Lawyers Join the Debate Over Student Loan Industry Practices

[May 6, 2007.]

As states such as New York and Illinois and bodies such as Congress and the U.S. Education Department investigate practices by the student loan industry, class action attorneys are also entering the mix—not to anyone's surprise.

For instance, Fauth Law Offices in Oakland, California, is "investigating these questionable student loan practices" according to a notation on the firm's website. The law firm is asking individuals who have taken out college student loans to contact the firm for advice.

The law office already has specialties in a number of litigation areas, including financial fraud, toxic exposures, securities fraud, employment discrimination, personal injury, consumer protection, and products liability. Apparently, the firm has now added student loan litigation to its list of areas of expertise.

The firm notes that a half-dozen universities and three financial institutions have reached settlements providing more than $10 million in connection with student loan problems. The firm further states, "…that is thought to be the tip of the iceberg."

The firm says the problem involves universities recommending preferred lenders to students applying for student loans. A whopping 90 percent of students select a lender based on their school's recommendation. As a result, the students may be paying more than they should because of the kickback scheme.

New York Attorney General Andrew Cuomo has stated, "This is like peeling an onion. It seems to be getting worse the more we uncover. It's more widespread than we originally thought." The probe currently involves about 100 colleges and universities nationwide. The lenders include Citigroup, Sallie Mae, and CIT Group, among others. Investigators believe that a number of schools have secret relationships with lenders which are financially rewarding for the colleges, but financially harmful to students.

Additional revelations are expected in the months ahead as more information emerges from the investigations.