[It looks as though nothing — even students trying to get started in life — is sacred to our corporate vultures.  I would hate to report the numbers of my students — even at the lower tuition costs of a public institution and the possibility of living at home — who have had to drop out of college to pay off credit card bills (those textbooks and transportation costs), figure ways to get tuition without going bankrupt, or who have deferred graduate and professional school plans, even as holders of major fellowships!  My responses as a long time college teacher and parent of students are unprintable!  Ed Kent]



Federal Official in Student Loans Held Loan Stock

Published: April 6, 2007

A senior official at the federal Education Department sold more than $100,000 in shares in a student loan company even as he was helping oversee lenders in the federal student loan program.

The official, Matteo Fontana, now general manager in a unit of the Office of Federal Student Aid, was identified yesterday from government documents as a stakeholder in the parent company of Student Loan Xpress who sold shares in 2003.

His involvement with the company emerged a day after a widening investigation into the student loan industry revealed that three senior financial aid officials at Columbia University, the University of Texas at Austin and the University of Southern California had also sold shares at the same time.

The stock sales raise questions of conflicts of interest on the part of university officials charged with giving students advice on financial aid and loans and a government official who helped oversee the industry.

The Education Department said late yesterday that Secretary Margaret Spellings had just been briefed on Mr. Fontana and that the department was taking the matter “very seriously.”

“We are providing the department’s inspector general all relevant documents regarding this matter,” Samara Yudof, a spokeswoman, said in a statement. Officials declined to answer questions about the stock transaction.

The government documents, filings with the Securities and Exchange Commission, show that Mr. Fontana sold 10,500 shares in the company in 2003, when they were valued at around $10 a share. He came to the department in 2002 and at the time of the sale was in a slightly more junior position than now, overseeing lenders in the student loan program.

Mr. Fontana did not return calls, and it was not clear what he had originally paid for his shares. At least two of the three university financial aid directors originally paid about $1 a share.

Student Loan Xpress is currently owned by the financial services company CIT Group. C. Curtis Ritter, a spokesman for CIT, declined to answer questions about Mr. Fontana’s dealings with the company.

CIT Group Inc. also has a top university official on its board: John R. Ryan, the chancellor of the State University of New York, which has 64 campuses and more than 400,000 students.

In a telephone interview yesterday, Chancellor Ryan said he believed strongly that there was no conflict between his positions as SUNY’s chancellor and as a CIT director, a post that paid him nearly $150,000 in cash, stock and stock options. He earns $340,000 from SUNY.

As the Education Department responded to questions about Mr. Fontana’s stock ownership, the University of Texas and the University of Southern California followed Columbia’s lead and suspended their financial aid directors pending the outcome of internal investigations into the officials’ relationship with Student Loan Xpress. Columbia also removed the loan company from its spot on the university’s preferred lending list.

All three universities had given Student Loan Xpress a spot on the lists. Students generally rely on the lists for seeking a loan rather than shopping for the best terms.

Mr. Fontana’s participation in the stock sale, which was first reported by the New America Foundation, a Washington policy institute that has focused on student loan issues, caught the attention of lawmakers already looking into the student loan industry.

Senator Edward M. Kennedy, Democrat of Massachusetts and chairman of the Education Committee, faxed a letter to Secretary Spellings last night saying, “These circumstances raise serious concerns about the impartiality of Mr. Fontana’s work at the department.” Mr. Kennedy asked her to provide documents about the case.

John Edwards, the Democratic candidate for president, also weighed in on the issue yesterday, arguing that students should borrow directly from the government. “We need to fix the student loan program to take banks — which are just an expensive middleman — out of the process,” he said in a statement.

Andrew M. Cuomo, the New York attorney general who has been investigating the relationship between student lenders and universities, has issued subpoenas to Columbia and to the CIT Group, and requested information from the University of Southern California and the University of Texas.

A senior lawyer in Mr. Cuomo’s office, who spoke on condition of anonymity because the investigation is continuing, said, “As we gather the information we have subpoenaed from CIT, and we’ve subpoenaed both documents and testimony, we certainly will get to the bottom of all these relationships.”

The New York State Ethics Commission twice approved Mr. Ryan’s membership on the CIT board, in July 2003, when he was president at SUNY’s Maritime College, and again in July 2005, when he became SUNY’s acting chancellor.

Mr. Ryan said he had been unaware until yesterday that Maritime College, where he was president for three years, had listed Student Loan Xpress as a preferred lender last year, after he had left the campus. He was Maritime’s president from 2002 to 2005. He recently announced his intention to step down as SUNY’s chancellor at the end of May.

“I don’t make loans,” he said. “I don’t make any decisions as chancellor about who is going to be permitted to make student loans at each university or college. They have professionals that do that.”

Mr. Ryan said that CIT, a New York-based company that specializes in commercial and consumer finance, had not been in the student loan business when he joined its board in 2003. He said it entered that business in 2005 with the acquisition of Education Lending Group, the parent company for Student Loan Xpress. He said he had undoubtedly voted on the acquisition, but had not been consulted individually about it.

At the time of the acquisition, CIT’s chairman and chief executive, Jeffrey M. Peek, said student lending was attractive because it was a “higher growth business with predictable performance characteristics.”

In its 2006 annual report, CIT said that its student loan business “has shown outstanding growth” and that its Student Loan Servicing Center handled more than $6 billion in loans a year, up from $1.4 billion. It said it had expanded its marketing and servicing capabilities in the field last year. CIT had a student lending portfolio of $8.8 billion as of Dec. 31, 2006,

In the 2005 clearance statement for Mr. Ryan , the executive director of the state ethics commission, Karl J. Sleight, said Mr. Ryan’s outside work could not be done during state work hours, should not interfere with his official duties. Mr. Sleight also said, “Absent an open and competitively bid contract, you are prohibited from selling goods or services to any State agency.”

Mr. Ryan said that when he was first recruited to join SUNY, he had been encouraged to sit on corporate and nonprofit boards. He said many companies that do business with universities have college and university presidents on their boards.

CIT also has at least two former college officials on its board: Thomas H. Kean, the former New Jersey governor who was president of Drew University until June 2005; and Peter J. Tobin, the former dean of the business school at St. John’s University, who also served as special assistant to the president there from September 2003 to May 2005, a few months after CIT entered the student lending business.

Dominic Scianna, a spokesman for St. John’s, said that the university was on break and that neither Mr. Tobin nor the university’s president could be reached for comment.

Mr. Kean said he saw no conflict in his positions in 2005. “I was making no decisions for the university at that point and the university had no connection with the company,” he said.

SUNY was one of eight universities that recently agreed to abide by a code of conduct drawn up by Mr. Cuomo’s office. It prohibits universities and their employees from receiving anything of value from any lending institution in exchange for any advantage and requires them to disclose the criteria used to select preferred lenders.

Columbia yesterday sent a lengthy e-mail message of reassurance to students about the stock sales by David Charlow, the director of financial aid for its undergraduate college and engineering school. “We believe that this has had no adverse financial consequences for students and their families,” the university said.

“A war is just if there is no alternative, and the resort to arms is legitimate if they represent your last hope.” (Livy cited by Machiavelli)

Ed Kent  718-951-5324 (voice mail only) [blind copies]

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