Lending woes fresh in memory

Months down the line, the student loan industry fiasco is far from forgotten.

It is so memorable that Conde Nast Portfolio magazine named it the number-two business scandal of 2007.

Last spring, Penn -- along with many other colleges and universities - came under scrutiny when New York Attorney General Andrew Cuomo revealed that universities had been receiving kickbacks when their students borrowed money from certain loan programs.

Penn was receiving a two-percent commission on the amount borrowed by each student through CitiAssist, a student loan program offered by Citibank.

Although the money was put back into the financial-aid fund, the University failed to disclose the deal to students who were taking out loans through the program.

Associate Vice President for Finance Frank Claus said that Penn saw the two percent revenue as an opportunity to add to the financial-aid fund.

However, he said he recognized that the University should have disclosed the agreement to students.

Last April, Penn reached a settlement with the Attorney General, by which they agreed to redistribute the $1.6 million to students who had borrowed from the CitiAssist program over the past two years. Claus said that all students have now been reimbursed.

The University still maintains a relationship with Citibank - but now without the kickback.

"[Citibank] continues to support the program we need for undergraduates," Claus said adding that lenders like Citibank are important because the University cannot make loans to undergraduates.

Citibank has also made improvements in its loan program offerings, including a global student loan program for international students.

"The exposure of these questionable practices has put upward pressure to improve transparency," said Lauren Asher, the associate director of Project on Student Debt, a research foundation on trends in student debt.

Cuomo's investigations have also stimulated the efforts of policymakers to increase regulation on the student loan industry.

"We can't rely purely on voluntary measures [by lender companies] to protect students and their families," Asher said. "Policymakers need to address these issues."

Penn, in reaction to the requirements set forth by the Education Department, has created a preferred lender list for federal loans.

As a result of Congress' decision to cut subsidies to lender institutions, companies have been making alterations to the benefits offered in their loan programs.

Students need the expertise of financial-aid offices because of the complexity of the process, and most financial-aid directors are looking out for their students' best interest, Asher said.

"We need to restore face for financial-aid offices," she said.

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