Wading into a roaring national controversy, Attorney General Martha Coakley is investigating whether Massachusetts colleges have improper relationships with loan companies, her office said yesterday.
"Every prospective student deserves a fair chance of financing a college education," she said in a statement.
Several other attorneys general, most notably Andrew M. Cuomo of New York, as well as Senator Edward M. Kennedy and other politicians, have been hammering colleges for alleged conflicts of interest. Those conflicts include taking payments in exchange for recommending a lender or allowing loan company employees to answer students' financial aid questions by telephone without disclosing that they don't work for the college.
Yesterday, the US House of Representatives passed a bill aimed at curbing conflicts of interest and corrupt practices in college lending.
In March, Cuomo's office singled out six Massachusetts public and private colleges for making revenue-sharing arrangements with one lender, Education Finance Partners. Boston University, Bridgewater State College, Emerson College , and Berklee College of Music accepted amounts ranging from $1,500 to $23,000. Mount Holyoke said its loan volume was never large enough to receive any payment, and Becker College would not say how much it accepted.
Bridgewater officials said they would return the money to students, and BU said it would give it back to the company. Education Finance Partners settled with Cuomo's office for $2.5 million and agreed to stop the payments, which Cuomo called kickbacks.
Coakley was unavailable for comment yesterday. Spokes woman Amie Breton said that Coakley's office began the investigation several weeks ago "to determine whether there had been any inappropriate or illegal behavior in the student loan industry."
Coakley's office will be looking for evidence of various questionable practices, including lenders making payments to colleges in exchange for preferential treatment, lenders making payments to university financial aid staff, and colleges allow ing lenders to use financial aid exit interviews to promote their products.
Because the investigation is in its early stages, Breton said she could not name the institutions the attorney general is investigating or say how many there are.
Patricia F. Plummer, chancellor of the Massachusetts Board of Higher Education, said yesterday that the board plans to issue a code of ethics at its next meeting in June. The board did not find questionable practices among the state's four-year colleges when it checked in March, other than Bridgewater State's revenue sharing.
Plummer said she hopes that Coakley's investigation will help set standards in the Commonwealth. She said that the attorney general informed presidents of private colleges in Massachusetts of the investigation at a meeting last week.
"She said it was a concern but not to the extent of New York," Plummer said. "She was looking into it to make sure we have good policies in Massachusetts."
Several college officials said they were not surprised about Coakley's inquiry, because the issue has gained so much public attention.
Emerson officials answered questions in a telephone interview with Coakley's staff last week, said spokesman David Rosen. Emerson received several thousand dollars from Education Finance Partners, Rosen said.
"We look forward to working with the attorney general's office to remove any questions that might exist and come up with agreed-upon practices that protect students and maintain the public's trust in our institutions," he said.
Bridgewater, a target of Cuomo's investigation, put the $18,000 it received from Education Finance Partners into financial aid, said spokesman Bryan Baldwin. But since Cuomo's investigation, the school decided to end its relationship with Education Finance Partners and return the money to the Bridgewater State students who borrowed a total of about $5 million from the lender.
"The college doesn't want the students to have any doubts about the relationship the college has with any outside vendor," Baldwin said.
Kennedy has been investigating the student loan industry since January. In a letter sent last week to higher education associations, he highlighted a number of "disturbing practices," and urged colleges to establish guidelines to avoid conflicts of interest.
Still, Melissa Wagoner, a Kennedy spokeswoman, said yesterday that the senator is not too concerned about Massachusetts.
"So far with our investigation, we haven't come across much in Massachusetts," she said.
Kennedy and Senator Richard Durbin of Illinois, both Democrats, introduced a bill in February to require schools to disclose to students any special arrangements they have with lenders and to ban lenders from offering gifts worth more than $10 to college employees. They expect the Senate to consider the measure next month.
The bill the House passed yesterday is similar. It would ban gifts from lenders to schools and impose strict controls on schools that publish approved lender lists to guide students to certain loan companies.
Lenders and schools would have to make their business dealings more transparent to borrowers, disclosing terms, conditions, and any incentives involved.