NASFAA President Dallas Martin sent a letter to NASFAA members yesterday reviewing many of the recent events that have taken place in the student loan industry. Martin talks about the nationwide investigations into unethical behavior between financial aid administrators and student loan providers and the series of events that followed those investigations. Martin also discusses how these recent events affect NASFAA members and what is being done now to restore the trust that may have been damaged by the actions of a few. Martin asks that all NASFAA members set aside our differences and work together to ensure that "students and families are receiving the financial support necessary to have access to a postsecondary education." A full copy of the letter follows.

Martin Letter To NASFAA Colleagues

Dear NASFAA Colleague,

Since the first of the year we have all known that some changes to institutional student lending practices would be forthcoming due to the introduction of the "Student Loan Sunshine Act," S.486 in the U. S. Senate on February 1, 2007, its companion bill H.R. 890 in the U. S. House of Representatives, and the Department of Education's announced Negotiated Rulemaking sessions.

What we did not anticipate was the flurry of media stories that began to appear in March when New York Attorney General Andrew M. Cuomo released preliminary results of his office's nationwide investigation into what he referred to as "an unholy alliance between banks and institutions of higher education that may not be in the student's best interest." He noted that the financial arrangements between lenders and these schools are filled with the potential for conflicts of interest and in some cases may break the law.

When these preliminary findings were first announced, most of us bristled at these accusations. We believed his statements were overstated and unfairly raised suspicions about the professional conduct and ethics of all financial aid administrators. That is why, on March 18, I wrote to the Attorney General asking for him to apologize for the broad, negative generalizations that had been made about our entire profession.

Shortly thereafter, further findings were released regarding the questionable actions of a few individuals. Unfortunately, the actions of a few came to represent all of us as the news media continued to fuel the appearance of even greater impropriety in the court of public opinion. The disclosure of these findings, combined with a highly politically charged environment, unpredictably placed us in the eye of a "perfect storm" that with each passing day began to seriously erode our professional positions of trust and integrity among families, the public, and policy makers.

Simultaneously, seeing all of these accounts as a popular basic consumer protection issue prompted other attorneys general and Congressional leaders to launch their own investigations into school practices. Some state legislators enacted additional legal requirements regarding student lending practices and new constraints on how institutional personnel could interact in outside activities.

The first of these state initiatives, not surprisingly, was introduced on April 17 in the New York State Legislature and was based upon the recommendations of N.Y. State Attorney General Andrew M. Cuomo. This legislation entitled; "Student Lending Accountability, Transparency and Enforcement Act," or "S.L.A.T.E." for short was quickly enacted into law on May 30, 2007 and will go into effect 180 days later.

While many of the provisions in the S.L.A.T.E Act are very similar to those contained in the pending Federal Student Loan Sunshine Act, it also includes a new definition of a lending institution that is problematic. That definition states that a lending institution shall mean:

a. any entity that itself or through an affiliate makes educational loans to pay for or finance higher education expenses or that securitizes such loans;

b. any entity, or association of entities, that guarantees educational loans; or

c. any industry, trade or professional association or other entity that receives money, related to educational loan activities, from any entity described above in paragraphs a and b of this subdivision.

This language has been interpreted to mean that if a professional association like NASFAA, EASFAA or NYSFAAA accepts sponsorship monies from lenders or guarantors, it would be classified as a "lender" as well. Needless to say if this is a correct interpretation, it would greatly affect how our associations operate and would affect our reimbursement practices for members. As a result, we are still in discussions with New York state lawmakers concerning this provision and we are hopeful that further positive clarification will be forthcoming.

Despite our work behind the scenes to reach an amicable agreement with lawmakers and investigators, the media frenzy continued, and it became clear that our continuing defense of institutional lending practices and of certain aid administrators' conduct was not receiving any traction, except amongst ourselves. In fact, with each new defense, many in the media simply described our response as a denial of what they claimed to be a pervasive set of questionable practices.

As the media reports continued to erode the trust of the students and families, which we had worked for so long to acquire, the NASFAA Board of Directors quickly realized that additional actions must be taken in order for NASFAA to regain a leading role in ensuring continued public confidence in the integrity and professionalism of financial aid administrators.

At its meeting in Charlotte, NC the NASFAA Board of Directors consulted outside legal counsel and adopted a resolution. This resolution noted that they were saddened that the conduct of a few had cast a cloud over the entire community, that they believed in the integrity and honesty of the overwhelming majority of aid administrators, that they unequivocally reaffirmed the absolute commitment of NASFAA to ensuring the highest levels of ethical behavior, and that the advice and guidance given to students and parents must be in their best interest and free of bias or conflict of interest.

The resolution also stated that the Board of Directors would, 1) promulgate its own code of conduct to provide aid administrators with explicit guidance in carrying out the expectations of NASFAA's Statement of Ethical Principles; 2) review the Association's business practices to ensure complete compliance with its Statement of Ethical Principles; 3) establish a mechanism to inform, educate, and advise aid administrators regarding compliance with NASFAA's Code of Conduct; and 4) call upon every NASFAA member to undertake a review of their institution's current practices to ensure they are free of bias and based solely on the best interest of students and parents.

In addition, the Board of Directors had an extensive discussion about the provisions that needed to be included in NASFAA's Code of Conduct and appointed a sub-group of the Board to work with NASFAA staff and our attorneys to finalize the document.

The final Code of Conduct for Financial Aid Professionals was adopted by the Board of Directors on May 24, 2007, and was promulgated to provide further guidance respecting the Association's Statement of Ethical Principles. In developing the Code of Conduct, the Board recognized that financial aid professionals do not function in a vacuum and that they first and foremost have an obligation to their institution, its policies, and its students.

While knowing that this Code cannot dictate institutional conduct, the Board does believe that members can, and must abide by the professional standards adopted by the Association.

In addition to providing guidance to members, the Board of Directors' actions, along with the public announcement of our own Code of Conduct, clearly has called to the public's attention our members' continued exemplary standards, and helped to stem the tide of the media's incorrect, negative characterization of our profession.

Further, we have also reviewed and revised several of the Association's exhibitor/sponsorship policies.

These policies now:

• Require exhibitors' gifts or giveaways to be of nominal value (i.e., less than $10 fair market value).
• Prohibit all prize drawings, including scholarships.
• Eliminate named sponsorship of specific Annual Conference activities and events.
• Prohibit exhibitors or contributors from organizing, sponsoring or conducting any social activities directed towards Annual Conference attendees.
• Allow exhibitors or contributors to organize, sponsor, or conduct non-social events, such as focus, advisory, or user groups, where only non-alcoholic beverages and light snacks may be served.

While we know that our former policies were legal and fully compatible with industry norms, by taking these additional steps, we believe we have further reduced situations that might be viewed, by some, as an inducement or a perceived conflict of interest.

Obviously, the course of events that has occurred over the past several months has been extremely frustrating and has angered many.

A number of members have accused NASFAA, and me personally, of not defending the profession more vigorously and of caving-in to the New York Attorney General. Let me assure you that throughout this ordeal, we have always indicated to the media, the politicians, and the public that the vast majority of financial aid administrators are honest, ethical and dedicated to insuring that their students are well-served. We also have consistently defended the use of preferred lender lists and participation on lending advisory committees as providing added value to students. We have defended institutional revenue sharing agreements that have proper disclosure of such to borrowers. In fact, we have repeatedly reminded people that these and other institutional lending practices were not illegal or prohibited by law if conducted properly.

But some of the findings that have been revealed clearly suggest that there were indications of a quid pro quo relationship amongst certain parties, that transparency or full disclosure was lacking, and that in some instances borrowers' choices were minimized. Knowing that these practices were inappropriate and perhaps non-compliant significantly marginalized our ability to continue our defense. It also suggested to me that it was appropriate to soften my criticism of the Attorney General and admit that we did not know that some of these practices were occurring.

By taking this more conciliatory stance, we also were able to begin a positive dialogue with his office to move beyond the accusations. We not only informed them that NASFAA was developing its own Code of Conduct to provide additional guidance to members, but that we would be revising some of our exhibitors/sponsors policies to minimize any actions that might be viewed as a potential conflict of interest. In addition, we told them we would share these documents with the Attorney General's Office once they were approved to demonstrate that NASFAA, as it always has, continues to maintain and encourage exemplary standards of conduct. On May 29 we delivered Board-approved documents to the Attorney General's office and on May 30, I appeared with the Attorney General at a press conference to announce NASFAA's Code of Conduct.

To further demonstrate our sincerity and to provide an opportunity for the Attorney General to learn first-hand that the vast majority of financial aid administrators are honest, ethical, dedicated professionals, we invited him to attend our Annual Conference and to address our conferees at our closing session.

While I know that many members were surprised or even disappointed that we invited Mr. Cuomo to speak, I believe it was the appropriate thing to do. While I, like many of you, have disagreed with some of his public pronouncements that implied wide-spread inappropriate behavior throughout our profession, I do believe that his objective has always been to ensure that consumers are treated fairly throughout the student lending community.

This is an objective that I believe the majority of us share and therefore we invited him to join us to help him gain an additional appreciation of the honest, hard work we all do. I believe, by attending our conference, he would have obtained a more thorough understanding of many of our business lending practices. I also believe that all of us would have gained a clearer understanding of the reasons for his investigations and the actions that have followed.

While Attorney General Cuomo was unable to attend the conference this year, we have invited representatives from his office to attend our Annual Conference for the next five years to observe for themselves that our relationships with our business partners are being conducted appropriately. This invitation is not only available to his office, but to any other appropriate parties that wish to observe how we conduct our affairs. These invitations are consistent with the position that we have nothing to hide.

So while this has been a frustrating and challenging time for all of us, I believe the actions NASFAA has taken are and will prove to be beneficial to our profession. They will further demonstrate that our members continue to adhere to the highest standards of ethical behavior in conducting their professional responsibilities.

While we may have some differences over what did or did not occur or what we should or should not have done, I hope we can set those aside and refocus our attention upon our mutual goal of continuing to be the primary, objective, and trusted source of financial aid information and services to America's students and their families. We have other battles to wage to ensure that students and families are receiving the financial support necessary to have access to a postsecondary education. Over the next several months we must rally together to amplify our voices in support of increased financial aid for needy students.

Above all, our position of trust and integrity among families, our institutions, the public, and policy makers must always be beyond reproach. We have learned that to conduct oneself otherwise does a great injustice to students and to others in our profession. Thank you for understanding.

Respectfully yours,

Dallas Martin
President

Posted 06/28/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.