"Neither The University of Texas at Austin nor the Office of Student Financial Services benefit from referring students to any lender."
That disclaimer accompanies a list of "commonly used lenders" that the Office of Student Financial Services uses to direct undergraduates to more than a dozen for-profit companies that offer student loans. At this point, we sure hope it's accurate.
UT's preferred lender program isn't particularly preferred - students aren't funneled into one company, and, as far as we know, the University does not receive a percentage of interest rates on student loans.
That hasn't always been true nationally, as investigations by New York's Attorney General Andrew Cuomo have shown. Over five years, New York University received at least $1.3 million from Citibank for pushing students their way. Syracuse University took in at least $100,000 for listing Citibank as a preferred lender.
But what has garnered attention from UT is whether the Director of Student Financial Services, Lawrence Burt, has benefitted from his position. Burt sits on advisory boards for at least four companies listed as preferred lenders at the University: Sallie Mae, Citibank, Wells Fargo and Student Loan Xpress. And, as reported today, he sold 1,500 shares of Student Loan Xpress stock in 2003, 500 of which were granted as stock options.
There is a clear conflict of interest here, and it reeks of payola.
In its 2003 filing statement to the SEC, Student Loan Xpress described its focus as "to market to the financial aid offices of schools in order to be included on that school's preferred lender list." It claimed that being on those lists provides the company "the opportunity to generate more student loans at that institution than other lenders who are not on the preferred lender list." The company was clearly interested in getting on the preferred lender list, but UT's lists is so crowded that it's not a major advantage.
The company essentially reported to the SEC that it was formed as a marketing tool for these preferred lists - "to deliver student loans through the traditional school lender-list marketing channel." The company, created in early 2002, has grown to be the eighth-largest student loan lender in the nation as of 2006.
Burt's been under a spotlight very recently, mostly because of efforts by Cuomo and Massachusetts Sen. Ted Kennedy, both Democrats, to clean up the $85-billion student loan industry.
Burt was drug through the mud less than three weeks ago by CBS News, which accused him of getting a free trip to Paris from Sallie Mae, a claim Burt vehemently denies. Sallie Mae publicly denounced the story. (At UT, Sallie Mae processes student loans for Student Loan Xpress.)
Juan Gonzalez, UT's vice president for student affairs, quickly defended Burt: "Dr. Larry Burt has been a financial aid professional for over 30 years, and his ethics are above reproach. The University has complete confidence in Dr. Burt's administration in the Office of Student Financial Services."
But Tuesday, in response to the Student Loan Xpress story, Gonzalez released a statement that was a little less emphatic: "We will review if any individual at the University has any perceived or real 'conflict of interest' in [the preferred lender] selection process."
So much for complete confidence.
The University has so many preferred lenders that it's hard to accuse it of the pay-to-play tactics that are being exposed across the country. Yet it's an ugly sight to see that a University administrator, who had say over what companies were listed as "commonly used lenders," benefitted from selling stock in a company that's primary focus was to get schools to list it as a preferred lender.
By now, we'd prefer some explanations on Burt's stock options, and how lenders become listed as preferred by the University.
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