The Johns Hopkins University will stop recommending loan companies to students and parents, and adopt a student loan "code of conduct" established by New York's attorney general, school officials announced last night.
The announcement was in response to New York Attorney General Andrew M. Cuomo's disclosure this month that a top financial aid administrator at Hopkins had received $65,000 in consulting fees from Student Loan Xpress, one of several "preferred lenders" the university recommended to families for financing their children's education.
Ellen Frishberg, director of the private university's student financial services, told Hopkins attorneys Friday that she had consulted for other student loan companies, according to Hopkins spokesman Dennis O'Shea.
Frishberg remains on paid administrative leave while the university continues its internal investigation, O'Shea said. He declined to say which other lenders Frishberg consulted for or how much she was paid for those services.
"Johns Hopkins is absolutely committed to a financial aid program that serves students' best interests and meets the highest ethical standards," President William R. Brody said in a statement. "The actions the university is announcing [Wednesday] are intended to ensure that we meet that commitment."
Hopkins officials said they have "found no evidence" that university officials were aware of Student Loan Xpress' consulting fees paid to Frishberg, which included direct payments and tuition payments to finance her doctoral studies.
Frishberg had disclosed to the university that she sat on the preferred lender's advisory board and had been reimbursed for travel expenses related to her board service, officials said.
Frishberg, who did not immediately return calls to her home last night, was one of several top university officials nationwide implicated in recent weeks in Cuomo's sweeping investigation of the $85 billion student loan industry.
Several state attorneys general, members of Congress and the U.S. Department of Education are looking into whether undisclosed financial arrangements between schools and lenders undermine the best interests of students and their families.
Cuomo's voluntary code of conduct - adopted recently by such schools as New York University, the University of Pennsylvania and the State University of New York - prohibits colleges from receiving "anything of value" from lenders and from entering into revenue-sharing agreements with preferred lenders.
The code does not require schools to drop preferred-lender lists, but Hopkins said in last night's statement that the university's seven financial-aid offices have placed a moratorium on such lists "until there is a national consensus on standards for lists that are free of conflict of interest and serve the best interests of students."
Students and families typically turn to financial-aid offices for advice in navigating a complex system that leaves the average borrower more than $19,000 in debt after graduation.
Some experts think that colleges should guide students and parents to reputable lenders and that Hopkins' halting recommendations could be confusing.
Sarah Bauder, director of student financial aid for the University of Maryland, College Park, said she understands Hopkins' decision to eliminate lender lists but that it will be a nightmare for students and aid officers there.
Bauder thinks Hopkins will be flooded with calls from parents seeking recommendations.
"There are 3,167 lenders out there. What family wants to research that?" she said.
When UM's Web site went down once and prospective students couldn't find the list of preferred lenders online, Bauder's office couldn't handle the large volume of calls from parents and students seeking help, she said. Twenty-five percent of the calls to her office that day were dropped.
Because Hopkins is such a respected institution, Bauder said, other colleges and universities might feel pressure to follow suit. College Park, she said, will not follow Hopkins' lead.
The lack of preferred-lender lists will not affect Hopkins students taking out federally backed Stafford or Perkins loans because the university makes those loans available directly from the government. But families seeking federally backed Plus loans and private loans will be on their own in finding a lender.
In the 2005-2006 academic year, Hopkins students took out $53 million in direct federal loans and $12.4 million in Plus loans, O'Shea said.
Independent, trustworthy financial-aid information is hard to come by, experts say. The most widely used Internet sources for such information have sponsorship or revenue-sharing agreements with one or more lenders, said Mark Kantrowitz, publisher of FinAid.org, a student aid Web site.
Kantrowitz said his site is sponsored by Citibank.
Kalman Chany, author of the book Paying for College Without Going Broke, said media attention to the financial-aid controversy has made parents and students more financially knowledgeable.
"I don't think it's that big a deal," Chany said of Hopkins' move.
The University of Texas also stopped making lender recommendations after being targeted by Cuomo's investigation.
Hopkins also announced yesterday that internal investigators had identified two contracts between the university and lenders in which the loan companies agreed to provide loans to international students in exchange for a spot on the preferred lender list.
Those agreements might have benefited foreign students - whom banks consider more risky consumers - but Kantrowitz thinks they are improper.
"The problem with something like that ... is, it's trading off a benefit to one group of students against another group of students," he said.
It is possible, Kantrowitz said, that Hopkins was effectively marketing a less desirable loan to non-foreign students in exchange for making loans available to its sizable international student body.
"When you're giving advice to an individual student, your obligation should be to give advice to that student and not students in general," he said.
Hopkins said it has found no indication that any students were harmed because of its preferred-lender relationships.