New York Attorney General Andrew M. Cuomo has announced a settlement with Nelnet, a top student loan consolidator and one of the largest holders of federal loans.p>
The settlement requires the Nebraska-based company to pay $2 million towards a fund dedicated to educating college bound students about their loan options. Also, Nelnet has agreed to stop paying alumni associations for exclusive referrals of their consolidated loans.
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, said Cuomo. By paying for exclusive referrals of their loans, Nelnet violated the trust that students and recent graduates place in their schools and alumni associations.
"Their $2 million contribution to our education fund, will give thousands of college bound students and parents access to critical information on how to wisely choose the best loan for them.
The attorney generals investigation revealed that Nelnet had entered into referral agreements with approximately 120 college and university alumni associations. Under many of these agreements Nelnet was granted use of the schools logo for advertising purposes and also had their materials placed on college and university websites for distribution.
In return, Nelnet paid alumni associations either an annual fee or payments for every loan consolidation application the association directed to them. Since these alumni associations stood to profit from recommending Nelnet loans, their advice to students and alumni was unfairly biased and not necessarily in the borrowers best interest.
As a result, alumni associations recommended Nelnet loans because they were being paid to do so, not because the loans necessarily offered the best terms to students and alumni.
Nelnet also sponsored marketing events and paid for school employees to participate, including covering their travel and hotel costs. In addition, Nelnet paid for school financial aid personnel to attend luncheons, dinners, retreats, and gave school employees tickets to sporting events, shows and spa treatments.
Under the terms of the agreement, Nelnet has agreed to cease these practices, to end all of its ties to alumni associations and to adhere to the Attorney Generals code of conduct in the future. Nelnet had previously agreed to pay $1 million as part of a settlement with the Attorney General of Nebraska.
The Nebraska agreement did not require Nelnet to end its relationships with alumni associations. At the time, Attorney General Cuomo announced that despite this settlement, New Yorks investigation into Nelnets practices would continue.
Nelnets alumni partners in New York include, among others, associations at the Juilliard School, Niagara University, Le Moyne College, Manhattan College, City College, Iona College and SUNY (Buffalo, Cortland, Fredonia, and Upstate Medical Center campuses).
Nelnets alumni partners also include state universities and private colleges across the country such as San Jose State University, UC Riverside, James Madison University, Old Dominion University and the University of Illinois.
Nelnet, Inc., a Nebraska based company, offers former students consolidation of their federal or private student loans. According to the companys website, Nelnet ranks among the nation's leaders in terms of total student loan assets under management.
Overall, the company serves students in 50 states, has about 4,000 employees and touts more than $25 billion in net student loan assets as of March 31, 2007. Nelnet is the second largest loan consolidator in the country and the third largest holder of Federal Family Education Loan Program loans.
Todays settlement is a continuation of Cuomos nationwide investigation into the student loan industry. The investigation has already resulted in agreements with 11 student loan companies, including the seven largest lenders in America - Citibank, Sallie Mae, JP Morgan Chase, Bank of America, Wells Fargo, Wachovia and College Loan Corporation - as well as Education Finance Partners (EFP), CIT, National City Bank, and Regions Financial Corporation.
Sallie Mae, Citibank, EFP, CIT, Johns Hopkins University, Columbia University, Mercy College, Career Education Corporation, and now CLC have all agreed to contribute a total of $11.7 million to the National Education Fund established by Attorney General Cuomo. This fund is dedicated to educating and assisting the countrys high school students and their families about the financial aid process.
Cuomos Code of Conduct has become New York State law as the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007. Proposed federal legislation regarding the student loan industry also incorporates Cuomos Code of Conduct: the Student Loan Sunshine Act has been passed by the U.S. House of Representatives and the U.S. Senate.
