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Alumni associations' loan role studied

New York's state attorney general wants to find out if they received kickbacks from a loan consolidator.

New York Attorney General Andrew M. Cuomo is expanding his student-lending investigation by serving subpoenas on 90 college alumni associations to determine whether they received kickbacks from Nelnet Inc., a loan consolidator.

Cuomo's office is examining whether the alumni groups received, and failed to disclose, fees, including revenue-sharing payments, for steering members to Nelnet, of Lincoln, Neb., the attorney general said in an e-mailed statement.

"Unfortunately, it appears that student-loan scams don't end at graduation," Cuomo said in the statement.

Cuomo's inquiry into the $85 billion student-loan industry, conducted with more than 40 other state attorneys general, has revealed that lenders shared revenue and provided company stock and other payments to financial-aid officers and schools that recommended the companies to students and parents.

Nelnet will now disclose to individuals consolidating loans any monetary arrangements it has with alumni associations, it said in an e-mailed statement.

Nelnet's alumni partners include associations at the Juilliard School in New York, the University of Illinois, the University of California, Riverside, and San Jose State University.

In response to Cuomo's probe, 22 schools agreed to sign a code establishing student-loan guidelines. Eight agreed to reimburse students more than $3 million.

Five lenders, including Citigroup Inc., agreed to contribute a combined $6.5 million to a consumer-education fund for students and parents, Cuomo's statement said.

Nelnet, with more than $25 billion in net student-loan assets as of March 31, consolidates federal and private loans in 50 states.

Last month, the company reached an agreement with the Nebraska Attorney General's Office to abide by a code of conduct and commit $1 million toward a consumer-education program being developed by the state.

During the last several years, Nelnet entered affinity and license agreements with about 120 alumni associations that allow the company to use member lists and logos for marketing, it said in its statement.

"Nelnet has concluded that these affinity and license agreements do not constitute prohibited remuneration and are permitted under federal law," the statement said.

The federal government backs most lending to students through a variety of programs, with about 80 percent of the money routed through banks and other agencies. Lenders also make loans that are not federally backed.

Colleges and universities often list recommended, or "preferred," lenders on their Web sites and brochures to help students and families sort through their options. Preferred institutions account for 90 percent of money borrowed.

Nelnet shares rose 5 cents to close at $26.10 yesterday in New York Stock Exchange composite trading.