Citigrouphas agreed to pay $2 million to help educate college-bound students about student loans as part of a wider settlement of a probe into the college loan industry, New York State Attorney General Andrew Cuomo said.
The largest U.S. banking group also agreed to voluntarily adopt a code of conduct on student loan practices, Cuomo said in a press conference.
In addition, six universities have agreed to reimburse $3.27 million to students to correct an arrangement with lenders that Cuomo described as "deceptive and at times illegal."
The colleges include New York University, which is reimbursing $1.4 million; the University of Pennsylvania, which will give back $1.6 million; St. John's University; Syracuse University; Fordham University and Long Island University.
The schools will also adopt a code of conduct that prohibits "revenue sharing." That is when a college gets money from a lender for putting the lender on its "preferred list."
"Ninety percent of all students go to a college's preferred lender because they trust the school," said Cuomo.
College employees are also prohibited from taking gifts and trips offered by lenders.
Colleges can still have lists of preferred student loan lenders, but now must disclose their criteria for choosing those lenders to students and parents. Colleges must tell borrowers they have a choice not use the college's preferred lenders.
Lenders can not misrepresent themselves as working for the college when they call students, Cuomo said.
Thus far, only Citigroup has agreed to Cuomo's code. But Citigroup is the largest U.S. bank with a student loan business, serving 3,000 schools, according to both Cuomo and the bank.
Citigroup said in a statement that it had "participated only modestly or not at all in the ... practices Attorney General Cuomo has identified," but was voluntarily participating in the settlement.
Cuomo indicated that he would continue to go after lenders who did not agree to the code of conduct. "This is a threshold," he said.
In March Cuomo began legal action against Education Finance Partners, claiming it provided payoffs to more that 60 schools across the country that steered student loans its way. That investigation has broadened to more than 100 schools and six lenders, the attorney general said.