Over the last few months a lot of attention has been given to the student loan and financial aid practices of colleges and universities, including the practice of designating preferred lenders. I thought it would be helpful for the NYU community to have an understanding of these issues; NYU's approach, both past and future; and, the agreement we signed with the New York State Attorney General regarding a Code of Conduct for higher education loans and its ramifications for one aspect of our private loan program with Citibank in particular, the additional financial aid it has permitted us to offer our students.

THE ROLE OF THE FINANCIAL AID OFFICE

Our financial aid officers do their best to get NYU students the greatest amount of aid possible to ease the financial burden of pursuing their studies. This includes grants as well as loans.

Like most colleges and universities across the country, NYU is not able to meet the full need of all of its students. Because our per capita endowment is lower than many of our peer institutions, NYU also has less grant money available for student support. This is particularly challenging because we have more economic diversity in our student population than many of our peer institutions. That is why we try so hard to get our students the maximum amount of aid permitted.

LOANS FOR NYU STUDENTS: PREFERRED LENDERS, YOUR RIGHTS, AND OUR POLICIES

Loans are an important and prominent component of NYU students' financial packages. Approximately 59 percent of NYU students (undergraduate and graduate) borrow to finance their education. NYU has and always will certify a loan from any lender as part of your financial aid package. Indeed, you have a right to use any lender you want.

There are, overall, two types of loans for students: Stafford (also known as federal) loans, and private loans.

Stafford loans are available to students based on a family's financial need and are guaranteed by the federal government. Because of this guarantee, the government sets the maximum rate that a lender can charge, which currently is 6.80%.

Private loans, which are available to all students, are not guaranteed by the government. That's why on private loans, there is a much greater range of interest rates and fees that lenders may charge.

Banks and other lending institutions make money when students borrow from them. One of the key roles NYU's Financial Aid Office takes on is to try to help students sort through the lenders' advertising and literature by identifying those lenders who provide the best service or who offer the best possible rate to the greatest number of students.

For private loans, NYU conducts a competitive bid process to determine just that. NYU has nearly 40,000 students, many of whom depend on loans. There is a wide range of rates in private loans because lenders charge different rates based on their evaluation of students' credit-worthiness. We invited lenders to submit a proposal about the rates they would charge across the spectrum of our student body. Most recently, nine banks chose to submit bids, and the winner was Citibank because it offered the best rates for the greatest number of students. Sallie Mae, which came in second, is our secondary private lender because it offered to match many of the terms offered by Citibank. On our website and in our materials, they are at the top of a roster of all bona fide lenders who requested to be on our list of private lenders, giving our students a wide range of choices.

We believe our private lender rates are among the best in the nation for private loans. In fact, a quick survey of New York institutions that we did just this week confirms that we have the lowest rates for a pool of students with the spectrum of credit scores as ours.

That said, every student should shop around. While Citibank offers the best rate for the greatest number of students which is important to NYU in trying to serve all of its students it is possible that it does not offer the best rate for you individually. So you should do your research.

THE ATTORNEY GENERAL'S INVESTIGATION OF STUDENT LOAN AND FINANCIAL AID PRACTICES

New York State Attorney General Andrew Cuomo has expressed concern that colleges and universities around the country are acting in concert with lenders in ways that may disadvantage students. He has asked institutions, including NYU, to provide information with respect to their practices, which we did.

We advised the Attorney General that while we cannot speak to his concerns generally or others' practices with private loan lenders, we can say that at NYU we have used a competitive process to select the best private loan lender, that this process has enabled our students to take advantage of some of the lowest private loan rates we know of in higher education, and that Citibank was chosen solely on the basis of the rates it offered.

Based upon the information we provided, Attorney General Cuomo has indicated that he has concerns about one of our practices in particular, our use of some of Citibank's private loan profits from NYU students that we give in additional financial aid to our students. Let me explain: after Citibank won the competitive bid process we had for private loan lenders by having the lowest rates for our pool of students, it offered to return to NYU 0.25% of the value of certain private loans our students take out. We placed this return of Citibank's profits in an account for financial aid use only. We believed it made good sense to use money that would otherwise go into Citibank's pockets to give more financial aid to NYU students.

The Attorney General's Office, however, has advised us that they don't see it the same way. They consider the return of some Citibank's profit for additional financial aid to be problematic "revenue-sharing," and as part of an industry-wide Code of Conduct, they invited us to sign an agreement that we will no longer accept a portion of Citibank's profits for financial aid for our students. We agreed; this means that we will return the portion of Citibank's profits to them, approximately $300,000 a year, and Citibank will credit the loan balance of each NYU student who took out a loan during that period. On average, Citibank will be crediting our students with approximately $60.00, with the low amount being $0.25 and the high being $668.14.

THE ISSUE OF TRUST, AND EMBRACING THE HIGHEST STANDARDS OF CONDUCT

We should all agree with the Attorney General's goals: to ensure that all students are treated fairly and all financial aid activities are conducted in accord with the highest standards. We share that goal, and it's why NYU has: 1) used a competitive process to select the best private loan lender for our student population, 2) achieved some of the lowest private loan pricing in the nation, and 3) made sure those funds, at that pricing, have been made available to most — not a small minority — of our students and families.

We don't believe the Attorney General intends to send the message to students and families that they should not trust their financial aid offices. I have been involved in admissions and financial aid for my entire life, and that message would be unfair. We believe that he, like us, wants the best for students and for the relationship they have with colleges and universities.

We have done a good job on behalf of you, our students. Till now, the measure of that has been connecting those of you taking out private loans with the lowest possible rates and maximizing financial aid for our student body.

However, we also know that to keep your trust in this environment, we have to continue to reassure you that we are doing the best job for you. It is in that spirit that we signed the Code of Conduct agreement with the Attorney General, particularly as many of the recommendations in the Code are practices in which we already engage. Among other things, however, this means that we will cease taking a portion of Citibank's profits to provide additional funds for financial aid.

I am sure we will hear more on this topic in the coming days. I hope this explanation on NYU's stance has been helpful.

-- Barbara Hall, Associate Provost for Enrollment Management (March 2007)

Code of Conduct

NYU and its employees will not accept gifts, meals, travel or any other non-trivial items from student loan providers in connection with the University's loan business.
NYU will not accept money, equipment, or printing services from student loan providers.
NYU will continue to select lenders that NYU determines provide the best combination of price, access to funds, and service to our students and families, and NYU will tell students and families how those lenders were chosen.
NYU will continue to make clear to students and families that they have the right to borrow through any lender or guarantor that they choose.
NYU will choose lenders that do not sell their loans or who guarantee that all benefits the student or family thought they were getting when they took out their loan continue in force should their loan be sold.
NYU will review its lender choices every year.
NYU will continue not to use lender employees who claim to be representatives (as opposed to vendors) of NYU.

A Q&A on Student Loans

The New York State Attorney General's ongoing review of the student loan industry has led to a great deal of media coverage, not all of which has made distinctions in the practices of the various universities that have interacted with the Attorney General's office over the last few weeks. I think it is important to set forth NYU's circumstances with regard to private loans.

NYU's Financial Aid Office has always and will continue to conduct its work in the best interests of our students, maximizing the amount of aid available, using competitive processes to secure the best rates on private (non-government guaranteed) loans, and striving for the highest level of service for students from our staff and our preferred lenders.

A few key facts about our private loan program:

NYU selected a "preferred lender" for its private loan program through a competitive Request for Proposals (RFP) process; the winner—the CitiAssist loan program from Citibank—was chosen solely because it offered the lowest rates to the greatest number of students.
NYU's RFP competition yielded some of the best rates for the largest pool of student borrowers in the country; the best rate is made available to over 80 percent of applicants (see attached chart).
NYU has only recommended the private lender with the best rates, and the University has not been accused of recommending students borrow from any lender other than the one offering the best rates.
NYU did not recommend students to its preferred lender in exchange for any payments.
NYU officials do not have—nor have they been accused of having—financial involvement with any of the lenders we recommend.
NYU was praised by the Attorney General for voluntarily providing information and embracing a new code of conduct.

Some 9,000 NYU students take out "private loans" each year. These loans—which are different than "federal" (or government guaranteed) loans—allow students to finance their education by addressing the gap between their aid packages and what their families can afford to pay.

Students and families receive a great deal of information and solicitations from an array of lenders. In selecting a "preferred lender" for private loans through a competition, the University seeks to assist students by recommending a lender who would offer the best rates to the greatest number of students (some lenders advertise a great "top" rate but actually offer it to very few borrowers). Nine lenders competed for NYU's preferred lender spot; Citibank won because it was willing to offer a low rate—prime minus one percent—to over 80 percent of NYU borrowers.

So, what issue caught the Attorney General's attention? After winning the competition—and not as part of its competitive bid—Citibank proposed returning a portion of its profits—0.25% of the value of the loans—to the University. NYU chose to use this share of their profits to offer additional financial aid. For NYU, the question was straightforward: would these funds be better used as Citibank profits, or financial aid for NYU students?

The Attorney General did not see it the same way. While we disagree with his interpretation, we decided to sign an agreement to abide by a code of conduct which ended that arrangement, as we already embraced most of the practices in the code of conduct. As part of our agreement, we agreed to return the Citibank profits we received to Citibank, some $1.39 million, which Citibank will credit in appropriate amounts to the loans of the affected students (this will be done automatically; students do not have to apply). NYU will continue to maintain the same level of financial aid as was the case before the return of the funds to Citibank.

Following is a "Q and A" that may be helpful to you.

— Barbara Hall, Associate Provost for Enrollment Management (March 2007)

STUDENT LOAN Q & A

Q: Why does NYU select a preferred lender for private loans (i.e., loans not guaranteed by the government)?

A: To assist students and families in finding the lender with the best rates.

Q: How was NYU's preferred lender selected?

A: In 2004, NYU held a competitive RFP process asking lenders to submit their best rates over a range of credit scores; the winner would be the lender offering the best rate to the greatest number of students. That winner was Citibank.

Q: Was Citibank chosen for any reason other than offering the best rates to the greatest number of students? Was there any other financial arrangement or inducement that led to it being named NYU's "preferred lender" for private loans?

A: No.

Q: When did Citibank propose giving NYU a portion of its profits "0.25% of the value of the private loans" which was used for additional financial aid?

A: After it had already been chosen as the preferred lender based on offering the best rates for the greatest number of students.

Q: Why did NYU agree to Citibank's proposal for receiving that portion of the profits?

A: For NYU, the question was this: would those monies be better used as Citibank profits, or as additional financial aid for NYU students? For us, it was an easy call.

Q: Would NYU students have received a lower rate if Citibank had not offered to provide that small portion of its profits to NYU?

A: No. The competitive process ensured that Citibank would have to offer its best rates in its bid to be designated the preferred lender. We recently surveyed the rates offered by other New York colleges and universities; the rates Citibank offered over the entire spectrum of student borrowers are better than those offered by lenders at other schools we have surveyed. We also think it's important for our students and families to know that Citibank did not make the proposal to return a share of its profits until after it had been selected the winner.

Q: Does NYU believe it did anything wrong in agreeing to the arrangement with Citibank? Does the University believe it disadvantaged any students?

A: No.

Q: Why did NYU sign the agreement with the Attorney General?

A: Because we had no desire to engage in a protracted legal fight with the Attorney General, and because the code of conduct that lies at the heart of the agreement included many practices which NYU is already following.

Q: Does NYU regret having signed the agreement?

A: Given that we used a competitive process and achieved such great rates for our students, we find it frustrating that current media attention to the student loan industry may create a misimpression about NYU's activities.

Q: There's been a lot of coverage about university officials who had stock deals with preferred lenders. Has any of that involved NYU?

A: No.

About This Policy

Effective Date:	June 06, 2009
Issuing Authority:	Linda Mills, Senior Vice Provost for Undergraduate Education and University Life
Responsible Officer:	Lynn Higinbotham, Director of Financial Aid
Office Name:	Office of Financial Aid