Drexel vows to fight Cuomo over student loans

Responding to the New York Attorney General's threat to sue over its student loan practices, Drexel University said it will "vigorously defend its position" and believes "the allegations are without foundation in law or in fact."

"We have carefully reviewed our practices regarding student loans, and we are satisfied that there is no conflict of interest," Drexel president Constantine Papadakis said in a statement.

Drexel said it received a letter from New York Attorney General Andrew M. Cuomo in late February and "responded immediately with full disclosure of our current business practices regarding student loans."

The university said it received no communication from Cuomo until Thursday "when a letter regarding his intent to sue" was sent to Drexel's student newspaper "and then forwarded by our students to our legal counsel," Papadakis said.

"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," the statement said. "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."

Cuomo notified Drexel on Thursday that he intended to sue the Philadelphia university in what would be the first lawsuit against a college in his nationwide investigation of the $85 billion student loan industry.

Cuomo accused Drexel of referring students for loans to one private lender, Education Finance Partners Inc. In exchange, Drexel received payments from the lender based on the dollar value of the loans.

So far, eight other universities, including the University of Pennsylvania, have settled with Cuomo and agreed to end revenue-sharing arrangements and reimburse money to students. The universities also agreed to abide by a code of conduct drafted by Cuomo.

Since April 2005, Drexel has received $124,000 from San Francisco-based Education Finance Partners and was owed an additional $126,000 through March for designating the lender to students as Drexel's "sole preferred private loan provider," said a letter sent by Cuomo's office to Drexel.

Drexel has said all funds were used for student scholarships and the university has complied with all legal and ethical standards of the financial aid profession.

Drexel has not said it will repay students any money.

On March 22, Cuomo said he would sue Education Finance Partners for revenue-sharing arrangements with 60 colleges, including Drexel and Dusquesne University. On Monday, Education Finance agreed to pay $2.5 million to an education fund and adopt the code of conduct. Two other loan companies have done the same thing.

In Drexel's statement, issued Thursday night, Papadakis said Drexel "has always strived to strictly adhere to best practices in order to treat our students fairly and properly and to provide the best value for their educational needs. We follow open and competitive procurement policies and consult with recognized experts to ensure that our contracts and arrangements with and for our students comply with all applicable legal requirements."

"We have carefully reviewed our practices regarding student loans, and we are satisfied that there is no conflict of interest or untoward behavior on the part of Drexel University."

Cuomo has claimed jurisdiction over Drexel and any other university which has New York students and whose "families rely on Drexel's representations about preferred lenders."

Papadakis, in the university statement, said "notwithstanding Drexel's full cooperation, the filing of this notice of intent to sue, without prior notice or demand, demonstrates that the Attorney General has not dealt with our university in a forthright manner."

Drexel signed an agreement with Education Finance April 1, 2006, in which the lender agreed to pay Drexel 0.75 percent of the amount of all loans up to $25 million and 1 percent of all loans greater than $25 million, Cuomo said.

Since 2005, the lender received more than $16 million worth of loans from Drexel students, Cuomo said.