Attorney General Martha Coakley's Office Obtains $780,368 From Emerson College for Student Loan Borrowers
Settlement is First Student Lending Resolution to Reimburse Students For "Preferred Lenders" Interest Charges
"Our investigation into the student loan industry has revealed some troubling practices that increased the cost of borrowing for students," said Attorney General Coakley. "Our office will continue to hold accountable schools that exploit students' trust by needlessly steering students into expensive loans. We are very pleased that Emerson cooperated with our investigation and that it is the first Massachusetts school to enter into a settlement that compensates borrowers."
The settlement is the first student lending resolution to directly reimburse students for the extra costs they incurred by following their school's misleading lending advice. Under the terms of the settlement, Emerson will pay $775,859 to students who took Stafford loans from either Citizens Bank or JP Morgan Chase & Company ("Chase") during academic years 2004-2005, 2005-2006, or 2006-2007. The Attorney General's investigation found that between 2004 and 2007, Emerson designated Citizens Bank and Chase as "preferred" lenders and led students to borrow from these lenders even though Citizens and Chase provided more expensive Stafford loans than other lenders. Pursuant to the settlement, over 4,000 present and former undergraduate and graduate students will receive payments ranging from $50 to $839. Attorney General Coakley's Office calculated restitution amounts based on the additional interest charges that students incurred as a result of taking Stafford loans from Citizens and Chase rather than less expensive Stafford lenders. Emerson will also return nearly $5,000 to students who borrowed from Education Finance Partners, Inc. ("EFP") while Emerson received revenue sharing payments from EFP. Massachusetts was joined in the settlement by the State of New York, which has been a national leader on student lending issues.
In addition to paying restitution, Emerson has agreed to conduct reforms aimed at preventing conflicts of interest, bringing transparency to the student loan process, and preserving students' ability to use the lender of their choice. Among other things, the conduct reforms require Emerson to put the financial interests of its students first when choosing to recommend a lender and prohibit Emerson's financial aid employees from accepting anything of value from lending institutions, joining lender advisory boards, or entering into joint ventures or consulting agreements with lenders.
As part of its investigation, the Attorney General's Office took testimony from Emerson's financial aid employees and reviewed emails, contracts, and other documents. The Attorney General's investigation found that:
- Emerson failed to prevent the gifts, gratuities, free and discounted services that Emerson and its financial aid staff received from influencing Emerson's decision making process in choosing its "preferred" lenders.
- Emerson made inaccurate statements to students regarding the advantages of using its "preferred" Stafford lenders.
- Emerson created a Stafford loan process that made it difficult for students to choose lenders that Emerson did not recommend as "preferred," failed to provide students with information as to how to select a non-preferred Stafford lender, and actively discouraged students from using non-preferred lenders.
- In certain years, Emerson assigned students who did not designate a "preferred" lender to Citizens Bank, even though Citizens offered a more expensive loan than Emerson's other "preferred" Stafford lender at that time.
- Between 2001 and 2003, Emerson purported to operate a financial aid hotline that was actually staffed and operated by national lending giant Sallie Mae. At the time Sallie Mae operated the "Emerson" hotline, Sallie Mae was dictating the loan terms and repayment benefits that Citizens and Chase offered to Emerson borrowers and purchasing the loans that Citizens and Chase made to Emerson borrowers.
- The investigation also confirmed previously public information that Emerson employee Daniel Pinch received consulting fees from "preferred lender" Collegiate Funding Services and that Emerson received revenue sharing payments from its "preferred lender" EFP.
This matter was handled by Investigations Supervisor Arwen Thoman , Assistant Attorneys General Glenn Kaplan, Amy Gwiazda, and Special Assistant Attorney General Owen Lefkon, in addition to Economist Bryan Lincoln, Ph.D., all of Attorney General Coakley's Insurance & Financial Services Division.
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