Sallie Mae Leaves Financial Aid Call Center

The University discontinued outsourcing telephone financial aid inquiries to Sallie Mae employees on Aug. 31, officially making the center an internal operation. The decision to sever ties with Sallie Mae is partially due to the controversial issue of the school-lender relationship publicized last March by New York Attorney General Andrew M. Cuomo.

Since 2004, the University's financial aid call center had been operated by Sallie Mae, the nation's leading loan company. Although generally recognized as a company which provides loans to students seeking financial aid to attend institutions of higher education, the company provides schools with other financial aid related services as well. In the case of the University, Sallie Mae established a call center through the school in order to respond to questions prospective students may have in regard to financial aid.

Former President David A. Caputo said last April, "The decision to outsource to Sallie Mae was due to the fact that we did not have the staff to handle the massive amount of calls. We thought they would give us solid, objective advising and information to our prospective students."

Christopher Cory, executive director of public information, said Sallie Mae employees would take the calls and not identify them as working for the lender. "They identify themselves as the Pace Financial Aid Center," Cory said. According to Cory, the call center did not push Sallie Mae loans. To monitor this, the University periodically made "secret shopper" calls to verify the call center gave unbiased advice.

The controversy around the Sallie Mae-run call center arose last winter when the New York Office of the Attorney General (OAG), directed by Cuomo, began an investigation into the relationship between higher education and lending companies. Cuomo told the New York Times in March the school-lender relationship is "often highly tainted with conflicts of interest." He found some schools accepted deals from companies including computer donations, expense-paid trips for financial aid officers and sometimes even cash.

The University was one of the 300 colleges investigated by the Attorney General but was ultimately found to not be in any violation of ethical practices regarding the school-lender relationship.

Some schools were found to have been receiving gifts from lenders. One example, New York University received about $300,000 a year from their preferred lender, Citibank. Although NYU said the money was for financial aid packages, the university was charged for unethical practices and settled the case. The settlement involved redistributing $1.4 million to its students.

Along with numerous other institutions, the University received a proposed agreement on a code of conduct from the OAG on March 29, demanding the document be signed by March 30. The College Code of Conduct, published by the OAG, directly states colleges are prohibited from receiving gifts of any kind from lenders and must ensure employees of lenders "never identify themselves to students as employees of colleges," among other ethical guidelines.

A copy of the College Code of Conduct can be found on the OAG website.

"We were given an agreement to sign and told that we had to sign it in less than 24 hours and we did not have enough time to thoroughly read it. We feel that [the OAG] misstated the way we used the call center," Caputo said. "We asked them for an extension so we could have enough time to read the document and we were denied that extension."

However, the extension was denied by the OAG and as a result, the University received a subpoena.

"The OAG's proposed agreement does not in any way suggest that Pace University received any kickbacks from student lenders," Caputo said in a memo to the University community. "The University does not believe it has violated any law or engaged in any improper practices including with respect to its financial aid call center that is operated contractually by Sallie Mae."

Recently, Cory said "we cooperated fully" in the process of the investigation. "In the spring, [University Counsel Steve Brodsky] met several times with members of the Attorney General staff and after several meetings we got the request to sign the agreement," said Cory.

"When we signed the agreement with the Attorney General, we closed [the call center] down as fast as we could. We made a commitment to close it by Aug. 31," Cory said. He added, the University now handles this center internally.

"We had not accepted the kinds of payments or kickbacks," Cory said. "We were not fined anything [as a result of the investigation]."

"There was a suspicion in a conflict of interest [with the University] using the Sallie Mae call center, but it was never shown to be the case," said Cory.

An inquiry had been made from the Chronicle of Higher Education in Nov. 2004 as to whether or not accepting Sallie Mae's services was brought on by a conflict of interest. At the time of the decision to accept the services, the then-Associate Vice President for Enrollment Management Desiree Cilmi was thought to have a connection with the loan company.

However, former Provost Joseph Morreale said at the time of the Chronicle's inquiry, "Ms. Cilmi is an alumna of Pace and over her tenure of 21 years at Pace, we believe that at all times she acted out of a primary concern for the benefit of our students."

In Nov. 2004, Morreale said to the Chronicle of Higher Education, "After an extensive financial and legal review, our administrators chose Sallie Mae because we thought it would provide the best deal for our students. [This decision] was driven by the comprehensive financing and service package offered by Sallie Mae and the one-stop shop simplicity that the company brings to student borrowers."

Currently, Sallie Mae is in the process of potentially being bought for $25 billion by JC Flowers and Friedman Fleischer & Lowe, with financial backing from Bank of America and JP Morgan Chase. However, as of Sept. 27, the deal may fall through because "of recent legislation to cut government subsidies to education lenders had voided the agreement," according to a New York Times article.