December 8, 2008— -- The College Board, best known for designing and administering SAT and Advance Placement tests, today settled an investigation into charges that it swapped favorable pricing for its services to colleges in exchange for the colleges favorably marketing its student loan products under the heading "preferred lender" -- a category that a wide ranging probe into industry practices found was often was unrelated to any favorable loan rate.
The settlement was announced by the Attorney Generals of New York and Connecticut.
The College Board is the 22nd student lender to reach a settlement with New York Attorney General Andrew Cuomo since 2007 when he began investigating questionable marketing practices in the $85 billion student loan industry.
Those practices included listing a lender's student loan offerings as "preferred" whether or not the loan rates were the best available.
Often, Cuomo's office found, this was done in exchange for a fee to the college, or an inducement to the financial aid officer in the form of consulting fees, which included $70,000 harbor cruises and shares in the lender's company.
One former financial aid director at Johns Hopkins University who cultivated a national reputation as a stickler for ethics, according to the Washington Post, "accepted more than $130,000 from eight lending industry companies during her tenure, twice as much money as previously disclosed."
The College Board involvement in lending, and the swapping of favorable pricing for its financial aid products and services in exchange for favorable placement of its loan products, is yet another example of questionable marketing practices, according to Cuomo.
"The investigation found that the College Board, known best to students as the entity which develops and administers college admission tests such as the SAT and advanced placement (AP) tests, also acted as a lender and marketer of higher education loans," Cuomo said.
"At the same time, the College Board developed and marketed numerous products and services related to student financial assistance and gave significant discounts on those products and services to certain collegesin exchange for placement of the College Board's loans on the colleges' preferred lender list of student lenders," said Cuomo.
More than 26 Colleges Embroiled in the Scandal
Lenders who have reached settlements include many of the names familiar from the meltdown of the banking sector: JP Morgan Chase, Citibank, Bank of America, Wachovia, Wells Fargo, National City, Sallie Mae CIT/Student Loan Xpress among them.
More than 26 colleges and universities, including New York's entire state school system, were embroiled in the scandal. The list of prestigious colleges includes Columbia University, New York University, Johns Hopkins University, Fordham University and the University of Pennsylvania.
Under the terms of the probe, the College Board will provide students and loan administrators with the metrics they need to calculate loan rates and importantly, will also provide financial aid officials with a model for how to evaluate requests from lenders to be placed on future preferred lender lists.
It also agreed as a part of the settlement to adhere to a "Code of Conduct" promulgated by Cuomo's office and agreed to by a number of lenders and universities that previously reached settlements in the course of the ongoing investigation.
"Today's agreement resolves an investigation by the Attorneys General that found that the College Board, which developed and marketed numerous products and services related to student financial assistance, gave significant discounts on those products and services to certain colleges which agreed to place the College Board's loans on their 'preferred lender' list. This effectively directed students towards loans that might not be the best or least expensive option for them," Cuomo said in a statement.
Terms of the Agreement
The specific terms of the agreement call for the College Board to invest $675,000 to "develop and provide a set of tools to help financial aid administrators, students, and parents across the country compare student loan offers and identify the lowest-cost student loan options."
The College Board agreed to provide these tools free of charge for two upcoming financial aid cycles. The settlement did not specify any future fees the College Board might charge in connection with the tools.
Ryan Williams, Vice President for Enrollment Programs & Services at the College Board, said in a statement: "We are pleased that we have reached a settlement of the inquiry by the Attorneys General of New York and Connecticut that is forward-looking and focused on how the College Board can best serve students and families as they prepare to finance their college education."
The College Board for reasons unrelated to the probe is no longer a lender, although it continues to provide financial aid advisement services to students.