Student loan probe looks at dual roles of administrators

April 13, 2007
Some college officials have created side businesses as consultants.

Walter Cathie's dual roles as an official at Widener University and an entrepreneur have put him center stage as a prime example of how university administrators who advise students about loans have become cozy with lenders. Some say the case illustrates how some officials have become so entwined with lenders that they have become oblivious to conflicts of interest.
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RELATED: College and university presidents in the Washington, D.C., area are grilling their financial aid directors amid a widening investigation of deceptive practices in the $85 billion student loan industry.
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U.S. Education Secretary Margaret Spellings has launched reviews of the department's ethics and financial disclosure policies in response to questions raised through far-ranging investigations of the student loan industry.
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EARLIER:
Financial aid directors at two universities have been suspended after revelations about their financial ties to a student loan company. Widener University in Pennsylvania placed Walter Cathie, an assistant vice president for finance, on administrative leave after New York state investigators disclosed that Student Loan Xpress paid $80,000 to a business Cathie runs. Capella University, an online school based in Minnesota, placed financial aid director Timothy C. Lehmann on leave during an internal probe of $12,400 he received last year to develop a business plan for Student Loan Xpress.
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The founders of Student Loan Xpress had an explicit plan for corralling a bigger share of the student loan business: “market to the financial aid offices of schools.” The company has found many ways to court university financial aid directors. It put them on a company advisory board, paid at least two as consultants and sold stock in the venture to others. Aides to New York Attorney General Andrew Cuomo say they are investigating whether the company has used deceptive business practices, Cuomo has said the relationships between lenders and the officials whom students rely on for unbiased financial advice pose a conflict of interest.
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RELATED: The directors of financial aid at Johns Hopkins University and two other universities received tens of thousands of dollars from a student loan company as the officials and their schools urged students to borrow money from that lender.
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A senior official at the U.S. Education Department sold more than $100,000 in shares in a student loan company even as he was helping oversee lenders in the federal student loan program. The official, Matteo Fontana, now general manager in a unit of the Office of Federal Student Aid, was identified in government documents as a stakeholder in the parent company of Student Loan Xpress who sold shares in 2003. His involvement with the company emerged a day after a widening investigation into the student loan industry revealed that three senior financial aid officials at Columbia University, the University of Texas at Austin and the University of Southern California had also sold shares at the same time.
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RELATED: The University of Texas at Austin has placed its financial aid director on paid leave pending a probe into his business ties to a lender that the school recommends to students.
Click here to read the Houston Chronicle article.

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