Ivy League Official Cited in Student Loan Scandal

Apr 4, 2007 5:50pm

The executive director of Columbia University’s financial aid department has been suspended for allegedly profiting from stock options he acquired from a loan company his department recommended to students as a "preferred lender," according to officials at the office of the Attorney General for New York. David Charlow, the senior associate dean for student affairs at Columbia University, allegedly netted $100,000 by selling 7,500 stock options and 2,500 stock warrants granted to him by the Education Lending Group in 2001, officials said. The Education Lending Group subsidiary, Student Loan Xpress, is one of Columbia’s preferred lenders for student loans.    It was selected as a lender in the same year that Mr. Charlow received his stock options, according to the attorney general’s office and Security and Exchange Commission filings that were made in conjunction with the company’s public offering in September 2003. "The AG’s office is investigating potentially improper stock grants by certain student loan companies to college financial aid officers as part of its widening investigation into conflicts of interest in the college loan industry. On April 3, 2007, the AG’s office issued subpoenas to Student Loan Xpress Inc. and CIT Group Inc. in connection with this investigation. On April 4, 2007, the Attorney General issued a subpoena to Columbia University," a spokesperson for the attorney general’s office said. In an e-mail response to ABC News, Robert Hornsby, the director of media relations for Columbia University, said, "As a result of the attention generated by the Attorney General’s investigation, we learned that until 2005 a financial aid administrator at Columbia College and the Fu Foundation School of Engineering and Applied Science had a financial interest in one of our preferred lenders.  We promptly began an investigation, placed the officer on leave pending a full review and notified the Attorney General. Columbia did not receive the initial letters of inquiry sent by the Attorney General in early February. The University Office of Student Services is reviewing all the recommendations contained in the Attorney General’s March letter to New York educational institutions and we fully support the Code of Conduct proposed by the Attorney General. Pending the completion of the Attorney General’s and our investigations, we have no further comment on this matter at this time." Click Here for Full Blotter Coverage. Mr. Charlow’s office sent an automated reply to an e-mail message, "I am not in the office and cannot answer your email." His colleagues at the financial aid office declined to comment and referred calls to the university’s public affairs office. Mr. Charlow is featured prominently on the homepage for Student Loan Xpress, where he offers this testimonial to the lender:  "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." — David Charlow, Associate Dean of Student Affairs Columbia University He is the first prominent educator to be caught up in the probe into the $85 billion student loan industry that was launched in November by New York Attorney General Andrew Cuomo.  Other prominent financial aid officers are also expected to be caught up in the probe. According to officials at the New York attorney general’s office, Education Lending Group appears to have granted stock options and warrants to officials from the University of Southern California and the University of Texas. One official at the University of Texas and another official at USC may have been improperly granted 1,500 options by the company prior to its public offering, according to letters sent by the attorney general’s office to the respective universities. "On April 4, 2007, the Attorney General issued a subpoena to Columbia University and sent document retention letters to USC and the University of Texas," a spokesman for the attorney general’s office said. The subpoena requires the university to turn over all documents and records pertaining to any payments by either Education Lending Group or Student Loan Xpress to any employee or officer of Columbia University. Student Loan Xpress has not responded to e-mails and telephone calls seeking comment on the probe.  But its parent firm, New Jersey-based CIT Group, issued the following statement, "CIT acquired Education Lending Group Inc., the parent company of SLX, in 2005. The reported transactions in securities of that company occurred several years prior to CIT’s acquisition of the company. We are currently seeking to determine the facts surrounding those transactions." The deceptive business practices and consumer fraud investigation begun by the New York attorney general has centered on the criteria that colleges and universities across the United States use to select the handful of lenders they list as "preferred."  About 90 percent of the students applying to four-year colleges who seek financial aid use one of the lenders on this short list.  The common sense assumption, the attorney general has said, is that these are the lenders who provide the best rate for students when that may not be the case. In fact, his office found, these lenders often shared revenue with the universities in exchange for steering loan business their way. In some cases, college staff were given free trips and other gratuities by lenders, and in some cases, lender employees actually answered the telephones at college aid offices, where they helped students apply for loans at their institutions. But Charlow, if the allegations prove true, would be the first senior administrator caught up in the probe.

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