States settle with trio of schools in loan probe
Schools agree to refund money from lenders as part of agreement with N.Y., Missouri and Illinois.
NEW YORK (CNNMoney.com) -- New York, Illinois and Missouri announced settlements Monday with three schools for participating in questionable student loan practices, marking the latest development in the widening student loan scandal.
New York Attorney General Andrew Cuomo, Missouri Attorney General Jay Nixon and Illinois Attorney General Lisa Madigan said they had reached settlements with Washington University in St. Louis, DeVry University and Career Education Corporation.
The schools had revenue-sharing agreements with or accepted donations from lenders in exchange for placing them on their preferred lists they provide to students, according to law enforcement officials.
"Students and their parents often are presented with limited choices and information on lenders," Missouri Attorney General Jay Nixon said in a prepared statement. "We want to make certain our concerns about students being able to make informed decisions to get the best loan interest rates are fully addressed."
Companies earning the endorsement of the school's financial aid office tend to be chosen more often by students searching for private assistance with their school loans.
As part of the settlements, Career Education Corporation said it would contribute the $21,200 in donations it received from lenders Wachovia (Charts, Fortune 500) and Sallie Mae to create a fund to educate high school students and their parents about student loans.
"Our goal has always been and continues to be to help students find the resources necessary to finance their education to meet their individual needs," Daniel Hamburger, president and CEO of DeVry Inc. said in a statement.
Washington University entered into a revenue-sharing agreement with the lender Education Finance Partners, but did not end up receiving any income, according to Nixon.
The school said it was committed to obtaining "the best possible financing" for its students and denied it violated any laws in either Missouri or New York.
All three schools also said they would abide by a code of conduct outlined by law enforcement officials that would prevent them from entering into any sort of revenue-sharing agreements and taking kickbacks. The schools would also have to disclose to students how they choose a preferred lender.
The student loan scandal erupted in March when New York Attorney General Cuomo initiated an investigation into charges that schools received kickbacks and perks in exchange for placing lenders on their preferred list they provide to students.
Monday's announcement brings the total number of schools that have reached settlements to 15, which includes the State University of New York, New York University and the University of Pennsylvania.
So far, three lenders including Citibank, Education Finance Partners and the nation's largest student lender, Sallie Mae, have reached settlements with Cuomo's office.
Last Friday, Cuomo widened the probe by issuing subpoenas and information requests to 13 additional lenders, including Bank of America (Charts, Fortune 500), National City (Charts, Fortune 500), US Bancorp (Charts, Fortune 500) and Wells Fargo (Charts, Fortune 500).
"Across the country, momentum is building behind our investigation into the student lending industry," Cuomo said in a statement Monday. "Cooperation between states is vital to our goal of enhancing the integrity of the student loan process and helping students."