Iowa Student Loan to pay $16 million penalty

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Iowa Student Loan to pay $16 million penalty

Penalty for making improper payments to ISU Alumni Association
By James Pusey
Staff Writer
Published: Tuesday, October 6, 2009 11:17 AM CDT

Iowa Student Loan is being penalized nearly $16 million for making improper payments to the Iowa State University Alumni Association between July 2005 and June 2008, according to a report from the U.S. Department of Education.

The report quoted an Affinity Agreement between ISL and the alumni association that stated that ISL, a private, nonprofit lender, would pay a total of $45,000 in annual fees and application fees ranging between $25 and $70 per student applicant, based on the number of students applying for loans.

“Essentially, Iowa Student Loan was paying the alumni association an inducement to steer loan business in this direction in a way that the U.S. Department of Education has found to be improper,” State Sen. Herman Quirmbach, D-Ames, said.

Quirmbach, who also teaches at ISU, said this is not the first time Iowa Student Loan has had problems with payments it has made to the university. In 2007, the Des Moines Register reported ISL had given payments directly to the university financial aid office for directing students to its private loans.

The current findings show payments paid to the university through the alumni association based on the placement of consolidated loans, Quirmbach said.

A year ago, Quirmbach said the Iowa Legislature passed a bill that prohibited a number of practices regarding placement of loans and payments by ISL to colleges. He said the incentive programs have been terminated, and ISL is now facing what Quirmbach called “a pretty hefty penalty.”

According to the report, the $16 million penalty is based on the calculated liability for the amount of loan money disbursed to students between 2003 and 2007, the period in which the improper payments were taking place.

ISL asserts it should not be held responsible for any sanctions because its agreement with the alumni association was terminated before the legislation took effect.

Quirmbach said the report made no mention of ISU Alumni Association facing any penalties for accepting the payments.

Alumni Association Director Jeff Johnson said this morning, “The ISUAA believed the loan consolidation program with ISLLC was a positive opportunity for ISU alumni and the association. The ISUAA never would have entered into an agreement otherwise.”

Johnson said the ruling was directed at Iowa Student Loan, not the alumni association. Since it is still an open situation, Johnson declined to comment on whether the alumni association would be penalized for its involvement.

James Pusey can be reached at (515) 663-6922

or jpusey@amestrib.com.