Kennedy panel on student lending cites Citizens Bank
Ties between schools, lenders face scrutiny
A US Senate committee chaired by Senator Edward M. Kennedy looking into potential conflicts of interest in the student loan industry cited Citizens Bank yesterday for the "lavish meetings" it funded for the members of its advisory board on student loans, which included representatives of several prominent local and national universities.
The report, from the Senate Health, Education, Labor and Pensions Committee and initiated by Kennedy, provides details about the web of relationships between lenders and the colleges that help steer students to loan programs. The committee has uncovered awards of financial compensation to schools, services, and donations as well as offers of company stock to officials in an attempt to get on the schools' short lists of preferred lenders. Lenders given such status end up getting as much as 90 percent of all loans taken out by the school's students and their parents , according to the report, giving companies incentive to woo the officials.
Citizens Bank, the second largest bank in New England, based in Providence, R.I. , is one of five firms mentioned in the report for spending large sums to fly in its advisory board, composed of various school officials, for meetings at hotels and resorts. Citizens, according to the report, paid for outings to high-class restaurants as well as for golfing and trips to the spa. For exam ple, officials attended a Philadelphia Phillies baseball game in a luxury box in fall 2005 with the bank picking up the $2,935 tab , and the bank covered a $4,100 bill for a dinner at Emeril's Restaurant during a February 2006 board meeting at Walt Disney World in Orlando . Citizens Bank, owned by Royal Bank of Scotland Group, has more than 1,600 branches in 13 states throughout the Midwest and Northeast. It also holds the naming rights to the baseball stadium in Philadelphia.
"The findings underscore the urgent need for systemic reform in the student loan system," Kennedy said in a press release. "Focus and attention must be paid to America's students who need accurate, unbiased information when making one of the most important decisions in their lives."
Citizens Bank released a statement in response to the report saying its advisory board members are unpaid and do not have any consulting agreements. The bank said only 6 percent of its lending is done with the institutions represented on its 12-person board.
"The purpose of the board is to develop the best products and services for students," the bank stated in its press release, adding that the board has convened only via teleconference as of this year.
Citizens' website names all board members from various colleges, with a representative from Emerson College and Northeastern University. The company said the list is current, and that all those named on the list were board members in either 2005 or 2006. But David Rosen, spokesman for Emerson College , said its official, Daniel Pinch , is no longer on the board.
In the past six months, reports of questionable relationships between lenders and officials at the University of Texas-Austin, Johns Hopkins University, the University of Southern California, and Columbia University have drawn attention to arrangements in which lenders were given preferential treatment in exchange for kickbacks like concert tickets, stocks, or compensation for consulting.
Terry Hartle, senior vice president of the American Council on Education, a higher education trade association that comprises 2,000 public and private colleges, said the activities revealed by the report are symptomatic of the increase in competition among private lenders after the federal government decided to become a lender itself by creating the Federal Direct Loan program in 1993. Previously, the government provided subsidies and protection clauses to private firms that guaranteed a return on student loans.
"Seeds of current problems were actually sown in 1993-1994," said Hartle, a former Kennedy staffer. "Over the years, competition has become increasingly intense. Steps businesses would take to attract more business became more far reaching. It is those extensive activities that have now attracted so much scrutiny."
Sheldon Steinbach, a higher education lawyer for Dow Lohnes PPLC, a Washington, D.C., law firm, said that while the most highly publicized cases were egregious in nature most of the reports he has seen were consistent with the cultural environment between the student loan industry and the financial aid offices of universities. He said the federal government failed to provide adequate guidance or clarity on what is acceptable and that it was only in recent months, with the scrutiny placed by investigations from Kennedy and New York Attorney General Andrew Cuomo, that the standards of conduct for lenders and schools changed.
"The investigations have made a dramatic and effective and quick impact ... and the progress that has been made is now etched in stone," he said. "It's not worth getting into an argument over whether it was right or wrong because it is no longer the operative mode in the community."
Se Young Lee can be reached at vlee@globe.com. 
