JURIST - Paper Chase: NY AG suing university for accepting student loan lender payments

[JURIST] The Office of the New York Attorney General [official website] Thursday sent notice [PDF text; press release] of its intent to sue Drexel University [official website] for accepting payments from student loan lender Education Finance Partners (EFP) [corporate website] based on the amount of money the private lender loaned to Drexel students. According to NY AG Andrew Cuomo, Drexel committed deceptive business practices for accepting $124,000 for funneling students to EFP. EFP owes an additional $126,000 to the university for deeming EFP its "sole preferred private loan provider." According to the notice:

The contracts and payments, which were not disclosed to students or their parents, created unlawful conflicts of interest on the part of Drexel and may have misled the student borrowers and their parents. To avoid such conflicts of interest, Drexel must terminate any revenue sharing arrangement with any lender. Drexel must require lenders to compete for the students' loans by offering the best loan products to students, not the best kickback to Drexel....

Drexel has also repeatedly and persistently engaged in misleading and deceptive business practices and false advertising by fostering the false impression to student borrowers and their parents that Drexel, which is in a position of trust with students and their parents, is a lender or lender partner on EFP's private education loans.

On Friday, Drexel President Constantine Papadakis [university profile] fired back at Cuomo's office, saying Drexel would fight the lawsuit and rejecting allegations that it acted inappropriately or unlawfully. In a statement [text], Papdakis expressed concern about Cuomo's motivations underlying the lawsuit, which he claimed was sent to the student newspaper and then forwarded to university officials:

The timing and public release of the Attorney General's notice of intent to sue raises troubling questions as to his motivations and to his tactics. Indeed, his conduct violates fundamental principles of fair play to which Drexel and its students are entitled and therefore we will move forcefully to protect our position in this matter.

Papadakis said Drexel previously disclosed all finanical aid procedures with Cuomo and contended that the school used all funds it collected from EFP for student scholarships.

Cuomo's investigation into alleged kickbacks from private loan institutions to universities has resulted in settlements with eight universities so far, with some schools ceasing their revenue sharing arrangements with the lenders, agreeing to repay students, and assuring compliance with a code of conduct [PDF text] developed by Cuomo's office. Cuomo maintains that New York courts can assert personal jurisdiction over Drexel University, located in Philadelphia, Pennsylvania, because of the number of New York students attending the school. Earlier this week, Cuomo announced that the state reached a settlement [press release] with EFP, which agreed to end all revenue-sharing arrangements, adopt the code of conduct and pay $2.5 million to a student loan education fund. Previously, private lenders Sallie Mae and Citibank, which were also implicated in Cuomo's investigation, agreed [press release] to adhere to the code. The New York Times has more. The Philadelphia Inquirer has local coverage.