Senate Report Details Relationships Between Student Lenders, Colleges

Sen. Edward M. Kennedy is probing the student-loan industry. (Brendan Smialowski - Getty Images)

Student loan originator Nelnet paid about $1 million to two college alumni groups in exchange for exclusive referrals, according to a Senate report.

Nelnet of Lincoln, Neb., paid nearly $1 million to an alumni group at the University of Nebraska and $141,000 to a group at Georgia State University.

The transactions "improperly constrained" financial aid officers, who were not able to offer students unbiased guidance, according to the report, released yesterday by Sen. Edward M. Kennedy (D-Mass.), chairman of the Health, Education, Labor and Pensions Committee.

The report stemmed from Kennedy's requests for documents to 16 student lenders that represented 72 percent of outstanding federally guaranteed student loans last year. Kennedy is probing whether the lenders, including SLM of Reston, known as Sallie Mae, offered compensation to schools for preferential treatment.

"The findings of the report underscore the urgent need for reform of the student loan system," said Kennedy in a statement released with the report.

The report also said that the financial aid director at the University of Southern California accepted Rose Bowl football tickets from Citigroup's Citibank, while a Sallie Mae subsidiary provided Boston Red Sox tickets for Fairfield University in Fairfield, Conn.

Nelnet also sponsored the University of Maryland's Maryland Day, paying $50,000 and then asking to become a preferred lender. The school later rejected the request.

Sallie Mae sought preferential treatment in exchange for increasing the number of opportunity loans for low-income students, according to the report. While that form of lending has a 70 percent default rate, the report said, the lenders eat the losses in order to benefit from access to profitable business.

Nelnet settled with New York Attorney General Andrew M. Cuomo in July, paying $2 million toward an informational campaign and stopping payments to alumni associations. Kennedy, Cuomo and other officials have investigated ethical entanglements between lenders and schools.

Nebraska's alumni office no longer works for or receives funds form Nelnet, said communications director Andrea Cranford.

Some companies in the $85 billion-a-year loan industry made undisclosed arrangements to provide colleges or their staffs with payments, consulting contracts, company shares and other perks, the inquiries have found.