Sallie Mae, one of UCLA’s preferred student lenders and America’s largest provider of student loans, announced Wednesday that it will adopt a code of conduct for its relations with universities as part of a settlement to a five-month investigation into possible malpractice.
The probe, launched by the attorney general of New York, has accused student loan companies, including Sallie Mae, of providing kickbacks to universities in return for recommendation to students.
Though UCLA has not been implicated in the investigation, the university recommends Sallie Mae as one of its preferred lenders, along with its subsidiaries Nellie Mae and Academic Management Services. Sallie Mae has also partnered with the university to provide financial aid advice on campus.
Sallie Mae serves approximately 10 million borrowers, over 5,600 schools, and manages around $142 billion in loans nationwide, according to a press release from the company.
Experts said they believe Sallie Mae’s decision, along with a similar decision by another major student loan provider last week, will improve the loan market.
“It’ll be more transparent. (These guidelines are) going to make the market fairer and a little more competitive. Lenders will be truly competing for students’ business, and there will be fewer deals going behind students’ backs,” said Avanidhar Subrahmanyam, a professor at the UCLA Anderson School of Management and the Goldyne and Irwin Hearsh Chair in Money and Banking.
Following a similar decision by CitiBank last week, this settlement means that almost a quarter of the student loan market will now be covered by the code of conduct, according to a press release from the Office of the Attorney General of New York.
Additionally, Sallie Mae has agreed to donate $2 million toward educating college-bound students about the loan options available.
Despite these developments, the attorney general’s investigation is still investigating five other major student loan lenders for possible illegal conflicts of interest.
Earlier this week, the investigation revealed improper stock payments by lenders to education officials, including a senior official at the federal Education Department and the directors of financial aid at six universities, including USC.
The discovery has prompted an inquiry in the U.S. Senate.
Additionally, the New York Times revealed that Student Loan Xpress, another major student loan company, has been intentionally courting university financial aid officers since 2002 as a fundamental part of its business strategy.
However, Arthur Harris, press secretary for the attorney general, said the adoption of the code of conduct by major lenders had “changed the face of the industry” and would set a good example to build trust between students, universities and lenders.
New York Attorney General Andrew Cuomo congratulated Sallie Mae for agreeing to standards which he says will benefit students.
“Their adoption of this code of conduct will affect millions of students and thousands of schools around the country and will help set a new industry standard that all lenders should adopt,” he said in a press release. Experts said they believe the student loan market has been in need of reform.
“In terms of the market, students are kind of trapped once they get accepted to college, and universities and lenders know that students often have a dream college. The universities have the students captive in a sense, so there is a potential for abuse,” Subrahmanyam said.