Lender to Pay So Students Can Learn Loan Options For Finaid

Sallie Mae, the nation's largest lender to college students, agreed Wednesday to pay $2 million to settle an investigation by the New York attorney general's office and said it would close down student call centers it has run for college financial aid offices.

The loan company, which manages student loans for nearly 10 million borrowers at more than 5,600 colleges, also agreed to adopt a code of conduct prepared by the office of the New York attorney general, Andrew M. Cuomo, who announced the settlement at a news conference in Manhattan yesterday. The code prohibits loan companies from giving gifts or trips to university financial aid administrators. It also bans arrangements in which universities are paid for loan volume.

The settlement comes just as many high school seniors are choosing where they want to go to college and are weighing financial aid packages from the institutions that have accepted them.

It is the latest in a continuing investigation into the financial relationships between student loan companies and colleges and universities, which students typically rely on for advice about borrowing.

Citibank paid a similar $2 million settlement recently, and New York University, Syracuse, St. John's and Fordham — all in New York — and the University of Pennsylvania agreed to pay more than $3.2 million to student borrowers who had received loans from companies that paid money to the institutions based on the loan volume they delivered.

But Sallie Mae, which began as a government-sponsored enterprise that bought student loans from banks before it expanded and became fully private, is the giant of the field with a $142 billion loan portfolio.

In a statement on its Web site, Sallie Mae said it had "cooperated with this inquiry since its inception, and, as the industry leader, we have been confident throughout that our policies and procedures would stand tall."

Mr. Cuomo said Sallie Mae had paid for entertainment and travel for financial aid administrators, paid them for serving on advisory boards and had run call centers for about 20 university aid offices in which students' questions were shuttled to Sallie Mae operators. The company's call center operators in the future will identify themselves as Sallie Mae employees, Mr. Cuomo said.

A Sallie Mae spokesman, Tom Joyce, said the company would no longer market the call center service and would end such existing relationships with colleges over the next 18 months.

The 20 universities include Pace University and Mercy College in New York City and Texas Tech and Wayne State University.

Sallie Mae also agreed to disclose, upon request of colleges, the interest rates actually charged to students.

"The ultimate success of these student loan investigations will be measured by the degree to which they result in cheaper college loans," said Michael Dannenberg, director of the education policy program at the New America Foundation, a Washington public policy institute.

Sallie Mae must certify compliance with the terms of the settlement by Aug. 15.

Besides the settlements, financial aid directors at six universities and one federal Education Department employee have been put on leave after the disclosure of various kinds of financial arrangements, including stock ownership and consulting deals, with lenders.

The revelations have sent ripples of concern through colleges and universities. Robert M. Berdahl, president of the Association of American Universities, wrote in an e-mail message to members this week, "Given the current media environment, even if you find that your student aid office is doing nothing illegal, you should also ask if your student loan business arrangements, policies and practices can stand the test of full public disclosure."

Some high school counselors say students are not showing much concern as they choose their colleges.

"I don't think they've paid all that much attention to it," said Bob Sweeney, a school counselor at Mamaroneck High School in New York. "All they care about is that they got in, and they're celebrating that."