Nelnet settles with New York AG, denies wrongdoing

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By MATT OLBERDING/Lincoln Journal Star

Lincoln-based education finance company Nelnet will pay $200,000 and adopt reforms as part of a settlement New York Attorney General Andrew Cuomo over what he has called “deceptive” marketing practices.

Nelnet was one of seven companies to join the settlement, but denied the company had broken any laws.  The other companies are Campus Door Inc., GMAC Bank, NextStudent Inc., Xanthus Financial Services Inc., EduCap Inc. and Graduate Loan Associates LLC.

MRU Holdings Inc., known as My Rich Uncle, agreed to voluntarily adopt the code of conduct but was not a target of the investigation, the attorney general’s office said.

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Cuomo said the seven companies that agreed to settle pushed higher-interest private loans, used bait-and-switch tactics and marketed products so they appeared to be federal loans.

 The attorney general’s office said the companies will adopt new standards that ban practices including:

Using logos that make mailings appear to be from the federal government

Paying students to get their friends to take out loans

Offering prizes such as iPods, gift cards and GPS devices to induce students to take out loans with a particular lender

Advertising interest rates that are not available to a majority of borrowers

“Unsolicited and deceptive mailings that are sent to the homes of students are more than a nuisance, they can result in students being buried in mountains of debt for years to come,” Cuomo said in a statement.

In a statement, Nelnet said it was “taking another industry leading step to ensure students and families have the best possible information upon which to make their education financing decisions.”

Company  spokesman Ben Kiser said Nelnet was not admitting any wrongdoing.

“Nelnet neither admits nor denies the attorney general’s findings, but we do deny strenuously, and disagree with, the attorney general’s contention that our actions violated any laws.”

Kiser also pointed out that Nelnet several months ago had stopped the practice of direct marketing for student loans.

Despite his criticism of their practices, Cuomo praised Nelnet and the other companies that agreed to the settlement and called on others to follow their lead.

 “These eight companies are setting the industry standard,” Cuomo said.  “If other companies won’t adopt the new code, it should raise a red flag and students should be asking those companies, ‘why not?’”

Cuomo subpoenaed 33 companies last fall, including Nelnet,  as part of his investigation. He said last week that he intends to sue Goal Financial LLC, based in San Diego, for similar deceptive practices. Unlike the other lenders, Goal Financial indicated it was not willing to enter into a settlement.

This settlement is the latest of several Cuomo has made with various companies over business practices related to student loans.

In July 2007, Nelnet agreed to pay $2 million and adopt a national code of conduct as part of a settlement with Cuomo’s office over financial arrangements with some schools that the attorney general said were deceptive and anticompetitive. The company earlier had made a similar agreement with Nebraska Attorney General Jon Bruning’s office.

Also in July, Nelnet agreed to end more than 100 affinity agreements with college alumni associations nationwide after an investigation of the agreements by Cuomo’s office.

The Associated Press contributed to this report.