N.Y. Wants to Bar Lenders From Giving Perks to Colleges

New York lawmakers introduced a bill yesterday that would make New York the first state to ban student loan companies from offering perks to university financial aid officials, the latest fallout from a widening nationwide investigation of the industry.

The legislation came as the state's attorney general, Andrew M. Cuomo (D), announced that a third student loan company had agreed to a multimillion-dollar settlement to resolve his probe of its business practices. Sallie Mae, the nation's largest student loan company, and Citibank, the second-largest, have reached similar accords with Cuomo's office.

The New York bill is likely to fuel calls for federal legislation to bar many of the practices that have been revealed in the nationwide probe of the $85 billion-a-year student loan industry. Cuomo's office and congressional Democrats have been investigating the murky financial relationships among lenders, universities and government officials.

"The United States Congress should follow suit by passing legislation that protects borrowers nationwide," Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate education committee, said in a statement.

Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, said federal lawmakers "must extend these protections to students across the country, so they can be assured that their college financial aid officers are acting in their best interests."

The New York legislation -- the Student Lending, Accountability, Transparency and Enforcement Act -- would prohibit a loan company from paying travel and entertainment fees for university officials; sending its staff to work for free in financial aid offices; or operating call centers where company employees provide financial advice but identify themselves only as university advisers.

Even as he helped announced the new legislation, Cuomo also emphasized his settlement with Education Finance Partners, a San Francisco company that agreed to pay $2.5 million. Investigators concluded that the company had paid more than 60 college and universities to steer students toward its loans.

The company also agreed to alter other parts of its businesses practices by signing a code of conduct that mirrors the New York state legislation introduced yesterday. Cuomo called the agreement "a major step towards cleaning up the student loan industry for good."

Tamera Briones, the company's founder and chief executive, said in a statement that "this agreement removes the appearance of any impropriety and supports our company's goal of raising the level of education and transparency around private loan programs."

Also yesterday, Cuomo announced that his office has sent subpoenas or letters to 13 other lenders, asking them to retain records and turn over data about their practices.