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Drexel agrees to loan refunds

The university will return about $250,000 to students who used a Calif. lender, in a deal with the N.Y. attorney general.

Drexel University has agreed to refund about $250,000 to students who took out loans from a California lender, part of an agreement reached with the New York attorney general investigating the $85 billion student-loan industry.

Drexel said in a statement that it would reimburse students whose loans were part of a "revenue-reinvestment program" with Education Finance Partners Inc., of San Francisco.

The Philadelphia university said it "believes that it has always administered its student-loan programs with integrity and in the best interests of its students."

Nevertheless, "we agree with the attorney general that a national code of conduct would be beneficial in establishing clear and uniform standards for the administration of student loans."

Andrew M. Cuomo, New York's attorney general, announced that Drexel and Minnesota-based Capella University were the latest colleges to reach agreements with his office and accept a code of conduct.

Cuomo is investigating improper relationships by lenders, including payments to colleges that promote specific companies to students as "preferred" lenders.

Last month, Cuomo sent Drexel a "notice of intention to sue" over its revenue-sharing agreements with Education Finance Partners.

Drexel, in a statement yesterday, said its "practices already conform to a substantial part of the terms adopted today." Drexel said it settled with the Attorney General's Office to avoid "the expense and distraction of protracted litigation."

Drexel noted that funds received from Education Finance Partners under revenue-sharing arrangements were placed "in a restricted account and disbursed by Drexel on an as-needed basis solely to students who faced sudden emergency situations."

To date, Drexel said, 43 students have received emergency grants totaling about $115,000 from about $124,000 received in the first two years.

Cuomo said Drexel agreed to refund about $250,000 in revenue-sharing fees "on a pro-rata basis" to students who took loans from Education Finance Partners between 2005 and 2007.

In addition, Cuomo said, Drexel had an agreement with another preferred lender, EdAmerica Inc., which operated a call center for the university's financial-aid office.

Students and families contacting the call center for financial-aid advice "were unaware that they were speaking to the employees of a private loan company," Cuomo said in a statement. "EdAmerica had a clear interest to encourage callers to take loans from EdAmerica."

If Drexel is unable to reimburse any qualified borrower "despite its best efforts," Cuomo said, the university would provide the undistributed funds to the New York attorney general for a fund to educate students about college borrowing.

Cuomo said Drexel received $124,021.73 from Education Finance Partners starting in April 2005 and accrued an additional $126,031.61 that has not been paid.

Drexel allowed the lender to use the university's name, logo, colors and mascot in promotional materials "to foster the false impression to student borrowers and their families that Drexel was the lender, or the lender partner, on Education Finance Partners' private alternative loans," Cuomo said.

Cuomo also announced that Capella University's director of financial aid, Timothy Lehmann, had been paid for consulting services by a lender, Student Loan Xpress Inc. The arrangement was not known to the university until last month, Cuomo said. Lehmann served on advisory boards of several banks and loan companies and received gifts, meals, lodging, and travel expenses between 2003 and 2007.

Cuomo said 24 colleges, including Drexel and Capella University, and five lenders, including Sallie Mae, have settled and agreed to a code of conduct.