Student Loan Giant Settles with New York State

Apr 11, 2007 12:57pm

Sallie Mae, the nation’s largest provider of federal student loans, has arrived at a settlement with New York State Attorney General Andrew Cuomo, who has shaken up the industry through a probe of questionable business practices, according to officials in Cuomo’s office. The company, which holds over $132 billion in student loans, admitted no wrongdoing but agreed to place two million dollars in a fund to educate students on how to make good loan choices, the officials said.  Nearly ten million students at 5,600 institutions get their loans through Sallie Mae. The news follows two tumultous weeks for the student loan industry, which has already seen the suspension of three top college loan officials. Just yesterday, an aggressive smaller lender, Student Loan Xpress, replaced its entire top management after news broke that the company had paid consulting fees and granted special stock options to college officials responsible for advising students of their loan options. Click Here for Full Blotter Coverage. Sallie Mae is the second large institution to agree to a settlement with the New York attorney general.  Citi Group’s student loan operation, which services 3,000 institutions, made a similar deal earlier this month. Several universities have also arrived at settlement agreements with Cuomo’s office, which has aggressively pursued wrongdoing in the student loan industry. Many of those agreements included a promise of cash back to students from fees earned by the schools from steering loans to banks. The practice of lenders giving inducements to school financial aid officers is at the center of the investigation. Six financial aid officers have so far come within the scope of the investigation for accepting cash, stock and stock options ranging in value from several thousand to as much as 100,000. At least one federal government education official is also under investigation.

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