MyRichUncle was a service mark of MRU Holdings; a former NASDAQ listed company that became the fourth-largest provider in student loans in the United States in 2007.  The company offered private and federally guaranteed student loans.  MyRichUncle developed a proprietary “human capital investment” to qualifying student loans in addition to the traditional credit scoring.   MyRichUncle positioned itself as the “conflict free” alternative lender.  The company actively fought against predatory lending to students.

The Catalyst

As if going to college wasn’t difficult enough students were being victims of predatory lending.  In 2006 MyRichUncle drew attention by publishing New York Times advertisement that questioned financial aid administers participation in receiving “kick backs” in exchange for a place on their “preferred lender” list.  Lenders would pay or bribe the financial aid offices to lead the students to lend from them.  The MyRichUncle campaign cited as a catalyst for the New York Attorney General investigation of student lending practices in 2007.

Deceit

This statement from Andrew Cuomo was enough to make my stomach turn.  “There is an unholy alliance between banks and institutions of higher education that may often not be in the students’ best interest.”  On April 4, 2007, the General released another statement that revealed more and more “suspicious” practices between university officers and loan companies.  Although MyRichUncle was attacked in the press by “established” industry players, a number of stories that made it to press confirmed MyRichUncle’s accusations of “systematic misconduct in the student loan industry”.

Students Paying the Way

Students were being misled into higher interest loans offered by “preferred lenders” in order for their trusted “financial advisors” to receive everything from steak dinners to stock options.  Certain lenders such as Nelnet and Sallie Mae were operating call centers and identifying themselves as advisors.  After the scandal unfolded Sallie Mae agreed to pay $2 million into a fund to educate college-bound students as part of a settlement to the Attorney General.

Drexel University was the next to be in the hot seat in this investigation.  According to Andrew Cuomo, Drexel had received over $124,000 from revenue sharing agreements through Education Finance Partners.  Drexel had also sent over $16 million in loan volume to EFP as part of its preferred lender list.

Education Finance Partners had “revenue sharing” agreements with over 60 colleges.  Even one of the most infamous banks was involved in this little charade.  Student loan officials from more than 200 colleges were treated onboard a Manhattan Cruise ship in 2005 by JPMorgan Chase.  This little adventure cost around $74,000.

David Charlow was fired by Columbia University once they discovered his financial interest with a student loan provider.  He promoted “Student Loan Xpress” and added them to the “Preferred Lender” List in 2005.  He received 7,500 stock options from the lender along with $100,000 in sales.

Results

Due to this investigation over $3 million was refunded to the students and $13.7 million was to be paid to the National Education Fund. Thanks to the New York Attorney General Andrew Cuomo the Code of Conduct eventually became a state law as the Student Lending Accountability, Transparency, and Enforcement Act of 2007.  This led to the federal Student Loan Sunshine Act which also bans gifts, perks, and revenue sharing agreements between lenders and schools.  This ensures that the students will have options to all lenders rather than just the “Preferred Lender” List.