The financial conglomerate CIT Group Monday suspended the entire top management of its subsidiary, Student Loan Xpress (SLX) , even as the director of financial aid at the prestigious Johns Hopkins University was placed on paid leave after the school was informed by CIT that the official had been paid about $65,000 in consulting fees by SLX, one of several lenders the school recommends to students in need of loans.
"CIT has placed senior Student Loan Xpress executives Robert deRose, Vice Chairman; Mike Shaut, CEO; and Fabrizio Balestri, President on administrative leave and announced that Randall Chesler, President of CIT Consumer Finance, would assume interim oversight of the organization," the $74 billion global financial services conglomerate said in a statement. "The management changes are in response to the recently announced investigation by the New York State Attorney General, Andrew Cuomo, into practices conducted by Student Loan Xpress."
Allegations that SLX — in an aggressive effort to expand its lucrative student loan business — provided ample opportunities for financial aid officers and government officials to acquire restricted stock, potentially lucrative stock options and warrants, to enter attractive consulting agreements, are at the center of an ongoing probe into the business practices of the student loan industry begun last November by New York’s attorney general.
"CIT has been cooperating with my office’s investigation and has taken appropriate and needed actions in light of the problematic practices we have uncovered at Student Loan Xpress, " the NY Attorney General Andrew Cuomo said in a statement.
Those practices on the part of lenders have included financial incentives to universities and colleges as well as inducements to influential financial aid officials, the attorney general’s office said. Each bank’s blandishments are aimed at getting it a larger piece of the $85 billion student loan pie, which is made up of long term loans to young lenders with their earning years ahead of them. Two thirds of these students leave college having taken student loans, and when those loans are from private institutions they can carry hefty interest rates in excess of 12 percent, officials said.
In recent weeks some prominent universities including New York University, have hastened to arrive at settlements with the Attorney General’s office, while at six other universities, college aid officials have come under scrutiny for possible conflicts of interest and potentially illegal payments.
Ellen Frishberg was the most recent prominent official to be caught up in the investigation, according to Johns Hopkins and the Attorney General of New York.
Frishberg, the Director of Student Financial Services at Johns Hopkins’ schools of Arts and Sciences and School of Engineering, was placed on paid leave Monday after the university learned she had received $43,000 in direct payments from the CIT subsidiary, and $21,000 in tuition payments toward her doctorate degree at Penn between 2002 and 2005, according to a statement released by the university.
"CIT Group informed Johns Hopkins that it had paid approximately $65,000 in consulting fees to Frishberg since 2002," the university said in a statement.
"Frishberg also serves on a Student Loan Xpress advisory board. Johns Hopkins understands that the travel expenses were reimbursed in regard to that service," the statement said. Those travel expenses totaled $1200, CIT told the university.
Frishberg, Johns Hopkins officials say, is the university’s "primary contact" for financial aid not just for the two schools whose aid offices she controls but for the other JHU colleges and graduate schools where she has no direct management of the financial aid offices. Johns Hopkins’ other schools include nursing, business, a school of education and of public health and programs of professional music study and of international affairs, an applied physics lab and not a world-renowned medical college.
Monday afternoon Johns Hopkins, Widener College in Pennsylvania and Capella University, an online distance learning institution, each received a letter from New York Attorney General Andrew Cuomo advising them that the student loan investigation into potential conflicts of interest and illegal conduct had identified a financial aid officer at their school that "may have improperly entered into a consulting agreement with Student Loan Xpress," or "may have received significant payments" from SLX. These officials join three others who are now subjects of the investigation, including one from Columbia University, one from the University of Texas and one from the University of Southern California. In total, four financial aid officers have been suspended or placed on paid leave.
"Payments, fees, and reimbursements made by Student Loan Xpress to financial aid officials at Johns Hopkins, Widener, and elsewhere are extraordinarily troubling and should stop immediately as we continue to investigate this conduct," Cuomo said in a statement.