The nation's largest student-loan provider will alter its business practices and pay $2 million into a fund to educate students and parents about the financial aid industry as part of a settlement in a widening probe of the student loan industry.
SLM Corp., commonly known as Sallie Mae, also agreed to adopt a code of conduct created by New York Attorney General Andrew Cuomo, who is heading the probe.
Cuomo said the expanding investigation of the $85 billion student loan industry has found numerous arrangements that benefited schools and lenders at the expense of students. Investigators say lenders have provided all-expense-paid trips for college financial aid officers to exotic locations who then directed students to the lenders.
Cuomo is now investigating alleged kickbacks to school officials who steered students to certain lenders.
Investigators found that many colleges have established "preferred lender" lists and entered into revenue sharing and other financial arrangements with those lenders. Some colleges have "exclusive" preferred lender agreements with the companies.
The newly established code of conduct prohibits revenue sharing between lenders and schools, mandates disclosure of relationships between colleges and lenders, sets restrictions on how lenders are chosen for school "preferred lender" lists, and bans gifts or trips to university employees from lenders.
Sallie Mae is the second lender to agree to the code, which is aimed at making the loan process more transparent.
Citibank, which does business at about 3,000 schools, last week agreed to donate $2 million to the same fund as part of a settlement with the Attorney General's office.
So far, six schools --the University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John's University -- have agreed to reimburse students a total of $3.27 million for inflated loan prices caused by revenue sharing agreements, Cuomo said.
Those schools, along with all 29 four-year State University of New York campuses and St. Lawrence University, also agreed to abide by the code of conduct.
Within the past week, six financial aid officers at various schools and a federal Department of Education official were placed on leave after Cuomo's office said they received stock, consulting fees or other compensation from Student Loan Xpress. The company was acquired by CIT Group in 2005 when it bought Education Lending Group.
Last week, Cuomo sent subpoenas to Reston, Va.-based Sallie Mae, requesting information on any current or former employees who had worked at the Education Department over the past six years.
CIT on Monday suspended the top three executives at Student Loan Xpress amid its own investigation into the unit's business practices.
aid officers to exotic locations. Financial aid officers at schools in some cases served on loan company advisory boards, Cuomo said.
Cuomo said the arrangements are particularly predatory because of the relationship between students and the colleges they pick.
"Ninety percent of the students take the 'preferred lender,'" he said. "Why? Because that's the nature of the relationship. You trust the school. The school is in a position of authority. The school is there to nurture you."
Cuomo said various officials have been examining the issue for about a year but his investigation was spurred after a lender came to him to complain about the domination of a few lenders in the lucrative market. Cuomo would not name the lender.