USC puts financial aid chief on paid leave

USC placed its financial aid director on paid leave Thursday as New York authorities continued to examine her business ties to a lender she recommended to students, part of a widening investigation sending ripples of shock through higher education circles.

In a brief statement, USC said it had launched its own inquiry of Catherine Thomas’ relationship with Student Loan Xpress Inc., which had been placed on the university’s list of preferred lenders.

New York state Atty. Gen. Andrew M. Cuomo’s office said in a letter to USC on Wednesday that investigators were looking into whether Thomas, an associate dean, “engaged in deceptive practices or other illegal conduct” when she acquired 1,500 shares of stock in Student Loan Xpress’ then-parent company, Education Lending Group.

Thomas could not be reached for comment Thursday, and USC officials limited their remarks to the prepared statement.

Meanwhile, a UCLA administrator said it is auditing its financial aid office to ensure that none of its employees has any conflicts of interest with lenders.

UCLA Assistant Vice Chancellor Thomas Lifka said the audit began some weeks ago because of a general concern about possible entanglements between financial aid officers and lenders, an issue that has been taken up by Congress.

Lifka said the UCLA review has found “nothing inappropriate,” including financial aid Director Ronald Johnson’s service on lender advisory boards.

Johnson has received no money from the lenders other than reimbursements for travel expenses, Lifka said.

The developments at USC are just one element of a far-flung investigation into possible improprieties in the $85-billion-a-year student loan industry.

Higher Ed Watch, part of the New America Foundation, disclosed Thursday that a U.S. Department of Education official owned about $100,000 worth of stock in Education Lending Group. The official, Matteo Fontana, oversees all lenders and guarantee agencies that participate in the Federal Family Education Loan Program.

The Education Department and Fontana did not immediately respond to requests for comment.

Also Thursday, the Associated Press reported that State University of New York Chancellor John Ryan serves on the board of directors of CIT Group, the current parent company of Student Loan Xpress.

An SEC filing shows that Ryan earned about $146,000 last year in cash, stock and options for his service on the CIT board -- a relationship that had been approved in 2003 by a state ethics commission, a SUNY spokesman said.

According to Cuomo’s office, USC associate dean Thomas sold her Education Lending Group holdings in September 2003 for about $14,250, or $9.50 a share.

It could not be determined how much Thomas paid for the stock, if anything, but one official noted that another college administrator involved in the same Cuomo investigation -- David Charlow, a senior associate dean at Columbia University in New York -- is believed to have purchased his securities for as little as $1 a share.

A spokesman for New York-based CIT Group said in an e-mail: “We are currently seeking to determine the facts surrounding those transactions.”

Robert M. Shireman, president of the Institute for College Access & Success, a nonprofit advocacy group for disadvantaged students, said the highly lucrative and competitive financial aid business is rife with conflicts.

“More and more student loan companies have found it in their interest to try to gain favor from financial aid offices at colleges and universities,” he said. “As much as we would like to believe that gifts and trips do not have an effect on the advice that financial aid offices provide to students, they, in fact, do have effects.”

Thomas’ colleagues at USC and in the wider financial aid community said they were taken aback by news of the investigation, particularly because she has always seemed so devoted to helping needy students.

“She has donated innumerable hours working with low-income students,” said William G. Tierney, director of USC’s Center for Higher Education Policy Analysis, who added that Thomas often volunteered her time for young people headed to other universities.

A number of USC students said they knew little about the investigation, but were troubled by what they had heard. Some, however, took the view that it sounded like business as usual.

“I think it’s unethical,” Ron Sasaki, a sophomore sitting on the steps of the Student Union, said of the allegations against Thomas. “Especially when someone is put in a position of responsibility that we’re supposed to trust.”

But Ross Chang, a senior, said Thomas’ stock transaction did not bother him on its own.

“If that company does a real good job and if students are benefiting in some way, then I think it’s OK,” he said. “It’s how business is business.”

At Pomona College in Claremont, Dean of Admissions Bruce J. Poch said he was stunned by news of the investigation. Thomas has “always been viewed as a competent and very knowledgeable person,” he said.

Poch said Pomona has a strict code of ethics prohibiting the sort of business relationship under scrutiny in the case of Thomas, the Columbia official and a third administrator at the University of Texas. “I can’t imagine what was going through people’s heads that made them think this was legitimate,” Poch said of the stock acquisitions.

A USC policy issued in November 2002 states that employees with “actual or apparent conflicts of interest in business practices” are required to disclose the situation to their superiors. The eight-page policy document also says that “failure to disclose and manage actual or apparent conflicts of interest ... may be cause for disciplinary action, which may result in termination.”

It was not immediately known how many other Southern California colleges listed Student Loan Xpress as a preferred lender. Several of the institutions did not return phone calls Thursday seeking comment.

The firm is one of three preferred lenders for Occidental College, said Maureen McRae Levy, financial aid director. She said neither she nor the associate director has any business ties with the company.

At Claremont McKenna College, financial aid director Georgette DeVeres said it had recently removed Student Loan Xpress from the school’s preferred list because of unhappiness with the lender’s service.

DeVeres said that decision had nothing to do with the Cuomo investigation. She also said Thomas is a “very good person.”

“It’s certainly very disturbing,” DeVeres said of the allegations. “The financial aid community are people who work very hard to help students.”

paul.pringle@latimes.com

stuart.silverstein@latimes.com

Times staff writers Franciso Vara-Orta and Adrian Uribarri and the Associated Press contributed to this report.