Conflict of Interest – Emerson College Case Great Teaching Point for Students

There is an important phrase every student should come to know and understand well before heading off to the world of work:

Conflict of Interest

According to Wikipedia, the term has the following meaning or connotation:

A conflict of interest occurs when an individual or organization (such as a policeman, lawyer, insurance adjuster, politician, engineer, executive, director of a corporation, medical research scientist, physician, writer, editor, or any other entrusted individual or organization) has an interest that might compromise their actions. The presence of a conflict of interest is independent from the execution of impropriety.

For students considering working in the public sector, a thorough understanding of the term ‘conflict of interest’ is essential. And a great example was on display in recent days involving Emerson College in downtown Boston.

The Basic Issue

The school recently agreed to pay a settlement totaling $780,000 to both current and former students for steering those individuals towards a specific preferred lender. Though the maximum sum per student is limited to $833, about four thousand students will receive some money because of actions taken by the school.

At issue was the school’s practice of listing preferred lenders for students. In essence the school steered students towards a group of lenders, insinuating that the companies listed were providing students the best loan options.

The three entities were Education Finance Partners Inc., Citizens Bank and JP Morgan Chase & Co. During the period of time the school steered students towards these companies, they were not the least expensive lenders.

Employee Transgressions

So, one might ask, why did Emerson steer students to these companies. The answer may well have been the fact that each firm provided gifts to the people who worked in the Emerson financial aid office.

It seems that both Citizens Bank and Chase handed out free vacations, meals, and event tickets to folks who worked in the aid office. In addition, there apparently was a $4,500 kickback from Education Finance Partners Inc.

In what has to be a real sore spot for those thinking that colleges would conduct themselves with higher ethical standards, when students filled out the online Stafford Loan application they were given but two choices, Chase or Citizen’s. If students submitted paper applications that sought a loan from a non-preferred lender, the school reportedly “sent back letters discouraging them from using those lenders.”

In fact, the $780K figure was an agreed upon settlement to eliminate possible exposure to legal charges.

Lessons Learned

The school itself has not admitted to any wrongdoing (check that Wikipedia definition) though Daniel Pinch, the former director of Emerson’s financial aid office, was fired in 2007 for accepting gifts.

Sadly, Emerson is the 28th US school to offer a settlement to students. Unfortunately, employees at far too many schools apparently do not understand the meaning of the term, conflict of interest. Otherwise the practice would not have been so widespread.

But in an effort to further clear up potential such issues in the future, Emerson will no longer designate any institution as a preferred lender.

Ultimately, in prior articles, we have talked about the importance of being able to learn from the mistakes of others so as not to make them ourselves. Emerson’s situation is specifically one that offers a great lesson for everyone.