduct” will ensure that the best interests of students are the primary focus.”
The Kansas Attorney General’s “Code of Conduct” includes guidelines for preferred lenders, revenues sharing, gifts, lender disclosure, board memberships and lender identification. The goal is to prevent unethical practices in the future, as well as creating standards for schools to follow.
Click here for Kansas Attorney General's Suggested Code of Conduct