Preferred lender reviews

Internal e-mails and other documents

UT's Office of Student Financial Services accepted steak house dinners, after-work happy hours, ice cream carts and goodie buckets from lenders vying to keep or obtain a spot on the University's preferred lender list.

According to documents obtained through an open records request, the financial aid office used "treats" as a unit of measurement in preferred-lender list analysis. The documents also indicate that the financial aid office prefers for those lenders to have a strong "lender presence" in the office.

The New York attorney general's office began investigating the University's financial aid office early this month after records revealed that Associate Vice President of Student Financial Services Lawrence Burt owned stock in the parent company of one of the University's preferred lenders. UT is just one of several universities nationwide that have been included in New York Attorney General Andrew Cuomo's investigation of the $85-billion-per-year student loan industry.

UT's lender-list analyses measure lenders by criteria that include loan volume, student customer service and whether they offer zero or reduced fees, according to the documents. One category titled, "OSFS visibility," is "based on the number of lunches, breakfasts and extracurricular functions for entire OSFS staff." Lenders are rated in this category as either poor, average, good or very good.

Before the UT System general counsel ordered UT to remove it's preferred-lender list from its Web site in the wake of an investigation into Burt, the lender list disclaimer read, "The lenders listed here have been selected based on past experience and qualifications. Neither the University of Texas at Austin nor the Office of Student Financial Services benefit from referring students to any lender."

A second chart titled "lender treats," documents what the financial aid office received from lenders in 2005. It lists happy hours at Chuy's Hula Hut provided by Access Group Inc., at Cedar Door from the College Loan Corporation and at Lucy's Boatyard from Nelnet Inc. Student Loan Xpress Inc. provided birthday cakes and cookies from May 2005 to October 2005. The University Federal Credit Union, ranked "very good" in "visibility," treated the financial aid office to dinner at the Texas Land & Cattle Steak House and to an El Arroyo fajita lunch.

A lender review from 2004 documents dates when lender representatives visited the financial aid office and had lunch or dinner with staff. The word "massages" is written in parenthesis next to the visitation dates for Rhonda Summerbell, senior manager of University relations for the University Federal Credit Union.

Wells Fargo representative Gina Wells has "golf" and "tour" written beside her visit dates. An asterisk on the documents indicating "Don's 30-year celebration" can be found in the lunch and breakfast column for lenders Sallie Mae Inc., Nellie Mae, Chase and Bank One Corporation.

Correspondence between Burt and UT financial services Associated Director Don Davis indicates that the Office of Student Financial Services' relationship with lender companies plays a major role in determining who ends up on the University's preferred lender list.

Davis wrote in an e-mail to Burt in June 2005, "What would you think about taking off KeyBank. I know they have zero-interest loans, but when you take a look at what they did last year (and I think they were on the lender list last year) - it was 96 loans. We don't 'publicize' the zero fees, and it is pretty obvious that students just don't ever get to their site and would not find out about them anyway - and we have no relationship with KeyBank to speak of, whereas we do have some very strong historical ties with [Collegiate Funding Services] and Medfunds."

Davis wrote in the e-mail that he'd much rather explain to KeyBank why it's off the list than explain to the lenders that have good relationships with UT why they're omitted. KeyBank was later taken off the list.

Other documents reveal the close relationship some lender representatives have with financial aid office staff, describing lender presence as either strong or weak and praising representatives who have a strong presence.

Davis, who conducted the lender analysis based on loan rates, fees, customer service, and gifts and treats received, expressed doubt about the legitimacy of even having a preferred lender list in an August 2005 e-mail to former accounting and loans supervisor Sam Riley.

"Sometimes, I think we are crazy to even restrict the lender list. Just put all the ones out there that we deal with that can do it right and forget about it," Davis said. "But that wouldn't be [Burt's] thought, I know, so we will have to see."

Some of the analysis for the 2005-2006 school year compares the good and bad qualities of each of the 20 preferred lenders and the "wannabes." The data shows that for some preferred lenders with good "visibility" - based on treats provided to the financial aid office - they have a high default rate on student loans. One example is the University Federal Credit Union, for which the representative is described in 2003 as having a strong lender presence.

In a Nov. 1 e-mail to Willie Randle at Plains Capital, then under consideration for a spot on the preferred lender list, Davis wrote, "it is very difficult to get on our lender list, because lending entities need to have proven track records in the student loan business and with UT-Austin, significant commitment for the long term to student lending, all appropriate technology and adequate personnel to handle loans, and continuity and presence in their lending representatives and other student loan administrative team members."

The correspondence between Davis and Randle, however, later reveals that UT System Chairman James Huffines, also executive vice president of Plains Capital, discouraged the financial aid office from considering Plains Capital because it posed a potential conflict of interest. The e-mails indicate that Randle and Davis discontinued further correspondence on the issue.

"If there are conflicts of interest going on here, we will address those issues aggressively," said University President William Powers in a phone interview.

The UT System and the New York attorney general's office agreed to coordinate efforts in the investigation of Burt, only hours after he was placed on paid administrative leave. A week later, the U.S. Secretary of Education Margaret Spellings asked Burt to resign from the Advisory Committee on Student Financial Assistance. Reuters reported April 17 that he quit, and he is no longer listed as a member on the committee's Web site.

"I was not aware of these documents, now that doesn't mean that the University or the general counsel is not aware of them and taking them into consideration in the investigation," Powers said. "If we produced it in a Freedom of Information Act [request], I'm sure that the people doing the investigation are aware of it."

Powers said he wasn't sure if he would be able to view the documents at this point, because he is supposed to be the final judge in any potential disciplinary actions taken as a result of the investigation. Powers said he may have to wait until the UT System gathers and presents all the information to him.

The UT System ordered all of its academic and health institutions to remove their preferred lender lists from their Web sites on April 16.

"Because a full and complete review will be necessary to verify the purity of UT System preferred lender lists, UT System administration is asking that you take steps reasonably necessary to immediately cease and desist use of all preferred lender lists," wrote UT System Vice Chancellor and General Counsel Barry Burgdorf in an e-mail sent to administrators.

The initial UT System investigation involves Burt's ownership of stock, but extends into the operations of financial aid offices and how they select their preferred lenders.

In September 2003, Burt owned 1,000 shares and was given 500 options from Education Lending Group Inc., the subsidiary of which is Student Loan Xpress, one of UT's 20 preferred lenders. He has denied that his ownership of the stock influenced the placement of Student Loan Xpress on UT's preferred lender list.

Burt told The New York Times the University did not know he owned the stock.

Burt said he purchased the shares before the Education Lending Group formed Student Loan Xpress. He also told The New York Times that Education Lending Group, formerly Direct III Marketing Inc., invited him to purchase the stock for $1 per share in 2001. He said Student Loan Xpress first appeared on UT's preferred lender list in 2002, the same year the company was introduced, according to March 2002 Securities and Exchange Commission records for Education Lending Group. He sold the stocks in 2003, potentially making as much as $14,000 at the stock price of $9.50 per share at that time.

The record states the subsidiary group was created to focus "on marketing Direct III's student loan business to colleges and universities."

Student Loans Xpress was found on the top of preferred lender lists across the country and loan volume for the company increase by 75 percent from 2002 to 2003 and has increased since then, according to U.S. Sen. Edward Kennedy, a Democrat from Massachusetts who is conducting his own investigation into the matter.

"In their first year, they successfully amassed a gross loan volume of $2.8 million in fiscal year 2002," wrote David Garza, a former financial aid officer, to Burt in a 2003 lender review. "[Director of Regional Accounts for Student Loan Xpress] Jennifer Medley gave an excellent presentation on consolidation loans in fall 2002 and continues to provide a strong presence in our office."

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