Capella settles over student loan gifts

Attorneys general in Minnesota and New York announced a settlement Tuesday with Minneapolis-based Capella University after an investigation found that financial aid officers received money, trips, gifts, golf and other entertainment from companies making student loans.

This is the first settlement between a Minnesota college and the attorneys general and the latest in a nationwide investigation into allegedly too-cozy relationships between some college financial aid offices and student loan companies.

Capella, a for-profit, online university, is not required to pay a fine or restitution to students. As part of the settlement, Capella signed a College Loan Code of Conduct created by New York Attorney General Andrew Cuomo that prohibits colleges from receiving anything of value from lenders.

Twenty-two schools have agreed to abide by Cuomo's code of conduct. Eight of them will reimburse $3 million to students from revenue-sharing deals.

Separate investigations by the university and the attorneys general found that Capella's director of financial aid, Timothy Lehmann, was paid $12,400 in consulting fees from Student Loan Xpress, a lender on the school's preferred lender list. Such lists are put out by financial aid directors to help students navigate a crowded field of players vying for their loans.

Capella University President Michael Offerman said the university's internal investigation found Lehmann did "work that was worth the $12,000." Such consulting work is in violation of Capella's policies.

Lehmann also received many perks, including rounds of golf, wine, golf accessories, clothing and "thousands of dollars in honoraria," according to a news release from Cuomo's office.

Lehmann also served on at least 10 lending-industry advisory boards, including Wells Fargo and St. Paul-based NorthStar Education Finance. Such boards typically meet at least annually, often at swanky hotels or in locations such as Las Vegas or Florida. Lenders pay for travel, meals and lodging for such events-a practice that would change under the settlement.

Lehmann has been on paid administrative leave since mid-April, and Offerman said "he is not involved at all in the financial aid operations." Lehmann could not be reached for comment.

The investigation found that other Capella financial aid employees received travel, lodging and meals as well as nominal gifts and entertainment from lenders.

The settlement prohibits Capella employees from taking anything of more than nominal value from any lender. In an interview, Minnesota Attorney General Lori Swanson said she considers coffee to be of nominal value, but lunch "could get into more of the wining and dining."

Offerman said the university "will no longer have financial aid staff even taking token or nominal gifts," nor will it allow its aid officers to participate on lender advisory boards.

Capella also must disclose how it creates its preferred lender lists.

Capella is cooperating with an inquiry by Sen. Edward Kennedy, D- Mass., into Lehmann's relationship with Student Loan XPress. Kennedy's Student Loan Sunshine Act, designed to regulate the industry, passed last week in the House with overwhelming support.

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Swanson said that she plans to release her own code of conduct in the coming weeks and that Cuomo's code is "pretty close" to what she is after.

Her office's investigation began in March when she contacted Minnesota schools and lenders asking them to disclose any financial relationships that could create a conflict of interest. Swanson said there is evidence in Minnesota of "revenue sharing agreements between colleges and lenders," but declined to share details at this time.

For students and parents looking to take out student loans for the next school year, Swanson suggests that students "take some action in their own hands by looking around, comparing loan terms from one lender to the other and making sure they're really getting the best bargains."

Capella, which last month had deferred a secondary stock offering in the midst of the investigation, last week sold nearly 3.5 million shares of common stock at $36 per share. Capella stock closed Tuesday at $36.18, up 15 cents.