The Observer is a Student-run, daily print & online newspaper serving Notre Dame & Saint Mary's. Learn more about us.



Affleck-Graves on loan company board

Ken Fowler and Kaitlynn Riely | Monday, April 16, 2007

Executive Vice President John Affleck-Graves became the 12th college official nationwide identified as receiving compensation from a student loan company on the preferred lender list of the official’s college – and while ethical questions have been raised, Affleck-Graves said Sunday his case is different from the cases being investigated by New York Attorney General Andrew Cuomo.

Cuomo is investigating whether student loan companies illegally offered bribes or kickbacks to financial aid directors at schools in order to remain on the school’s preferred lender list or to earn a spot on the coveted directory.

Affleck-Graves received $58,984 in salary for eight months as a director for Student Loan Corporation, a lender affiliated with Notre Dame-preferred lender Citigroup, according to a report this weekend from Bloomberg News.

Student Loan Corp. sought out Notre Dame and Affleck-Graves for the position, the executive vice president said. He said he communicated with University President Father John Jenkins, Director of Student Financial Strategies Joseph Russo and Vice President for Finance John Sejdinaj before accepting the position.

“I spoke with Father John about it and went through the Financial Aid office and decided that it would probably be a good thing for us to do,” Affleck-Graves said.

Affleck-Graves said he is not on the board of any other loan corporations and maintained that his situation is different than the positions college administrators under investigation have held.

Unlike financial aid directors at other colleges under investigation, Affleck-Graves is not in the chain-of-command on student loan decisions.

He noted that all decisions about financial aid and student loans are sent through Sejdinaj’s office.

“The key thing is what interests I would have over any decision that got taken, so I basically recused myself from all of those decisions,” Affleck-Graves said. “I’ll review this with Father John. To the extent that when we went on, we thought that we could influence things in a positive way, as long as we can continue to do that, then, yes, we’ll stay on the board.”

Affleck-Graves is not the first Notre Dame administrator to sit on the board of a student loan company. University President Emeritus Father Theodore Hesburgh was a director of the Chase Manhattan Bank prior to and after the creation of Notre Dame’s preferred lender list in the early 1980s, Russo said Sunday. Chase was one of the lenders on Notre Dame’s original preferred lender list, developed in 1981. Russo, who helped create the list soon after he arrived at Notre Dame in 1978, said he was not aware that Hesburgh was a director at Chase when he was surveying the top lenders for the list.

Chase was picked, Russo said, because it offered some of the best services in the country.

A conflict of interest?

Russo said Affleck-Graves has no influence on Notre Dame’s preferred lender list. The preferred lender list was created, Russo said, more than 25 years ago, long before Affleck-Graves was at the University. The six lenders Notre Dame lists as its preferred lenders were chosen because they had the best services, he said. The University does not receive any “monetary revenue” from any of the lenders, including Citibank.

Russo said Citibank is the “single largest provider” of student loans at Notre Dame.

“It is our responsibility to find the very best for our students, and Citibank does that,” he said.

Affleck-Graves’ position since last May has not changed the Financial Aid offices’ services “one iota,” he said.

But Notre Dame professor Father Oliver Williams, who teaches courses in business ethics, said he would advise that Affleck-Graves resign from the board because his status as a member leads to the appearance of wrongdoing, even though he doesn’t believe Affleck-Graves is guilty of any unethical behavior.

“John Affleck-Graves, as [well as] anyone in the administration, is paid to have the best interest of our students at heart. The conflict of interest is when someone gives you $50,000, you’re interested in getting $50,000 next year, perhaps,” he said. “In theory, that’s why there is a conflict of interest.”

Williams said he advises people in big corporations to avoid not only wrongdoing but also the appearance of it.

“The reason for that is, the problem is you are trying to have an ethic, corporate culture in any organization, particularly an organization like Notre Dame,” he said. “So you don’t want anyone to even have the idea that there might be wrongdoing.”

Affleck-Graves said he does not plan to resign from his position with Student Loan Corp. He will, however, continue to discuss the overall student loan investigation with Jenkins, he said. The two will re-evaluate the position and its benefit to Notre Dame as Cuomo’s investigation continues and Congress considers legislation that would restrict – or even abolish – private lending or preferred lender lists.

University spokesman Don Wycliff said senior officers in the administration are required to fill out a conflict of interest statement once a year, detailing “any business associations or other things that they or even their close family members have that may pose a conflict of interests.”

Wycliff said the statements go to the Audit and Advisory Services Office, which reports to Jenkins and the audit committee of the Board of Trustees. He said any remediation the Audit and Advisory Services Office suggests is sent to Jenkins and the audit committee. Wycliff said he was unsure who held ultimate authority to require an officer to release a business holding because of conflict-of-interest concerns.

And while Affleck-Graves said he sees no conflict of interest in his directorship with Student Loan Corp., other considerations led him to prevent a similar relationship with another financial institution.

On March 30, 1st Source Corporation announced that Affleck-Graves removed his name from consideration as one of five candidates for the company’s board of directors. 1st Source offers student loans but is not on Notre Dame’s list of six preferred lenders.

“That was a completely different situation,” Affleck-Graves says.

Affleck-Graves said the University’s “direct banking” with 1st Source – while it does not use Student Loan Corp. as its bank for capital – caused his withdrawal from consideration. He said 1st Source’s offering of student loans did not factor into the decision.

Lender relationships

A spokesman for Sen. Edward Kennedy (D-Mass.) told Bloomberg News that the senator would introduce legislation barring any employee of a college from participating on the board of a student loan company.

As the debate continues, however, Affleck-Graves said he questioned government intervention in the lending industry.

“I’m a little concerned with where the legislation is going to go because if we deal with 80 or 90 banks, it’s very difficult to get any of those banks to give you a preferred rate for your students,” Affleck-Graves said. “As long as the students are looked after, I think that’s fair.”

Affleck-Graves said his position on the board allows Notre Dame an influence on the corporation’s decision-making process for setting rates, offering new products and restructuring loan policies.

“On all of those, I can give them some insight on what students need, what students want,” he said.

Affleck-Graves said several employees in the Financial Aid Office serve on advisory board for student loan corporations – but all in non-paying positions.

“If the industry’s not allowed to talk to financial aid officers about what students need when they come into a loan office, that seems a little strange to me,” he said. “And I trust the people in our Financial Aid office in those advisory council positions that they’re on that they represent the University’s students in those fully.”

Affleck-Graves reiterated the University’s support for the existence of preferred lender lists.

“With these six companies, because we work regularly with them, if a student has a problem, if an issue arises regarding payment, we have a strong relationship with them. I think that’s a tremendous service,” he said. “Some of our relationships with our preferred lenders guarantee us that we’ll have the lowest rate in the country – or at least match it.”