Future Head Of NYU Board Of Trustees Made Millions Off Student Loans
By Ryan McNamara
Over the summer, William R. Berkley was announced the future successor of Martin Lipton as chair of the Board of Trustees. NYU’s public statement describes him as a generous man, who has “the success of the University — its faculty, students, administrators, and staff — never far from the forefront of his thoughts.” A New York Times article describes him as a billionaire “ranked 29th on Forbes’s list of best-compensated chief executive officers.” Most articles and statements mention his time as CEO of W.R. Berkley Corporation, a large insurance company.
But a notable fact the press and NYU administration seem to have left out of their materials is that, for 16 years, Berkley served as a member of the Board of Directors of First Marblehead Corporation, a Boston-based private student loans firm. Eight of those years were spent as lead director of the Board.
Berkley has been a NYU Trustee since 1995, the same year he started profiting off student loans as a Board member at First Marblehead Corporation, raising questions about conflicts of interest.
First Marblehead Corporation makes much of its money by offering college students expensive loans after they have exhausted cheaper federal loans. In 2007, the New York Times reported that the average interest rate on a First Marblehead loan interest rate was nearly 11 percent, while federal student loans were capped at 6.8 percent. The former CEO of the company, Daniel Meyers, said to the New York Times, “If a student can go out and get a subsidized federal loan and it is lower cost, they should do that.”
One group of students that does not have access to federal loans is international students. First Marblehead signed a deal with NYU to provide loans for this market. In an email to NYU Local, NYU spokesperson John Beckman wrote that “First Marblehead was the only financial institution that made a proposal to offer loans to international MBA students.”
To avoid problems of conflict of interest, Beckman stated that Berkeley “did exactly what he was supposed to do: he disclosed the matter to the Board in advance and before any agreement was signed; he did not participate in the agreement either on behalf of NYU or First Marblehead, and the arrangement was reviewed and approved by the Board of Trustees.”
But First Marblehead was also subpoenaed in 2007 as part of Andrew Cuomo’s investigation into potential conflicts of interests between universities and lenders, as well as deceptive tactics used by lenders to trick students into borrowing private loans when cheaper options were available. Berkley was serving on the board of both NYU and First Marblehead at the time of the subpoena.
First Marblehead has spent millions of dollars lobbying Washington to improve the business climate for private student-loan lenders by making federal loans harder for students to get, thus driving students to private loans. This includes lobbying congress to fight bills such as H.R. 5715 and S. 2815, which the Congressional Research Service labeled “Proposals to Ensure the Availability of Federal Student Loans During an Economic Downturn.”
In June, 2012, Berkley stepped down as director, two years before being announced as the future head of NYU’s Board of Trustees. His time at the firm was not without controversy.
He, as well as several other leaders of the company, has had several lawsuits filed against him alleging insider selling, among other things. One such lawsuit alleged that seeing the “red flags that should have alerted them to the fact that the Company was over exposed to the credit crisis,” of 2008. Berkley, along with others, instead directed the company to buy its own shares at an inflated rate, while selling their personally held shares. Berkley is alleged to have “sold 750,270 shares of First Marblehead stock for proceeds of $38,682,052.21.” Soon after, the company’s value crashed.
Commenting on the choice of Berkley, Beckman said, “Let me note that Mr. Berkley has donated many millions of dollars to this University, including for financial aid.” He also stated, “I realize that student loans have come to be seen as some sort of unalloyed evil. But the fact is that educational loans now — and historically — have been vitally important for access, enabling students to attend and graduate from the college of their choice.”
