Lincoln student loan company Nelnet has agreed to pay $2 million and adopt a national code of conduct as part of a settlement with the New York Attorney General's Office.
MATT OLBERDING / Lincoln Journal Star | Posted: Monday, July 30, 2007 7:00 pm
Saying it wants to “put it behind us and move forward,” Lincoln student loan company Nelnet agreed to pay $2 million and adopt a national code of conduct as part of a settlement with the New York attorney general’s office.
In announcing the settlement Tuesday, Nelnet joined 11 banks and student lending companies — including Sallie Mae, JP Morgan Chase, Bank of America and Citibank — who have settled with New York Attorney General Andrew Cuomo as part of the investigation into the industry Cuomo started earlier this year.
Cuomo said his investigation found many colleges had established questionable “preferred lender” lists and entered into revenue sharing and other financial arrangements with those lenders.
Some colleges had “exclusive” preferred lender agreements with the companies.
While not illegal, Cuomo called such arrangements deceptive and anticompetitive. He also said he had uncovered alleged “kickbacks” that could be illegal.
Among the practices Cuomo said Nelnet engaged in were sponsoring marketing events and paying for school employees to participate, including covering their travel and hotel costs.
In addition, Cuomo said Nelnet paid for school financial aid personnel to attend luncheons, dinners, retreats, and gave school employees tickets to sporting events, shows and spa treatments.
Nelnet in April announced a settlement with Nebraska Attorney General Jon Bruning in which it agreed to pay $1 million and adopt a student loan code of conduct.
At the time, Bruning said Nelnet disclosed two “minor” incidents — maintaining a so-called preferred-lending agreement with Western Illinois University in which Nelnet paid the school for referring borrowers, and the purchase of plane tickets for two financial aid officers at another school in Albany, N.Y.
Nelnet President Jeff Noordhoek said the code of conduct the company signed as part of Tuesday’s agreement is almost identical to the one it signed with Bruning.
The exceptions are that the Cuomo code of conduct prohibits affinity agreements with college alumni associations and the practice of student loan companies providing staff for college financial aid operations.
Nelnet had defended the affinity agreements, in which it paid a fee in exchange for the opportunity to market loan consolidation services to alumni members.
But last week the company disclosed it had decided to terminate the arrangements because proposed federal legislation would outlaw them.
Cuomo said in a statement the agreements “violated the trust that students and recent graduates place in their schools and alumni associations.”
“This settlement agreement affects millions of alumni and thousands of schools around the country, and will help set a new industry standard that all student loan consolidators should adopt,” he said.
Noordhoek also said Nelnet has made plans to stop providing call center staffing for college financial aid offices.
The $2 million will go to a national fund for educating high school seniors and parents about the financial aid process.
“We are pleased to put this inquiry behind us and move forward,” Noordhoek said.
Reach Matt Olberding at 473-2647 or molberding@journalstar.com.