Attorney General: Jane Ciarleglio, Acting Commissioner Department of Higher Education, Formal Opinion 2008-004, Attorney General Attorney State of Connecticut

Attorney General's Opinion

Attorney General, Richard Blumenthal

February 28, 2008

Jane Ciarleglio

Acting Commissioner

Department of Higher Education

61 Woodland Street

Hartford, CT  06106

 

Dear Acting Commissioner Ciarleglio:

 

This office has been asked whether the Commissioner of the Department of Higher Education may, consistent with the Financial Aid Code of Conduct (“Code of Conduct”), appoint an employee of the Department of Higher Education1 whose “spouse works in the financial aid office of Charter Oak College” as the Commissioner’s representative to the Connecticut Student Loan Foundation (CSLF).

 

While the Code of Conduct prohibits an officer or employee of a university, or a family member of such officer or employee, from serving on a lender's advisory board, the Code of Conduct does not prohibit such an appointment to the CSLF Board.  Instead, the Code recognizes that Conn. Gen. Stat. § 10a-203(a) specifically requires that a representative of private colleges and a college financial officer be appointed to the CSLF Board.  Nevertheless, even though the Code of Conduct does not specifically apply in this case, I strongly advise against the Commissioner appointing a designee whose spouse works in the financial aid office of a college because such an appointment unnecessarily gives the appearance of a conflict of interest.

 

Introduction

 

Connecticut Student Loan Foundation

The Connecticut Student Loan Foundation (“CSLF”) is a non-profit corporation created by statute with the express purpose of “improv[ing] educational opportunity and promot[ing] repayment of loans.”  Conn. Gen. Stat. §10a-201.  Among its many functions and duties, CSLF is permitted to, and does, guarantee loans for persons as well as “lend[] or acquire[] loans made to persons.”  Conn. Gen. Stat. §§10a-201, 10a-204(1).  CSLF is governed by a board of directors that includes the Commissioner of Higher Education, a representative of the private colleges, and a  college financial aid officer.  Conn. Gen. Stat.  §10a-203(a).

 

The Financial Aid Code of Conduct

 

On August 27, 2007, following an intensive six-month investigation into improper practices, illegal inducements and conflicts of interest in the $85 billion dollar student loan industry, the Attorney General announced that a Code of Conduct was agreed to by 17 colleges statewide.

 

In many respects, the Code of Conduct was designed to eradicate improper conflicts of interest in the relationships between lenders and institutions of higher education - - a number of which were revealed during the course of the investigation - - and to prevent similar misconduct in the future, thus restoring confidence in the competitive college lending market.  To that end, the Code of Conduct provides a number of provisions to make a school’s financial aid practices transparent and free from improper influence or bias.

 

On November 15, 2007, via signature from John E. Padilla, Secretary, Board of State Academic Award, (see attached) Charter Oak College agreed to be bound by the Code of Conduct.

 

Analysis

 

Section I.A, the Code of Conduct defines a “Lender” as follows:

 

(i) any entity that itself, or through an affiliate, engages in the business of making loans to students, parents or others for purposes of financing higher education expenses or that securitizes such loans or (ii) any entity, or association of entities, that guarantees education loans.  “Lending Institution” or “Lender” shall not include the “University” or the state or federal government.

 

By virtue of the fact that it lends money to students “in meeting the expenses of education,” Conn. Gen. Stat. §10a-204(1), including higher education, and is not a university, the state or the federal government, CSLF constitutes a “Lender” as that term is defined under the Code of Conduct and is subject to those provisions of the Code of Conduct applicable to Lenders’ relationships with institutions of higher education.

 

Section II.B of the Code of Conduct states in pertinent part: "No University officer, trustee, director, agent or employee, or any of their family members, shall serve on an advisory board for a lender."  Thus, without more, section II.B of  the Code would appear to prohibit a family member of an employee of the Charter Oak College from serving on the advisory board of the CSLF.

 

However, Section II.A.3, of  the Code of Conduct explicitly states that the Code of Conduct can not be interpreted to conflict with the statutory requirements concerning, among other things, how the CSLF Board of Directors is to be constituted.  Section 10a-203(a) specifically mandates that at least one member of the CSLF Board represent the private colleges and that at least one be a financial aid officer at a college.  Section 10a-203(a).  Consequently, according to the Code of Conduct and Section 10a-203(a), the provisions of Section II.B of the Code of Conduct prohibiting employees of a University or their family members from serving on a lender's advisory board do not apply to appointments to the  CSLF board.

 

The Code of Conduct, therefore, does not prevent the Commissioner from appointing a person as the Commissioner's designee on the CSLF Board even though that person’s spouse works in a college’s financial aid office. 

 

However, the appointment being considered raises, on its face, many of the same concerns relating to conflicts of interest that precipitated the creation of the Code of Conduct in the first instance. These concerns are not mitigated by the fact that the Code of Conduct does not apply to appointments to the CSLF Board.  Despite the inapplicability of the Code in this instance, potential conflicts should, where possible, be avoided.  Maintaining an impartial and unbiased posture - - without the presence of even a perceived conflict of interest - -  is particularly important given that the board seat in question is designated by statute to the Commissioner of Higher Education.

Accordingly, even though the Code itself does not apply in this situation, the principles underlying the adoption of the Code should be considered in the appointment of a designee for the Commissioner's seat on the CSLF Board.  Therefore, because the proposed designee of the Commissioner of Higher Education is the spouse of an employee of the financial aid office of Charter Oak College, I would strongly advise against his or her participation on the board of directors of CSLF.

Conclusion

For the foregoing reasons, I recommend that the aforementioned employee not be appointed to sit in the Commissioner's place on the CSLF Board of Directors.

 

 

Very truly yours,

 

 

 

RICHARD BLUMENTHAL

ATTORNEY GENERAL



1 You have explained that the employee is Associate Director of Financial Aid at the Department of Higher Education.


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