University officials defend lender amidst possible lawsuit

In the wake of the New York attorney general’s intent to file a lawsuit against one of TCU’s preferred lenders, the university stands firm in defending its financial aid practices.In a March 22 letter to Education Finance Partners from the New York attorney general, Attorney General Andrew Cuomo said he intends to file suit against EFP for engaging in “unlawful and deceptive acts and practices.”

TCU and EFP have a revenue-sharing relationship, meaning EFP pays TCU a small percentage of the profit it receives when a student begins to pay back a loan.

In his letter, Cuomo said this practice creates unlawful conflicts of interest and said EFP “must sever its financial ties with the schools to whose students it makes loans.”

Cuomo also gave EFP five business days after receiving the letter to give a written notice explaining why such proceedings should not be instituted. The letter was sent March 22.

Mike Scott, the director of scholarships and financial aid at TCU, said the university will cooperate with the investigation and will change its practice if necessary.

A March 22 press release from the TCU Office of Communications said the university “firmly believes that it employs sound financial aid practices that benefit students and their families.”

EFP released a statement saying the company is prepared to defend its business practices.

In the press release, EFP Founder and Chief Executive Tamera Briones said, “We understood that Mr. Cuomo’s investigation was in its early stages, and we were cooperating fully with his office. While we appreciate that the Attorney General has given us five business days to explain why a lawsuit should not be filed, we question whether the Attorney General’s office is seriously interested in learning all of the facts and whether there has been an actual violation of law.”

She also said the revenue-sharing practices never impact the cost to the borrower.

In a letter to Scott, Briones said EFP has completed an internal review and can confidently say that EFP “operates with the highest business and ethical standards to serve our borrowers and schools.”

Due to the recent events, TCU’s financial aid department now offers a list of six preferred private lenders, when previously EPF was the only one listed.

Scott said they are still not making any policy changes, and they just wanted to show students other available options.

“In light of the recent events, we decided taking a conservative approach was appropriate,” Scott said.

Dallas Martin, the president of the National Association of Student Financial Aid Administrators, said in a press release that revenue sharing is a practice that is debated within the lending community.

He said he had, on numerous occasions, personally discouraged revenue-sharing agreements because it is difficult for the public to understand the benefits the arrangements bring to students and, therefore, there often appears to be a conflict of interest. However, he said the recent investigation undermines trust in the counseling and advice given by financial aid administrators.

Martin also said it is possible the attorney general will seek an out-of-court settlement limiting certain lending practices.