USC dean’s dealings with lender are focus of probe

New York investigators probing possible wrongdoing in the college loan industry are exploring whether USC’s financial aid director had improper business ties to a lender that her office has recommended to students.

A letter sent Wednesday by the office of New York state Atty. Gen. Andrew M. Cuomo to the university said it was looking into whether Catherine Thomas, a USC associate dean and financial aid director, “engaged in deceptive practices or other illegal conduct in connection with her dealings with Student Loan Xpress Inc.”

The development reflected a broadening of Cuomo’s investigation into how financial companies in the $85-billion-a-year college loan industry win their business from universities. It also came the same week that a group of universities accused of taking improper payments from lenders reached an agreement with Cuomo requiring them to pay back $3.27 million to students.

According to New York officials, authorities are reviewing whether Thomas improperly received 1,500 shares of stock in Educational Lending Group, the former parent company of Student Loan Xpress.

The letter from Cuomo’s office stated that New York officials “are deeply concerned” that Thomas may have received the shares in exchange for placing Student Loan Xpress on the university’s preferred lender lists or to influence her to place the company on the lists.

“Students may therefore have been left with the false impression that the company was preferred because it was best for students, when in reality the company was selected because of its stock grants to Ms. Thomas,” the letter said.

James Grant, a USC spokesman, said the university has not taken any disciplinary action against Thomas after receiving the letter by fax and that the 15-year university employee, a longtime college financial aid specialist, was at work Wednesday. He declined to comment beyond offering a prepared statement that said, “We have just received a copy of the attorney general’s letter and will now review the information in the letter and respond.”

Thomas and her immediate superiors referred all requests for comment to Grant.

The New York attorney general’s office said Thomas and a partner sold the 1,500 shares in September 2003 for about $14,250, or $9.50 a share. It was not indicated how much Thomas paid for her shares, but one official noted that another higher education administrator involved in the same Cuomo investigation -- David Charlow, a senior associate dean at Columbia University in New York -- is believed to have acquired his securities for as little as $1 a share.

Charlow, who authorities said received far more of Educational Lending Group’s securities and who is believed to have realized more than $100,000 in profits, has been placed on leave by the university. Cuomo’s office has subpoenaed records from Columbia related to Charlow’s activities.

USC was not subpoenaed, but it and the University of Texas at Austin -- where Larry Burt, an associate vice president, also acquired and later sold 1,500 shares of Educational Lending Group -- were sent “document retention” letters.

The letter to USC asked the university to arrange to provide documents related to the New York investigation and to determine whether “any other financial aid officers received any payments, stock or other benefits from any other lending institutions.” It also asked USC to provide documents showing how the university selected its preferred lenders over the last six years.

Student Loan Xpress is listed on various USC websites as one of several lenders that the university recommends to students and their parents. For instance, the company is the 11th of 12 lenders on USC’s list of recommend providers of popular Stafford loans for undergraduates.

The company was acquired by New York-based CIT Group in 2005.

The New York investigation already has prompted another Southern California university, Pepperdine, to alter its practices. Two weeks ago Cuomo accused Pepperdine, among other universities, of accepting what amounted to kickbacks from San Francisco-based Education Finance Partners in exchange for steering students to the company’s loans.

Jerry Derloshon, a spokesman for the Malibu campus, said Wednesday that Pepperdine officials believed their practice was legal and appropriate but that the school has “acted quickly to end the revenue-sharing relationship ... because any appearance of impropriety was not something we wanted to deal with.”

He said the university in the future also would more clearly disclose any other business relationships it has with preferred lenders.

stuart.silverstein@latimes.com

The Associated Press contributed to this report.