IMPORTANT NOTICE: New York University currently participates in the Federal Direct Lending Program and no longer awards Stafford and PLUS loans in cooperation with private lenders. In addition, NYU no longer invites competitive bidding for non-federal (alternative) loans and does not maintain a preferred lender list. This policy record is provided for general archival reference only.
A NOTICE TO NYU STUDENTS
Student Loans and an Agreement We Have Signed with the New York State Attorney General
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)