Image: Andrew Cuomo
Lauren Victoria Burke  /  AP file
New York Attorney General Andrew Cuomo Cuomo is asking whether the alumni groups that endorsed loan consolidation companies received any benefit or payments from lenders.
updated 5/3/2007 8:25:59 PM ET 2007-05-04T00:25:59

New York Attorney General Andrew Cuomo has broadened his student loan investigation to alumni associations nationwide that steer students to loan consolidation companies.

Cuomo issued 90 subpoenas and letters to alumni groups, including those representing graduates from The Juilliard School in New York, the University of Illinois, the University of California at Riverside and San Jose State University, Cuomo said.

All the groups had agreements or relationships with lender Nelnet, based in Lincoln, Neb., he said.

Cuomo is asking whether the alumni groups that endorsed loan consolidation companies received any benefit or payments from lenders. Cuomo also wants to determine whether students were informed of any benefits paid to an association before they chose Nelnet.

“Unfortunately, it appears that student loan scams don’t end at graduation,” Cuomo said. He has released no information on any of the relationships.

Loan consolidation allows borrowers to repackage debt — often held by several banks or lenders and covering undergraduate and graduate studies at different schools — into a single loan.

Nelnet said it has agreements with 120 alumni groups that are legal under federal law.

“Nelnet has concluded that these affinity and license agreements do not constitute prohibited remuneration and are permitted under federal law,” according to the lender’s statement.

The company said it uses member lists to market its consolidation loans and uses the alumni association’s logo. Nelnet pays the alumni group a fixed or annual fee for each loan. Nelnet said alumni associations don’t recruit customers.

The company said it was surprised by Cuomo’s announcement because it has been cooperating with the attorney general.

Juilliard counsels students on how to get the best rates and doesn’t highlight Nelnet, said school spokeswoman Janet Kessin.

“An affinity relationship with Nelnet was established in 2004 via Juilliard’s Alumni Office with the sole intention of benefiting alumni of the school,” she said, noting the school received a subpoena and is cooperating with Cuomo.

Kris Lovekin, spokeswoman for the University of California at Riverside, said alumni association members have lots of choices about services and “there is no pressure for them to choose the preferred provider.”

The private, nonprofit alumni association competitively bid the contract won by Nelnet to become the sole preferred lender, but she was unsure whether that bid assured the lowest rate for alumni, Lovekin said. The alumni group gets a royalty as a result, but the group couldn’t release details of that because it signed a confidentiality agreement with Nelnet, she said.

“All of the University of California’s rules have been abided by,” Lovekin said. “We’ve been upfront about all the details.”

No University of California school has received gifts or stock from Nelnet, she said.

Cuomo said the lender’s alumni partners include associations at The Juilliard School, Niagara University, Le Moyne College, Manhattan College, City College, Iona College and the State University of New York colleges at Buffalo, Cortland, Fredonia and Upstate Medical Center. Nationwide, Nelnet’s partners include groups associated with graduates of San Jose State University, the University of California at Riverside, James Madison University, Old Dominion University and the University of Illinois.

In April, Nelnet acknowledged it made “very small” mistakes in some dealings with colleges. The company paid $4,800 to Western Illinois University for referring students to the company for private loans and gave two financial aid officers at an unidentified school in Albany, N.Y., plane tickets to travel to New York City for a “theater event,” the Nebraska attorney general’s office said.

Nelnet serves students in 50 states and has $23.8 billion in net student loan assets, according to the company’s Web site.

Cuomo had previously targeted lenders and colleges in the $85 billion college loan industry. He said he found some colleges received a percentage of loan proceeds — he calls them “kickbacks” — from lenders granted preferred status by the schools. And, according to Cuomo, some college loan officers have received trips to luxury resorts and gifts from lenders.

Twenty-one schools have so far agreed to operate under a code of conduct that bans gifts and revenue sharing agreements. Eight schools have agreed to reimburse students a total of more than $3 million.

Attorneys general nationwide and the U.S. Education Department are also investigating the student loan industry and Congress is seeking reforms.

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