WASHINGTON (Reuters) - Congressional investigators probing student loan problems said on Tuesday that JPMorgan Chase & Co. (JPM.N) paid five college student aid officers to do work for the bank while they were on college payrolls.
In 2005 the bank also arranged a $70,000 dinner cruise in New York City harbor for more than 200 student aid officers, the investigators said, adding to conflict-of-interest allegations in a widening student loan scandal.
Investigators provided documents to Reuters detailing hiring agreements between JPMorgan and five executives at small colleges going back to 2005, as well as the cruise, which included bus transport from a conference hotel to the ship, beer and wine, and a dance floor.
“While it’s become clear over the last few months that conflicts of interest are pervasive in the student loan industry, it still stands out as particularly egregious that a lender would pay officials on the university payroll,” California Democratic Rep. George Miller said in a statement.
“No matter which way you slice it, it is wrong for any financial aid office employee to also be working as a paid consultant for a lender,” Miller said, adding that he has sent the documents to U.S. Secretary of Education Margaret Spellings and urged her to investigate.
JPMorgan spokesman Thomas Kelly confirmed that the bank, one of Wall Street’s biggest, did hire people from financial aid offices to advise other colleges, and that it did arrange the 2005 cruise.
He said that in recent weeks, JPMorgan has discontinued the hiring practice and has not provided customer entertainment.
JPMorgan is a major student lender and also part of a group poised to buy Sallie Mae SLM.N, the top U.S. student lender, for $25 billion. The group includes two private equity firms, J.C. Flowers & Co. and Friedman Fleischer & Lowe, and Bank of America Corp. (BAC.N).
JPMorgan recently signed a code of conduct meant to curb conflicts of interest. It was drafted by New York Attorney General Andrew Cuomo, who has led inquiries into the matter.
The $85 billion student loan industry, the U.S. college financial aid community and the Education Department face multiple government inquiries and growing reform pressures.
The House of Representatives is expected to vote on Wednesday on a bill that would require strict codes of conduct for colleges and lenders, ban lender gifts to college aid officers and require disclosure of college-lender ties.
The bill is expected to have the support of both Miller, chairman of the House Education and Labor Committee, and California Rep. Buck McKeon, the committee’s top Republican.
In a related development, Spellings announced on Tuesday that a top Education Department financial aid manager would resign. The secretary said Terri Shaw, chief operating officer for federal student aid, would step down on June 1.
The department has been criticized by congressional Democrats looking into possible conflicts of interest involving the department and loan companies. Spellings is scheduled to testify before Miller’s committee on Thursday.
Documents showed JPMorgan hired executives from Centenary College of Louisiana, Lawrence Technological University in Michigan, Lyon College in Arkansas, Xavier University of Louisiana, and Butler University in Indiana.
Louise Strauser, head of financial aid at Lyon, said she did a one-time $1,500 job for JPMorgan as a consultant at another school on a software system she had expertise in.
“I did not give JPMorgan any preferential treatment prior to that or since, nor will I,” Strauser told Reuters.
Spokesmen for Centenary and Lawrence Tech said the colleges knew in advance about their employees’ agreements to do work for no more than $500 for JPMorgan, and approved of it.
A spokesman for Xavier confirmed its comptroller was hired by JPMorgan for a consulting job, but emphasized the individual worked for the university’s fiscal services office and not the financial aid office.
At Butler in Indianapolis, spokeswoman Courtney Tuell said an assistant in the financial aid office did sign a contract to work for JPMorgan but never performed any work.