New York Says Student Lenders Paid Kickbacks To Schools

New York Attorney General Andrew Cuomo said on Thursday that companies specializing in student loans paid kickbacks to universities and their employees for steering business to them.

Lenders paid for trips for university officials, provided computer systems, and put school representatives on their boards to curry favor, Cuomo said at a press conference.

Investigations are continuing and lawsuits against lenders and schools remain an option, he said. His office has not yet announced any legal action.

Last month Cuomo, who succeeded Eliot Spitzer as attorney general on Jan. 1, said his office had expanded a probe of whether lenders use payments and perks to encourage colleges to steer student borrowers their way.

Spitzer began a preliminary inquiry in November, requesting information from student lenders Nelnet, Education Finance Partners, Educap and Sallie Mae , the nation's largest provider of student loans.

Cuomo expanded the probe by sending letters to more than 60 U.S. educational institutions, requesting records that detail how they develop their lists of preferred lenders. The attorney general also sent requests to two more lenders: The College Board and CIT Group.

Concerned that the guidance offered to students is tainted by conflicts of interests, Cuomo asked schools to disclose if there are financial relationships with lenders and if any favors were offered to individual financial aid officers.

The probes are the latest in a series of regulatory and legislative difficulties for student lenders. The U.S. House of Representatives in January voted to halve interest rates on many student loans to 3.4 percent over five years.

U.S. Senator Edward Kennedy meanwhile has pursued support for a bill that would reward colleges for steering students to direct government loans instead of government-guaranteed loans provided by private sector companies like Sallie Mae.

The New York probe wants to determine whether lenders are making payments and doing favors, such as funding all-expenses-paid trips for college officials, to be included on preferred lists schools give students shopping for loans.

Copyright 2009 Reuters. Click for restrictions.