Sallie Mae settles student loan probe

ALBANY, N.Y. – 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, after Citibank.