Sallie Mae to Pay $2 Million in Student Loan Probe

NEW YORK – Student loan giant Sallie Mae agreed with the New York Attorney General’s office yesterday to change the marketing of its student loans and pay $2 million into a fund to educate students and parents about the financial aid industry. The settlement is part of a widening probe of payments and other inducements in the student loan business in which many colleges have created ‘preferred lender’ lists and entered revenue sharing with some lenders in exchange for steering business their way. In many case, representatives of private lenders were found to be manning call centers where college students were directed to learn about financing. Sallie Mae, once a government sponsored enterprise and now the nation’s top student lender, agreed to stop running call centers or provide other staffing for college financial aid offices, stop paying financial aid officers for serving on advisory boards, and to stop paying for trips for college loan officers. Citibank, which does business with about 3,000 schools, agreed last week to pay $2 million into the state fund. As part of the probe, six schools–University of Pennsylvania, New York University, Syracuse University, Fordham University, Long Island University and St. John’s University-- have also agreed to reimburse students $3.3 million for inflated loan prices caused by revenue sharing agreements. Sallie Mae was founded in 1972 to create a secondary market for guaranteed student loans originated by banks and credit unions, but was fully privatized in 2005 by which time it had become the nation’s largest student loan originator and manager of a student loan portfolio of more than $140 billion.