New York student loan investigation is widened

New York Atty. Gen. Andrew Cuomo said Thursday that his office has expanded a probe of whether lenders are using payments and perks to encourage colleges to steer student borrowers their way.

The office began a preliminary inquiry in November, requesting information from student lenders Nelnet Inc., Education Finance Partners, Educap and Sallie Mae, the largest provider of student loans in the United States.

Cuomo, who took over the office last month, said he expanded the probe by sending letters to more than 60 U.S. educational institutions, requesting records that detail how they develop their lists of preferred lenders.

The attorney general also said he sent requests to two more lenders: The College Board and CIT Group.

Concerned that guidance offered to students is tainted by conflicts of interests, Cuomo’s office is asking schools to disclose if there are financial relationships with lenders and if any favors were offered to individual financial aid officers.

“My office is seeking to ensure that students are being steered toward lenders offering the most competitive rates, not those who offer the best perks to schools or financial aid administrators,” Cuomo said. “When making recommendations on how to make tuition more affordable, there must be absolutely no conflict of interest at the expense of students and their families.”

Spokesmen for Sallie Mae and Nelnet separately said their companies are cooperating with Cuomo’s office. Educap did not respond to calls, and a CIT spokesman declined immediate comment. A College Board spokeswoman said the company has not yet seen Cuomo’s request for information.

The probes are the latest in a recent series of regulatory and legislative difficulties for student lenders. The U.S. House of Representatives voted last month to halve interest rates on many student loans to 3.4% over five years.

Meanwhile, U.S. Sen. Edward M. Kennedy (D-Mass.) is seeking support for a bill that would reward colleges for steering students to direct loans instead of the government-guaranteed loans provided by companies like Sallie Mae.